Quick answer: An energy audit or efficiency study of your own plant is on the excluded list — "management studies or efficiency surveys" cannot be core R&D activities under s 355-25(2)(c) of the ITAA 1997, and business.gov.au gives "the energy efficiency of a business" as an example. What may be eligible is different: a hypothesis-driven experiment on a heat pump, electrode boiler or fuel-substitution retrofit whose behaviour on your feedstock and duty cycle a competent professional could not determine in advance. You self-assess, and confirm your tax position with your registered tax agent.
As at 27 July 2026, the Australian Government had announced reforms to the R&D Tax Incentive in the 2026–27 Federal Budget, intended to apply to income years starting on or after 1 July 2028. Until those changes take effect, the program continues to operate under the current legislation, and we cover the announced measures in [the proposed $50,000 Budget measure](/registered-research-service-provider/budget-2026-reforms-50000-threshold).
Most manufacturers under a decarbonisation mandate arrive at the same place: a consultant's report ranks the boiler, dryer and oven by abatement cost, recommends electrifying the steam loop, and the board pack adds a line about "the R&D tax incentive potentially offsetting some of this".
That last line can create eligibility risk — not because decarbonisation work is never R&D, but because the report itself is the clearest example of an activity Parliament excluded. Two very different pieces of work sit inside one project, and only one is even assessable as core R&D. We are an RSP, not a registered tax agent.
The exclusion that decides the question
Core R&D activities are experimental activities whose outcome "cannot be known or determined in advance ... but can only be determined by applying a systematic progression of work" that proceeds "from hypothesis to experiment, observation and evaluation, and leads to logical conclusions" (s 355-25(1), ITAA 1997).
Section 355-25(2) then lists activities that are not core R&D however well they meet that description. Paragraph (c) is short and, here, decisive: "management studies or efficiency surveys".
business.gov.au explains the limb on its excluded R&D activities page: it catches activities that "collect and evaluate information to help you to make decisions about the operations of your business", and the first example it gives is measuring the energy efficiency of a business. A site energy audit, a benchmarking study or an abatement-cost curve is therefore excluded from being core R&D — however technical the methodology, however large the invoice.
The same page draws the boundary from the other side, and that is where the topic turns. The exclusion does not extend to studies "unrelated to business or operational management" conducted as part of a systematic progression of work — for example, measuring "the physical efficiency of a new or improved product or process that you develop".
So the question is not is this about energy efficiency but whose efficiency, and for what. Measuring your plant to decide what to buy: excluded. Measuring a process you are developing, against a hypothesis: potentially core R&D. Our what does not qualify note covers the wider list.
Where the audit stops and the experiment starts
Once the audit is out, is anything left? Often not — a legitimate result, not a failure. Specifying a 3 MW air-source heat pump for a 65 °C wash-down duty from vendor curves is competent engineering: a competent professional could determine the outcome in advance. No experiment.
The same applies to scale-up. The department's conducting core R&D activities page says scale-up applying existing knowledge "generally do not qualify as core R&D activities because their outcome could be reasonably determined in advance", and that uncertainty "resolved by selecting from available options through trial and error (rather than testing a hypothesis through experimentation)" will not qualify.
That is why routine commissioning and routine set-point tuning generally are not core: nudging parameters until throughput recovers is selecting from available options, not a systematic progression of work. But "routine" carries the weight. Where commissioning is itself the vehicle for testing a genuinely unresolved technical question, and runs from a stated hypothesis through systematic progression to evaluation and conclusions, it may contain a candidate core activity. The label on the schedule does not decide it; a real unknown and an experimental design do — which, in a retrofit, usually means the interaction between a known technology and your material and duty cycle.
ActivityLikely treatment (self-assess)Energy audit, benchmarking, abatement-cost curveExcluded from core under s 355-25(2)(c); may be supportingVendor selection, business case, sizing from published dataGenerally not coreRoutine commissioning; routine set-point tuning by trial and errorGenerally not coreCommissioning designed as the experiment, testing an unresolved question by hypothesis and systematic progressionCandidate coreInstrumented trial of a heat pump on a fouling stream where degradation is not predictableCandidate coreTesting a hypothesis on product quality under a different heat-transfer profileCandidate coreTest rig or bypass loop built only for those experimentsCandidate supporting, if directly related and the dominant-purpose requirement is met
Every row is a candidate, not a conclusion — you self-assess on your facts.
Running the experiment on a live production line
Most SME manufacturers cannot build a pilot plant; the trial happens on the line making product on Tuesday. Two requirements follow.
First, the experiment must be separable from ordinary operation. A supporting activity must be directly related to a core R&D activity; and where it is excluded from being core, or produces goods or services, it qualifies only if undertaken for the dominant purpose of supporting core R&D (s 355-30(2)). business.gov.au describes dominant purpose as your "prevailing or most influential purpose", and asks "whether your activity goes beyond activities you would have conducted if you did not conduct your core R&D activities" (conducting supporting R&D activities). A production run you would have done anyway does not become supporting because you logged the kilowatt-hours.
**Second, expenditure is notionally deductible only to the extent that it is incurred on registered R&D activities (s 355-205(1)).** On a shared asset that is a measurement problem, and a live line does not measure itself.
So write the protocol first: a hypothesis with a defined technical unknown; control periods on the incumbent configuration; a sampling plan covering the process stream, not merely the meter; predefined acceptance criteria; and a run register stamping every batch as control, experimental or ordinary production. Record failed runs as carefully as successful ones.
Worked example: a South Australian food processor (illustrative only)
A mid-size SA processor runs a gas-fired steam system serving an evaporator and CIP loop. The consultant recommends a high-temperature heat pump recovering waste heat from high-solids effluent. Figures are illustrative, not a promise of any benefit.
