TCF Services Newsletter APRIL 2021
R&D Tax Incentive registration lodgment.
Deadline 30th April is looming fast.
Please be reminded that if you have not already prepared and lodged your 2019/20 R&D “registration of R&D activities” application with AusIndustry, it is important to note that the 30th April lodgement deadline is looming fast for companies with a standard 30th June reporting year-end.
It is also important to note that the R&D Tax Incentive is a self-assessment program requiring claimants to keep contemporaneous records that track the progress of their R&D activities and quantifies the costs associated with the activities being claimed. If you don’t have the records to substantiate your claim you are running a risk so it’s important that this is reviewed and established now.
End of Financial year R&D Tax housekeeping tips:
- Pay your associated party R&D fees by 30th June each year – if an entity or person is associated in any way with the R&D entity ( i.e. shareholder, director, staff, or associated entity) their fees for R&D services must be paid for by the 30th June in the year of the R&D activity otherwise the ATO will not allow the claimant to drawdown the tax benefit when the tax return is lodged, instead, the unpaid associated party expense must be carried forward in the tax return and only realised when the expense is paid.
- Pay your R&D staff superannuation payments by the 30th June each year – to be eligible to claim the superannuation costs relating to R&D staff requires the superannuation to be paid on or before the end of the financial year. Usually, late compulsory superannuation payments can’t be claimed as a business deduction, which also means that any late quarterly super payments relating to eligible R&D staff may not be eligible to be claimed under the R&D Tax Incentive. If the financial year’s last quarter’s super is not paid by 30 June (i.e. acknowledged by the complying super fund as received by 30 June), then that contribution cannot be claimed as a deduction in that year and must be claimed in the following year.
R&D Tax record-keeping tips:
It is also important to note that the R&D Tax Incentive is a self-assessment program requiring claimants to keep contemporaneous records that track the progress of their R&D activities and quantify the costs associated with the activities being claimed. If you don’t have the records to substantiate your claim you are running a risk so it’s important that this is reviewed and established time-stamped now.
Simple things like:
- populating an annual R&D project plan which identifies your eligible core and supporting activities
- writing monthly technical reports which report on the conduct of your R&D activities
- completing weekly time-sheets for your R&D staff against eligible activities to calculate the claimable apportionment of time
- taking photos evidencing stages of prototype work and;
- recording technical meetings
are paramount in maintaining your successful participation in the program in case of an audit as well as good business practice as it establishes and values your greatest asset; your IP. Don’t get caught out!
If you require assistance with your 19/20 claim preparation, the establishment of compliant record-keeping for your 20/21 R&D activities, or if you would like to discuss these matters further you are welcome to give us a call or write to us.
R&D Tax Incentive update
As part of an enormous package of industry assistance measures announced in the Budget, the Federal Government wisely walked away from making any cuts to the R&D Tax Incentive. Instead, they are increasing benefits and allocating an additional $2 billion as part of the COVID 19 economic recovery plan.
The enhanced R&D Tax Incentive measures include the following changes:
- A refundable tax offset of 18.5% above the company tax rate for SME’s with an annual turnover of less than $20m
- A non-refundable tax offset based on a 2 tier R&D intensity test for larger companies over $20m in annual turnover as follows:
– A baseline rate of 8.5% above the tax rate against eligible R&D expenditures up to 2% of total company expenses and:
– 16.5% above the company tax rate against eligible R&D expenditures exceeding the baseline 2% intensity test.
The omnibus tax bill has passed both houses of Parliament, paving the way for the enhancements to commence from the 1st of July 2021. Meanwhile, the program will remain as-is for claims lodged covering the 19/20 financial year but as the company tax rate reductions vary dependent on different tiers of annual turnover, the net benefit will also vary as it does now for companies between $20m and $50m turnover.
