Qualified Production Activities Income (QPAI) in Australia: 2025 Guide

With the global spotlight on manufacturing revival and local job creation, Qualified Production Activities Income (QPAI) is back in focus for Australian businesses in 2025. While the term has its roots in U.S. tax law, the concept is increasingly relevant here as the government sharpens incentives to keep production onshore. So, how does QPAI apply to Australian manufacturers, exporters, and agribusinesses—and what should you know about the new rules?

What Is QPAI and Why Does It Matter?

QPAI refers to the portion of a business’s income that is derived from eligible production activities. In the U.S., QPAI was central to the now-repealed Domestic Production Activities Deduction (DPAD). In Australia, while we don’t have a direct QPAI deduction, the concept is increasingly used by policymakers and industry bodies to benchmark and advocate for targeted tax concessions. In 2025, the Albanese government’s Future Made in Australia Act and related tax incentives have drawn on QPAI principles to define who gets what—and why.

• Manufacturing: Includes the fabrication or assembly of tangible personal property in Australia—think food processing, pharmaceuticals, and advanced manufacturing.

• Software Development: Revenue from software coded and deployed domestically, a growing focus area in light of the AI and cybersecurity boom.

• Agribusiness: Onshore processing and value-adding activities, not just raw commodity exports.

The logic: rewarding businesses that add real value locally, create skilled jobs, and boost exports.

2025 Policy Updates: What’s New?

This year, the government’s new Advanced Manufacturing Tax Credit scheme explicitly links eligibility to QPAI-style definitions. To qualify, businesses must demonstrate that their income arises from specific production activities—ruling out passive income, pure distribution, or basic retail.

• Tax Credit Rate: Up to 10% credit on profits attributable to eligible activities, capped at $100 million annually per corporate group.

• Eligible Activities: Detailed in the Treasury’s 2025 guidance, covering local manufacturing, clean energy component production, and digital product development.

• Export Bonus: Additional 2% credit for businesses exporting more than 50% of their QPAI-derived goods or services.

These changes are designed to align Australia with international best practice, counter U.S. and EU onshoring incentives, and turbocharge sectors like renewables, medtech, and agri-foods.

Real-World Examples: How QPAI Plays Out

Let’s break down how QPAI could impact two very different Australian businesses in 2025:

• Case 1: Regional Food Manufacturer A NSW-based company produces packaged snacks from Australian-grown produce. Only the income from the production and packaging activities performed onshore counts as QPAI. If they export 60% of output, they may access the full 12% tax credit, significantly lowering their effective tax rate.

• Case 2: SaaS Provider with Offshore Clients A Melbourne software firm develops and tests its product locally, but sells primarily to Asia and North America. The revenue from software created in Australia is QPAI, and if exports exceed 50% of total sales, the export bonus applies. However, income from contract development done overseas is excluded.

Key point: Accurate segmentation of business income is vital. The ATO’s 2025 compliance program is targeting misclassification, with hefty penalties for incorrect claims.

Strategies for Maximising Your QPAI Position

To make the most of QPAI-linked incentives, Australian businesses should:

• Review Your Revenue Streams: Map out which activities are performed domestically and which income sources qualify under the 2025 definitions.

• Upgrade Documentation: Ensure contracts, transfer pricing documentation, and operational records clearly distinguish QPAI-eligible activities.

• Invest in Onshore Capabilities: Consider reshoring or expanding local production to boost your QPAI ratio and access higher credits.

• Monitor Policy Updates: Treasury has flagged further tweaks to eligible sectors and bonus rates in the October 2025 budget.

Getting this right can make a multi-million-dollar difference—especially for large manufacturers, tech exporters, and agribusiness groups.

The Bottom Line

Qualified Production Activities Income is no longer just a technical term—it’s a gateway to major tax breaks and a marker of strategic importance in 2025’s competitive policy landscape. With the right planning and robust record-keeping, Australian businesses can tap into a new wave of government support, turning local production into a profit driver for years to come.