Quick answer: Building offsite instead of onsite is a change of construction method, not by itself an experiment. Under s 355-25 of the ITAA 1997 a core R&D activity requires an outcome that could not be known or determined in advance on the basis of current knowledge, information or experience and could only be determined by applying a systematic progression of work based on principles of established science, conducted for the purpose of generating new knowledge. In a modular or DfMA project a candidate core activity may concern a connection, a module interface, a panel build-up or another detail whose achievable structural, acoustic, fire or weathertightness performance could not be known or determined in advance and required a systematic progression of experimental work to resolve. Eligibility attaches to specific experimental activities, not to component types or to the delivery method. You self-assess.
7 August 2026 — this article describes the current rules. The 2026–27 Federal Budget announced proposed R&DTI reforms for income years starting on or after 1 July 2028. Until any amendments take effect, the R&DTI continues to operate under the current rules.
A recurring proposition we hear from prefabrication businesses in South Australia runs like this: nobody has built this particular thing this particular way before. Volumetric modules stacked higher than the factory has attempted. A panelised system reconfigured for a new client typology. A design-for-manufacture-and-assembly (DfMA) programme moving most of the labour hours off a muddy site into a shed at Edinburgh or Wingfield.
The R&D Tax Incentive does not test for novelty, difficulty, cost or commercial courage. It tests whether the outcome of an activity could be known or determined in advance and whether it was resolved by a systematic progression of work. Documenting the unknown and the boundary of the experimental work before production begins reduces later reliance on reconstructed narratives and project-level allocations.
Novelty to Your Business Is Not Technical Uncertainty
Section 355-25 of the ITAA 1997 carries two limbs. First, the outcome could not be known or determined in advance on the basis of current knowledge, information or experience, and could only be determined by applying a systematic progression of work that is based on principles of established science and proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions. Second, the activity is conducted for the purpose of generating new knowledge (business.gov.au). The established-science requirement does real work in construction: structural mechanics, building acoustics, fire and hygrothermal performance are established sciences, so a build-test-adjust loop run on the factory floor without that grounding — trialling variants until one passes — is unlikely to meet the test however disciplined the record looks. Read that against the propositions modular builders most often lead with:
"We have never built it this way before": Novelty to the entity. The reference point in the provision is current knowledge, information or experience — including what a competent professional in the field could find out.
"Nobody in Australia does volumetric at this scale": A market-position statement, which can be accurate and still say nothing about whether an outcome was determinable in advance.
"There was enormous risk in the programme": Schedule, cost and client risk can sit alongside technical uncertainty without being evidence of it.
The narrower question is whether a specific technical performance could not be predicted from published data, standard design methods, supplier information or the company's own prior work, and whether a systematic progression of work was run to find out.
Where an Unknown Outcome Can Sit: The Interfaces
Modular systems introduce repeated transport, lifting and inter-module interfaces that must preserve several performance functions at once — structural continuity, acoustic and fire separation, the weather line — across factory and installation tolerances, often with no access once the module is landed. Those interfaces are where an outcome is most often genuinely undetermined.
More likely to contain a core R&D activity
Ordinarily not core R&D
A connection detail whose structural behaviour under combined actions, with realistic tolerance stack-up, could not be determined from existing data or standard design methods
Applying a published or proprietary connection system within its stated design envelope
A module interface required to deliver structural continuity and acoustic discontinuity at the same point, where the achievable trade-off has no reliable predictive basis
Detailing a separation already demonstrated by a supplier's tested system
A panel build-up — new material combination, layer sequence or fixing method — whose fire, thermal or acoustic performance could not be predicted from the components' individual data
Substituting a like-for-like product into a build-up with an existing performance pathway
Weathertightness at a stacked or blind cavity created by the modular geometry, where no established detail exists and behaviour under driving rain or differential movement is undetermined
Adapting a standard flashing or cavity detail to a new plan layout
Two limits on the left column. An unusual material or method does not create uncertainty where the performance was derivable from existing knowledge and the work was about execution. And where testing was undertaken to demonstrate compliance with a statutory requirement or standard, s 355-25(2) excludes that activity from being a core R&D activity — certification testing is treated separately in our Insights.
