Australia Moves to Block Gambling and Tobacco Companies from R&D Tax Breaks

Since its introduction, the R&DTI has been largely industry-neutral, meaning eligibility was determined by the nature of the R&D activity itself rather than the sector in which a business operated. Under the proposed reform, this rule changes significantly.

The draft legislation states that any R&D activity related to gambling, such as sports betting platforms, gaming machine technology, or even back-end systems, will no longer qualify. The same exclusion applies to tobacco and nicotine-related products and vapes.

The government argues that rewarding innovation in industries like gambling and tobacco no longer aligns with Australia’s broader public policy goals. Officials have been clear that they do not believe taxpayer funds should support product development that could increase gambling participation or boost nicotine consumption.

The draft legislation has one notable exemption: R&D that’s solely focused on harm minimisation. This includes research into reducing gambling addiction, developing safer gambling tools, analysing consumer behaviour to limit risk, or exploring methods to lower health harms associated with tobacco and nicotine.

The government is expected to release further guidance to define exactly what qualifies as harm-reduction research, and according to industry experts, this clarity will be crucial, as companies will need to show that any eligible project has no commercial product development component attached to it.

Although the growing concern about the costs of gambling and tobacco use has been building for years, the decision has been accelerated by recent tax data that showed that in the 2021-2022 financial year, gambling companies claimed close to A$90 million in R&D offsets, which is a number that raised eyebrows among government officials.

The government is currently under immense pressure to prioritise public spending, with structural deficits widening and national debt forecast to exceed A$1 trillion before 2030. Ministers have openly stated that R&D subsidies must deliver strong economic and social value, and funding innovation in the gambling and tobacco sectors has been increasingly seen as contradictory to that goal.

The change also reflects a broader trend: governments are becoming more willing to restrict taxpayer support for industries seen as harmful, even if they contribute significant revenue through taxes and licensing fees.

Gambling and tobacco companies are still trying to understand what these changes will mean for their day-to-day operations. Many say the R&DTI plays a big role in funding updates to their platforms, security systems, and compliance tools, and they worry that losing access will make this work more expensive.

Some industry insiders believe the shift could prompt companies to relocate parts of their R&D to countries that still offer generous tax incentives. If that happens, Australia could lose tech talent and specialist development roles that currently exist in these sectors.

Another question is whether the government is prepared to exclude these industries on so-called social-harm grounds; could other sectors be next? While there’s nothing to suggest more bans are planned, the change has made some businesses nervous about how far this new approach might eventually go.