R&D Tax Incentive: Gambling and Tobacco Eligibility Exclusions Explained
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Primary tax-year context: 2025-26
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General information only. This is not tax or financial advice. Consult a registered tax agent for advice specific to your situation.
In a Treasury ministers release dated 8 December 2025, the Government published exposure draft legislation to exclude entities in the gambling and tobacco manufacturing industries from the R&D Tax Incentive (RDTI). The proposed changes are framed as a public health policy measure and would apply broadly from 1 July 2025, with a narrow carve-out for R&D undertaken solely for harm minimisation purposes.
What the R&D Tax Incentive is
The RDTI provides a tax offset for eligible R&D activities — experimental work that involves genuine unknowns and a systematic approach to generating new knowledge. Two rates apply:
- 43.5% refundable tax offset for companies with aggregated turnover under $20 million. If the offset exceeds the company’s tax liability, the difference is paid as a cash refund.
- 38.5% non-refundable tax offset for companies with aggregated turnover of $20 million or more. Unused offset amounts can be carried forward.
The RDTI is jointly administered by the ATO and AusIndustry (now part of the Department of Industry, Science and Resources). Companies register their R&D activities with AusIndustry and then claim the offset in their income tax return.
What the proposed exclusion covers
Under the draft legislation, an entity whose ordinary or statutory income is wholly or predominantly derived from gambling activities or tobacco manufacturing would be ineligible for the RDTI from 1 July 2025.
The exclusion is entity-level, not activity-level. This distinction matters: it is not that gambling-related R&D projects are disallowed while other projects proceed. If the entity meets the exclusion test, all of its R&D activity is excluded from the incentive — including projects that have nothing to do with gambling or tobacco.
The harm-minimisation carve-out
Draft legislation includes a carve-out for R&D conducted solely for harm minimisation purposes — for example, research into problem gambling detection tools or tobacco cessation products. The precise boundary of this carve-out will depend on the enacted wording and any ATO guidance that follows. Entities seeking to rely on the carve-out should document the harm-minimisation purpose clearly and contemporaneously, rather than relying on a characterisation applied retrospectively at lodgment time.
Why this matters operationally
For most R&D claimants, this change has no direct impact. The gambling and tobacco sectors represent a small share of total RDTI claims by number and value. However, for entities in those sectors, the impact is significant:
- Full loss of offset eligibility — there is no partial disallowance. An entity that is excluded cannot claim any RDTI offset for the year.
- Effective backdating to 1 July 2025 — the draft legislation proposes that the exclusion applies from the start of the 2025–26 income year, meaning entities in scope may have been ineligible for the full year even before the legislation passed.
- Claim amendments and reviews — entities that have already lodged 2025–26 returns relying on the RDTI may need to amend. This also affects risk settings for amended claim reviews by the ATO and AusIndustry.
Current status
As of the date of this article, the measure is at exposure draft stage. It has not been introduced as a bill and has not received Royal Assent. Consultation on the draft legislation closed in early 2026. Entities affected by the proposed changes should monitor the bill’s progress and seek advice from a registered tax agent or R&D specialist before lodging or amending claims.
Practical steps for affected entities
- Re-map your R&D project inventory against the exclusion categories. Determine whether your entity would be characterised as deriving income predominantly from gambling or tobacco manufacturing.
- Assess the harm-minimisation carve-out for any projects that could qualify. Document the purpose of those projects in contemporaneous records — project plans, board minutes, or experimental design documents.
- Hold off on lodgment or amendment for 2025–26 RDTI claims until the legislation is enacted and you have current advice on its application to your circumstances.
- Review prior year claims if your entity structure has changed in a way that might bring you into scope — for example, an acquisition of a gambling business that now makes gambling the predominant income source.
- Update governance documentation — internal sign-off checklists and eligibility assessments should be updated to include the new exclusion test once law is finalised.
Broader RDTI context
The exclusion sits within a broader pattern of the Government tightening RDTI eligibility over recent years. Earlier changes included the introduction of the $150 million expenditure cap for large companies and the removal of software development from the “core R&D” definition in certain contexts. The gambling and tobacco exclusion follows the same direction — narrowing the program’s scope on policy grounds rather than technical R&D eligibility grounds.
For entities not in these sectors, the RDTI rules are otherwise unchanged for 2025–26.