Audit and business case — $95,000. Excluded core under s 355-25(2)(c): it measures the energy efficiency of the business to inform an investment decision. Whether any part qualifies as supporting depends on whether it is directly related to a core R&D activity and undertaken for the dominant purpose of supporting that activity.
Equipment procurement and installation — $2.4m. The acquisition and installation are not core R&D activities, and the full cost of a depreciating asset is not directly deductible as R&D expenditure. However, an eligible decline-in-value amount may arise to the extent that the asset is used for registered R&D activities.
The experimental campaign — $260,000. Engineer and technician time on the trial runs, plus laboratory analysis of fouling and product quality. The unknown is genuine: no accessible data predicts coefficient-of-performance decay for this effluent chemistry at this solids loading over a season, or how the changed heat-transfer profile affects product colour and yield. Candidate core.
Directly related supporting activities —$50,000 of assumed eligible notional deductions. This includes trial-specific costs and any applicable decline-in-value amount for the bypass loop and temporary instrumentation. The activities are candidate supporting activities if they are directly related to the core activity and satisfy the dominant-purpose requirement.
Post-trial set-point optimisation — $40,000. Once the trial has answered the technical question, tuning the plant to that answer is routine and generally not core. The exception is the same as for commissioning: if a further genuinely unresolved question emerges and is attacked by hypothesis and systematic progression, it is assessed on its own merits.
Assuming the full $260,000 and $50,000 give rise to eligible notional R&D deductions, the illustrative total is $310,000. The remaining project costs do not automatically form part of that amount, although an eligible decline-in-value deduction may arise for assets used in the registered R&D activities.
If the company has aggregated turnover under $20 million, is not controlled by income-tax-exempt entities and is a 25% base-rate entity, the current refundable offset rate is 43.5%. Applied to assumed eligible notional deductions of $310,000, the illustrative offset is $134,850, subject to any applicable adjustments.
Two rules with their own articles can affect the result: the feedstock adjustment in s 355-445, where the statutory conditions are met and products are supplied to another entity or applied to the company’s own use; and the recoupment clawback rules where a qualifying government grant or reimbursement relates to expenditure taken into account in calculating the R&D tax offset. (renewable energy).
Where an RSP fits, and the $20,000 threshold
A documented protocol—setting out a clear hypothesis, control conditions and a measurement plan before trials begin—can help distinguish a potentially eligible experimental activity from an excluded efficiency survey. A Registered Research Service Provider may assist with planning and conducting the research activities and establishing contemporaneous evidence. Ignition Research is RSP000047, based at Lot Fourteen in Adelaide (Adelaide), provides specialised research support in these areas.
Total notional R&D deductions for the income year must generally be at least $20,000 (business.gov.au), and a first retrofit trial may fall short. Per business.gov.au's get help from a research service provider page, RSP-conducted eligible R&D activities can be claimed even where the usual $20,000 R&D expenditure threshold is not met — the mechanism is s 355-100(2) ITAA 1997, and it is narrow. Where total notional deductions are below A$20,000, the offset base is generally limited to qualifying expenditure incurred to a non-associate RSP for services within a field for which it is registered, together with eligible CRC Program contributions. Other in-house amounts do not automatically form part of that below-threshold offset base. And using an RSP does not guarantee eligibility — you still self-assess. More in claiming R&D under $20,000.
The Australian Government announced reforms to the R&D Tax Incentive in the 2026–27 Budget, intended to apply to income years starting on or after 1 July 2028. Until those changes take effect, the program continues to operate under the current legislation. See our dedicated Budget update for the announced measures and their status.
Frequently asked questions
Q: Is an energy audit eligible for the R&D Tax Incentive? A: Generally no as a core R&D activity — "management studies or efficiency surveys" are excluded by s 355-25(2)(c), and business.gov.au gives measuring "the energy efficiency of a business" as an example. It may still be supporting if directly related to a core activity and conducted for the dominant purpose of supporting it.
Q: Can a manufacturer claim decarbonisation work as R&D? A: Parts of it may be. Selecting, sizing and installing known equipment, and the study that justified it, are generally not core R&D. An instrumented, hypothesis-driven trial whose outcome a competent professional could not determine in advance may be a candidate core.
Q: Is commissioning always outside the R&D Tax Incentive? A: No. Routine commissioning and routine set-point tuning generally are not core, because trial and error among available options is not a systematic progression of work. But where commissioning is itself testing a genuinely unresolved technical question, by hypothesis and systematic progression, it may contain a candidate core activity. Document the unknown and the method first.
Q: Can we claim trials run on our existing production line? A: Potentially. The experimental activities and associated expenditure must be distinguishable from ordinary production. Supporting activities that produce goods or services must satisfy the dominant-purpose requirement, and expenditure must be apportioned to the extent it relates to registered R&D activities. Contemporaneous run records can help substantiate that distinction.
Sources & further reading
business.gov.au — Excluded R&D activities
business.gov.au — Conducting core R&D activities
business.gov.au — Conducting supporting R&D activities
business.gov.au — Check if you are eligible
business.gov.au — Get help from a research service provider
ato.gov.au — Rates of R&D tax incentive offset
legislation.gov.au — ITAA 1997, Div 355 (ss 355-25, 355-30, 355-100, 355-205, 355-440 to 355-450)
Related: what does not qualify · renewable energy · under $20,000 · refundable vs non-refundable · Budget update
Talk to Ignition Research before commissioning the trial. Early planning can help establish the hypothesis, control conditions and contemporaneous evidence needed to distinguish experimental activities from an excluded efficiency survey. As an RSP, we provide research capability, not tax advice. Get in touch.
This article is general information from a Registered Research Service Provider about the R&D Tax Incentive. It is not tax, legal or financial advice; eligibility depends on your circumstances and you should self-assess and seek your own advice.
