Last Updated: December 2025
Disclaimer: This guide provides general information only and does not constitute tax, legal, or financial advice. R&D Tax Incentive eligibility, grant conditions, and reporting requirements change regularly and depend on your specific circumstances. Always register R&D activities with AusIndustry before year end, consult with an R&D tax specialist for incentive claims, and seek professional advice for your specific situation.
Biotech companies have unique financial management requirements that differ fundamentally from typical businesses. Your primary focus is managing cash runway while tracking R&D expenditure in ways that support tax incentive claims, grant acquittals, and investor reporting.
Biotech companies that lack proper R&D expenditure tracking leave money on the table with their tax incentive claims and risk having claims reduced on review. With AusIndustry increasing scrutiny of biotech R&D claims, companies without robust documentation face significant exposure. Getting your systems right before the next capital raise or grant application is far easier than fixing them retrospectively.
Australian biotech operates in a unique financial environment. Most companies are pre-revenue or early-revenue, funded by equity raises, grants, and the R&D Tax Incentive. Traditional profitability metrics do not apply. Instead, financial management focuses on runway extension, R&D efficiency, and milestone achievement.
The Australian biotech sector includes approximately 600 companies, from university spin-outs through to ASX-listed clinical-stage firms. The R&D Tax Incentive provides refundable tax offsets of 43.5 percent for eligible companies with turnover under $20 million, making it a critical funding source. Properly capturing eligible expenditure can mean hundreds of thousands of dollars annually.
Grants from bodies like MRFF, NHMRC, and state innovation programs provide non-dilutive funding but require meticulous expenditure tracking and acquittal reporting. Poor financial systems create grant compliance risk.
- R&D expenditure classification. Not all spending is R&D eligible. Core R&D activities, supporting activities, and excluded expenditure must be identified and tracked separately. Getting this wrong means either missing legitimate claims or making claims that cannot be substantiated.
- Grant milestone tracking. Grants often fund specific project components with defined deliverables. Expenditure must be allocated accurately to grant-funded activities and reported according to funding body requirements.
- Burn rate management. With limited revenue, cash management is existential. Understanding your monthly burn rate and runway is essential for timing capital raises and managing investor expectations.
- Milestone revenue recognition. Licensing deals and partnerships often involve upfront payments, milestone payments, and royalties. Each has different recognition treatment under accounting standards.
- Multi-currency transactions. Biotech companies often engage overseas CROs, purchase reagents internationally, and receive funding in foreign currencies. Exchange rate movements affect both costs and cash position.
- Investor reporting. Shareholders and potential investors require clear financial reporting showing how funds are deployed, R&D progress, and cash runway.
1. R&D Tax Incentive is the Australian Government program providing tax offsets for eligible R&D expenditure. Companies with turnover under $20 million receive a 43.5 percent refundable offset (please consult your R&D advisor for most recent rules)
2. Core R&D activities are experimental activities whose outcome cannot be known in advance, conducted to generate new knowledge. These are fully eligible for the incentive.
3. Supporting R&D activities are directly related to core activities and undertaken for the dominant purpose of supporting core R&D. These are also eligible.
4. Burn rate is monthly cash expenditure. For pre-revenue biotechs, this drives runway calculations.
5. Runway is how long current cash will last at the current burn rate. Calculated as cash balance divided by monthly burn rate.
6. Grant acquittal is the process of reporting to funding bodies how grant funds were spent, demonstrating compliance with grant conditions.
Biotech P&L statements look different from typical businesses. Here is how to read yours.
Revenue section:
For pre-revenue companies, this may show only R&D Tax Incentive income, grant income, and interest. For companies with licensing deals, milestone payments and royalty revenue appear here.
R&D Tax Incentive income should be recognised when receipt is virtually certain, typically when you lodge your application with a supportable claim.
Grant income recognition depends on grant conditions. If grants have specific performance obligations, recognise revenue as obligations are met. If grants are effectively cost reimbursements, recognise as eligible costs are incurred.
Expenditure section:
Structure your expenses to show R&D activities clearly:
This structure supports R&D Tax Incentive claims by clearly identifying eligible categories.
Net result:
Pre-revenue biotechs typically show net losses. This is expected. The relevant question is whether the loss is funded (through cash on hand, committed grants, or imminent raises) and whether spending is efficient relative to R&D progress.
Revenue categories:
R&D expenditure categories:
Corporate expenditure categories:
Create project codes for:
Track all expenditure against project codes. This enables R&D claims by activity, grant acquittal reporting, and investor reporting by program.
Maintain contemporaneous records including:
These records support R&D Tax Incentive claims and demonstrate activities were conducted as claimed.
Cash and runway:
R&D tracking:
Grant compliance:
Accounting: Xero Business at $78 monthly handles most biotech requirements. Use tracking categories for project allocation. The multi-currency features handle international transactions.
For complex requirements, MYOB Advanced or NetSuite provide more sophisticated project accounting but at significantly higher cost.
R&D tracking: Dedicated R&D management software like LabArchives for electronic lab notebooks helps maintain contemporaneous records.
Budgeting and forecasting: Float at $59 monthly integrates with Xero for cash flow forecasting. Essential for runway management.
Example costs for 15-person biotech:
Financial KPIs:
Operational KPIs:
How should biotech companies track R&D expenditure?
Separate R&D expenditure by category (salaries, contractors, consumables, equipment, facilities) and by project or program. Use accounting software tracking categories to tag transactions. Maintain contemporaneous documentation of R&D activities including lab notebooks, project plans, and time records.
What is a healthy burn rate for an Australian biotech?
There is no universal answer as burn rate depends on development stage. Pre-clinical companies might burn $100,000 to $300,000 monthly. Clinical-stage companies conducting trials might burn $500,000 to $2 million monthly. The key metric is runway relative to the next value inflection point or funding milestone.
How should grant income be recognised?
Recognition depends on grant conditions. If grants require specific deliverables, recognise revenue as deliverables are achieved. If grants reimburse eligible expenditure, recognise as expenditure is incurred. If grants have no conditions, recognise on receipt. Review each grant agreement carefully.
What contemporaneous records support R&D Tax Incentive claims?
Key records include lab notebooks with dated entries, project plans identifying experimental activities, time records showing staff allocation to R&D, contractor agreements specifying R&D scope, ethics approvals, and board or scientific advisory committee minutes discussing R&D progress. Create these records as activities occur, not retrospectively.
How should biotechs report to investors?
Investors want to see cash position and runway, burn rate trends, R&D expenditure by program, progress against milestones, and key risks. A monthly or quarterly investor update should include P&L summary, cash flow, and narrative on R&D progress. Keep reporting consistent so investors can track trends.
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