Most Australian founders who push into the US want the same thing: keep building and owning the technology in Australia, keep claiming the R&D Tax Incentive on that work, and sell into the US on top. That’s entirely doable. But it’s easy to structure an expansion, and a Delaware flip in particular, in a way that quietly breaks the incentive, and the ATO is actively looking at exactly the arrangements a careless flip tends to create.

In this article, we walk through why the incentive survives a US expansion at all, the trap that actually bites, how to structure it so it doesn’t, and the turnover cliff that catches founders even when the eligibility itself is fine.

Why it survives the move at all

The R&D Tax Incentive is claimed by the company that does the R&D, not by the group. As long as that company, your AusCo, stays an Australian-incorporated, Australian-resident company that actually conducts the eligible R&D, incurs the cost, and does that R&D for its own benefit, it remains an eligible R&D entity. A US parent sitting on top as the holding, fundraising and sales entity doesn’t, by itself, change that. So the model founders want, develop here and sell there, is the natural and supported outcome. It just has to be built on purpose.

The trap that actually bites

The incentive has two conditions that an expansion puts under pressure. The R&D has to be conducted “for the R&D entity” (section 355-210 of the Income Tax Assessment Act 1997), and the entity’s expenditure has to be genuinely “at risk” (section 355-405).

The danger is that the structure turns your AusCo into a contract development shop for the US parent. If the US entity ends up owning the IP and the AusCo merely performs the development for it, funded by a cost-plus service fee, an intercompany loan, or a set-off against a licence, then the real beneficiary of the R&D is the foreign parent, and the AusCo’s spend is not at risk because it’s being reimbursed. Either of those sinks the claim.

This isn’t hypothetical. In late 2023 the ATO issued two taxpayer alerts: TA 2023/4 on R&D delivered through associated entities and TA 2023/5 on R&D conducted for foreign related entities, aimed squarely at thin R&D entities doing work whose true beneficiary is an offshore associate, with the general anti-avoidance rules held in reserve. A clumsily structured flip walks straight into that profile.

How to keep it, in practice

The safe shape is ownership plus licence, never service for fee.

Keep the IP in the AusCo. Don’t push it up to the US parent. The AusCo develops and owns the technology, which is both the thing that makes the R&D for the AusCo and the thing that avoids a taxable IP transfer on the way out.

Make the US entity a licensee and distributor, not the IP owner. The US company takes an arm’s-length licence from the AusCo to sell and market in the US, and pays the AusCo a royalty. Revenue flows back to the AusCo, which is genuinely exploiting its own IP, and the R&D is plainly for the AusCo’s benefit.

Be careful how the money reaches the AusCo, because this is where founders most often trip. It’s completely normal, and completely fine, for the TopCo to raise the capital and pass it down to the operating company. A genuine equity injection is the cleanest route: it becomes the AusCo’s own money funding its own R&D, with nothing to repay and the cost fully at risk. A genuine loan works too, because the AusCo still has to repay it whether or not the R&D succeeds, so it still bears the cost.

What breaks the incentive is the parent reimbursing or paying for the development, through a cost-plus service fee or by making the AusCo whole regardless of outcome, or a loan that isn’t really a loan, one that’s non-recourse, repayable only out of commercialisation, or circularly set off against a royalty or intra-group sales. In each of those the AusCo is no longer at risk. The line is genuine financing versus reimbursement, not parent versus no parent, and the finer mechanics, recourse, interest and the like, are a question for your adviser.

Keep the AusCo substantive. The alerts target shells with few staff. The AusCo being the real operating company, with the team, the IP and the development risk, is your best protection, and after a standard top-hat flip that’s the natural state anyway.

Keep the AusCo an Australian tax resident, and keep proper transfer pricing documentation for the licence and royalty. The residency point you usually worry about is the US parent’s, but it’s the AusCo that has to remain a resident R&D entity, and the royalty has to be defensibly arm’s length.

The cliff that catches people even when eligibility is fine

Even with the structure right, expanding changes the turnover test. Aggregated turnover for the incentive includes your entire worldwide group, so the US parent and everything under it counts. The 43.5% refundable, cash, offset is only available where aggregated group turnover is under $20 million.

So as your US sales scale, the moment global group turnover crosses $20 million you keep the incentive but lose the cash refund and drop to the non-refundable offset, the company rate plus a premium of 8.5% or 16.5% depending on your R&D intensity. For a startup that’s been living off the annual cash refund, that’s a real cashflow event, and a flip makes it arrive sooner than a standalone AusCo would. Model when in your US growth curve it’s likely to hit.

One piece of good news on the horizon

The 2026-27 Budget proposed lifting the refundable threshold from $20 million to $50 million, which would give an expanding company far more runway before losing the cash refund, although it limits refundability to companies under ten years old and is not expected to take effect before 1 July 2028.

The current $20 million threshold and the 43.5% rate still apply for the 2025-26 and 2026-27 income years, so plan on today’s settings, but it’s a helpful direction of travel.

If development itself moves to the US

Everything above assumes you keep developing in Australia. If you start doing the R&D with US engineers instead, that overseas work is only claimable with an Overseas Finding from AusIndustry, which has to be applied for before the end of the income year and is granted only where the work has a scientific link to your Australian core R&D and genuinely cannot be done here. Cost alone is not a reason.

So the incentive rewards keeping the build in Australia, which is usually what founders want anyway.

Get the structure right before you flip

Disclaimer: This article is for general informational purposes only and does not constitute financial, legal or tax advice. Please speak with a qualified adviser (hey, that’s us!) before making decisions based on your specific circumstances.