The aim of this study is to explore the relationship between knowledge transfer and innovation. The literature documents that increasing knowledge transfer can both increase and decrease an organisation's capability to innovate. This study proposes a model that integrates these two theoretical standpoints and in doing so hypothesizes a non-linear (parabolic) relationship between knowledge transfer and innovation. Empirical research to date, including the work of Storey and Kelly (2002), document a linear relationship between knowledge transfer and innovation. In order to investigate the possibility of a non-linear relationship this study proposes and tests refinements to Storey and Kelly's methodology. A refined survey questionnaire was sent to all the local government councils within two Australian states and both linear and quadratic statistical analyses were performed. The results of this pilot study revealed linear relationships between four of the six knowledge transfer questions and the innovation measurement question. A further refinement to the methodology is recommended before a non-linear relationship between knowledge transfer and innovation is rejected.