First-of-a-Kind Factory Setup
The most common over-reach in prefabrication is the factory itself: a new line, new jigs and tooling, a new BIM-to-machine workflow, commissioning, ramp-up, the first modules that came out wrong. Iteration is not the test. Where the outcome was achievable and the difficulty lay in setup and refinement, that is production engineering.
A supporting R&D activity is directly related to a core R&D activity; and where the activity is of a kind excluded from being a core activity, produces goods or services, or is directly related to producing goods or services, it must also be undertaken for the dominant purpose of supporting a core R&D activity — the second limb in s 355-30 (business.gov.au). A line making saleable modules produces goods, so that limb is in play.
Jigs, tooling, commissioning and ramp-up undertaken for ordinary production purposes are generally production activities rather than core R&D. Where particular activities are directly related to a core R&D activity, they should be assessed separately under the supporting-activity rules.
A Worked Example: An Inter-Module Connection at a Reduced Cavity
Hypothetical and illustrative. The facts below show what the documentation of such an investigation looks like; they are not a statement that the activity would be eligible, and the company self-assesses.
Baseline: An Adelaide modular builder has a steel-framed volumetric system with a proprietary corner casting, used previously on three-storey stacks. Acoustic separation between sole-occupancy units came from an isolated double floor/ceiling with a 320 mm inter-module cavity and no structural bridge across it.
What changed: A five-storey residential project sits under a planning height limit that leaves 180 mm of cavity. At that depth the tie between modules passes through the separation rather than around it, so the structural load path and the acoustic isolation share one detail.
The unknown and how the target was set: Whether a bearing and tie arrangement exists that carries the corner tie force and interstorey drift demand while achieving an internal design target of Rw + Ctr 55 for the floor/ceiling assembly — five points above the Rw + Ctr 50 Deemed-to-Satisfy benchmark assumed for this illustrative Class 2 residential floor assembly under NCC 2022. Supplier data covered the bearings and the casting individually but not the combined detail at 180 mm, and the finite element model showed the structural bridge governing low-frequency transmission through a contact area that varies with build tolerance.
Held and varied: Held: module frame section, floor cassette build-up, casting footprint, factory frame tolerance of ±3 mm. Varied: bearing type (continuous steel shim versus discrete elastomeric pads), pad stiffness across three grades, contact area, and whether the tie was a continuous rod or a bolted plate engaging after a defined slip. Specimens were tested at nominal alignment and re-shimmed to represent a cumulative installation offset of up to 12 mm across five levels.
1. Specimen 1 — continuous steel shim, full contact: Structural transfer met; airborne performance fell roughly 6 points short of target, concentrated below 200 Hz. This ruled out a full-contact steel bearing at 180 mm and located the problem in contact area rather than the cassette build-up.
2. Specimen 2 — four discrete elastomeric pads, medium grade: Target met at nominal alignment. Re-shimmed to the 12 mm offset, one pad lost most of its contact area, the tie loaded eccentrically and measured transfer moved outside the assumed distribution. This ruled out the four-point layout across the tolerance range and reframed the question from material to tolerance.
3. Specimen 3 — eight smaller pads with a bolted tie plate engaging after slip: Held both measures across the offset range tested.
Conclusion reached: Within the range tested, an arrangement exists that holds both functions at 180 mm, but the governing variable was contact area across the installation tolerance, not pad material. Two candidate geometries were abandoned on the way.
Where the boundary falls: For this illustrative example, the candidate experimental activity is documented from the point at which the technical unknown, hypothesis and test approach are established through to the evaluation and conclusion reached from the experimental work. Outside it: planning, documentation, the standard modules, procurement, transport, install sequencing, client variations and certification testing. This analysis confines the potential experimental activity to the connection investigation; the company must separately self-assess registration and expenditure. Our property and construction overview covers other build types, and what does not qualify collects the exclusions.
What the Record Has to Do
Modular businesses document heavily — shop drawings, ITPs, NCRs, QA sign-offs, lift studies. Almost none of it evidences an experiment, because it records what was made and whether it conformed, not what was undetermined and how it was resolved. AusIndustry expects records showing that the registered activities happened as described and meet the legislated definitions (business.gov.au). Four things in this discipline are worth setting up before the first specimen is cut:
Separate design-for-delivery from design-of-experiment by artefact: The same engineers work on both, often in the same model file on the same day. What distinguishes them is the output: the production model advances the building, while the investigation has its own test plan, specimen register, results log and decision record, versioned independently. If a geometry change can only be explained by a client variation or a programme date, it belongs to delivery.
