Budget R&D changes cut startup funding, hit AI and deep tech hiring
The federal government's R&D tax changes will reduce research spending across software and deep tech companies, with direct impact on startup hiring budgets and sales team expansion plans.
Treasury's proposed changes remove "supporting activities" from eligible R&D expenditure. For one frontier AI company, that means 70% of current claims disappear, covering software engineering, data prep, and testing frameworks. Only 30% qualifies as "core" research under the new rules.
The Tech Council of Australia warned Treasury that higher offset rates won't compensate for the narrower eligibility. Their submission notes: "In many cases removal of supporting activities will see most of a software company's claim being ineligible."
The timing hits harder because of simultaneous changes to the Innovative Business CGT Concession. Startups lose R&D cash flow and investor exit incentives at the same time. The council calls it a "pincer movement" on startup viability.
What this means for hiring
R&D credits directly fund engineering and product teams. When that cash disappears, headcount plans contract. Sales teams typically expand after product development milestones. If those milestones slow or stop, go-to-market hiring freezes follow.
The proposed changes raise core R&D offsets and increase the expenditure cap to $200 million, but keep refundable access limited to companies under 10 years old (15 for biotech/medtech). That age cutoff means scale-ups lose refundable credits right when they're building out enterprise sales teams.
Deep tech and AI startups warned Treasury the changes make some businesses unviable. When runway contracts, sales hiring is usually the first budget to freeze. Quota-carrying roles require 6-month ramps and full OTE exposure. Those economics don't work when the CFO just lost 70% of expected R&D returns.
Treasury consultation closed yesterday. The changes take effect in the 2026/27 budget year.
Why it matters
ANZ tech companies compete globally for sales talent. When local startups cut hiring budgets because of tax policy, experienced AEs and SDRs move offshore or to larger firms with stable comp plans. That makes it harder for early-stage companies to build pipeline, even when product development continues.
The Tech Council's CEO Dr Kate Cornick took over from Damian Kassabgi in early 2026 after running LaunchVic for a decade. The council's board includes Atlassian co-founder Scott Farquhar as chair, with representation from Canva, Block, Culture Amp, and PEXA. They have direct access to Treasury, but these submissions suggest policy isn't moving their direction.