Owners will be able to accurately track the location of their pets from short and long distances, the CSIRO said in a statement.
The prototype will build on work that has been already done by the CSIRO and Ceres Tag to develop smart ear tags for tracking livestock.
The prototype differs from similar products in that it uses both Bluetooth and satellite communications to track the animals, rather than one or the other.
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Dr Phil Valencia, senior research engineer at CSIRO's Data61, said: "The Companion Collar uses Data61's EIP (Embedded Intelligence Platform) and BLE (Bluetooth Low Energy) technology to determine if the pet is nearby, automatically switching to satellite communications when the collar is outside the home network.
"Many devices only employ Bluetooth or Wi-Fi-based tracking, which often involves a community of people listening on their phones and sharing their location data with a service in order to report the tracking device. This method is also only suitable for short distance monitoring."
Other devices that are already available are GPS-based trackers that require mobile plans, are often expensive, rely on cellular coverage and use a large amount of power, requiring weekly, if not even more frequent, charging. The Companion Collar requires monthly charging on average.
Pets who remain within the virtual boundary set by their owner will trigger the device's automatic power saving mode; those who wander outside will cause it to switch to GPS location and direct satellite reporting.
The Companion Collar will also collect other crucial information such as specific behaviours, out of the ordinary activity and data for health metrics and information will be uploaded to the cloud and displayed on the app.
"Owners will get valuable insights into how their pet has behaved throughout the day, with the system identifying if the animal's activity is above or below its typical levels, and whether it was significantly different at a certain time of day," Dr Valencia said.
Ceres Tag chief operating officer Lewis Frost said insights would create the foundation for personalised pet treatment and medication and suggested the collar would improve the health and welfare of domestic pets.
"Ceres is leveraging all its learnings from the livestock smart tag development to create a superior product in the companion animal market utilising the skills of our very capable development team," he added.