Document the experimental period: Contemporaneous records of the technical unknown, prior-knowledge assessment, hypothesis and evaluation approach can help evidence when the experimental work commenced. Records of the conclusion reached or a decision to abandon the line of inquiry can similarly help evidence when that experimental phase concluded.
Record when a specimen stops being a specimen: Test assemblies are frequently built to structural quality and then installed in the building. Record the disposition of each specimen and the trial that closed the question, because the same object can be a test article on one date and a production unit on another.
Make the technical record and the time record reconcilable: Specimen IDs and test dates should be traceable to the hours and costs booked against them — a distinct cost code opened for the test programme at its start, task-level timesheet narratives, and a recorded basis for splitting mixed engineer hours. The failure mode we see most is asymmetry: a detailed engineering record with no time trail, or costs held at project level with nothing linking them to the tests. How those costs are treated is a matter for the company and its registered tax agent.
Where an RSP Fits
AusIndustry describes Research Service Providers as organisations registered to provide scientific or technical services to companies conducting R&D, in specific fields of research (business.gov.au). For a prefabrication business, an RSP may assist with experimental design, technical R&D work and contemporaneous supporting records within the research fields for which it is registered. Earlier involvement can help ensure that the technical question, hypothesis and experimental approach are documented as the work progresses.
There is also a threshold point for smaller manufacturers. R&D expenditure for an income year must generally reach $20,000, qualifying expenditure incurred to a non-associate RSP may still form part of the offset where total notional deductions are below the usual $20,000 threshold — the substituted base in s 355-100(2) of the ITAA 1997 covers expenditure to a non-associate RSP for services in a field for which it is registered, together with eligible CRC Program contributions. See claiming R&D under $20,000. Using an RSP does not guarantee eligibility — you still self-assess, and an RSP supplies research capability, not tax advice. Offset rates, tiers and how they are calculated are covered in refundable vs non-refundable.
Frequently Asked Questions
Q: Is modular or prefabricated construction eligible for the R&D Tax Incentive?
A: Not as a category. Offsite construction is a delivery method, and choosing it is a commercial decision. Eligibility attaches to specific activities assessed against s 355-25 and s 355-30 of the ITAA 1997, usually a narrow experiment inside a much larger project. You self-assess.
Q: Does "we have never built it this way before" count as technical uncertainty?
A: Not by itself. The statutory reference point is whether the outcome could be known or determined in advance on the basis of current knowledge, information or experience — including what a competent professional in the field could reasonably find out. Difficulty, programme risk and being first to market are not substitutes.
Q: Is designing a new inter-module connection an eligible R&D activity?
A: It may be, where the achievable performance of that detail could not be predicted from existing knowledge, supplier data or standard design methods and could only be established by a systematic progression of testing from a stated hypothesis. Applying a documented system within its published design envelope, or testing undertaken to demonstrate compliance with a statutory requirement or standard is a different position and may fall within the specific s 355-25(2) exclusion from core R&D.
Q: Is setting up a prefab factory or production line an eligible R&D activity?
A: Tooling, jigs, commissioning and ramp-up undertaken to establish or improve ordinary production capability are generally production activities rather than core R&D. They may be supporting R&D activities where directly related to a genuine core activity — and, because they produce goods or are directly related to producing goods or services, only where undertaken for the dominant purpose of supporting it under s 355-30.
Sources & Further Reading
legislation.gov.au — Income Tax Assessment Act 1997 — Div 355, incl. ss 355-25, 355-30 and 355-100
Related: R&D for property and construction · what does not qualify · refundable vs non-refundable · what an RSP is · claiming R&D under $20,000
Talk to Ignition Research if you are planning modular, panelised or DfMA experimental work and need technical R&D support. As a Registered Research Service Provider at Lot Fourteen in Adelaide, we assist with experimental design, technical R&D work and contemporaneous supporting records within our registered RSP scope. We do not determine R&DTI eligibility or provide tax advice: your company self-assesses and remains responsible for its own claim, with tax advice and lodgement handled by your tax adviser. 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.
Thinking about a project like this?
If you're weighing up an AI, software or technical improvement project and can't tell yet whether it's implementation or research, start with a quick read on where it sits.