Listed below demonstrates the reductions in company tax rates and the actual rates of return under the R&D Tax Incentive for the lodgement of current FY 19/20 claims and the next two financial years:
- <$20m – Company Tax Rate: 27.5% – Refundable Tax Benefit: 43.5% (if matched by tax losses) or 16% (when trading in profit)
- $20m-$50m – Company Tax Rate: 27.5% – Non-Refundable Tax Offset: 11%
- >$50m – Company Tax Rate: 30% – Non-Refundable Tax Offset:8.5%
- <$20m – Company Tax Rate: 26% – Refundable Tax Benefit: 43.5% (if matched by tax losses) or 17.5% (when trading in profit)
- $20m-$50m – Company Tax Rate: 26% – Non-Refundable Tax Offset: 12.5%
- >$50m – Company Tax Rate: 30% – Non-Refundable Tax Offset: 8.5%
- <$20m – Company Tax Rate: 25% – Refundable Tax Benefit: 43.5% (if matched by tax losses) or 18.5% (when trading in profit)
- $20m-$50m – Company Tax Rate: 25% – Non–Refundable Tax Benefit/2 tier benefit: 8.5% on eligible R&D expenditure up to 2% of total company expenses and 16.5% on eligible R&D expenditure exceeding the 2% baseline.
- >$50m – Company Tax Rate: 30% -Non–Refundable Tax Benefit/2 tier benefit: 8.5% on eligible R&D expenditure up to 2% of total company expenses and 16.5% on eligible R&D expenditure exceeding the 2% baseline.
Modern Manufacturing Initiative and National Manufacturing Priorities announced
The Australian Government has announced a $1.3 billion Modern Manufacturing Initiative (MMI) and the National Manufacturing Priorities.
Modern Manufacturing Initiative
The $1.3 billion MMI will drive lasting change for Australian manufacturers.
It will help Australian manufacturers:
It will unlock private sector investment and support manufacturers to deliver on the world stage.
The MMI will provide co‑funding for large manufacturing projects that have broad sectoral benefits across the National Manufacturing Priorities. It will unlock private sector investment across three targeted streams.
- Manufacturing Collaboration Stream
- Manufacturing Translation Stream
- Manufacturing Integration Stream
All streams will operate on a co-investment basis.
Eligible applicants will be confined to trading corporations. There will be no specific business size requirements. Funding will be focused on supporting businesses to scale.
The Manufacturing Collaboration Stream
The Manufacturing Collaboration Stream provides funding for very large projects that support business-to-business and business-to-research collaboration, to build economies of scale.
Commonwealth funding will be provided on a co-investment basis and will be up to one-third of eligible project costs.
This stream will have a two-stage application process to reflect the likely size and complexity of projects. Stage 1 will invite expressions of interest through an open, competitive process. Suitable applicants will then be asked to submit detailed proposals.
Invitations for expressions of interest will open late in the first half of 2021.
Guidelines, including detailed eligibility and merit criteria, will be available prior to the program opening.
The Manufacturing Translation and Integration Streams
The Manufacturing Translation stream will help manufacturers translate good ideas into commercial outcomes. It will also encourage investment in non-R&D innovation.
The Manufacturing Integration stream will help manufacturers integrate into local and international supply chains and markets.
Commonwealth funding will be provided on a co-investment basis and will be up to 50% of eligible project costs.
The application process for these two streams will be a one-stage process.
There will be annual funding rounds, beginning in the first half of 2021.
Guidelines, including detailed eligibility and merit criteria, will be available prior to funding rounds opening.
National Manufacturing Priorities
There are six tranches of funding, one for each of the federal government’s designated ‘National Manufacturing Priorities’; these will open consecutively over March 2021 in the following order:
- space; CLOSED
- medical products; OPEN
- resources technology and critical minerals processing; OPEN
- food and beverage; OPEN
- recycling and clean energy; OPEN
- defence. OPEN
The Minister announced initiatives to transform Australian manufacturing on 1 October 2020.
R&D Tax Incentive Prepayment Funding Service
R&D Capital Partners is a specialist financier that provides Australian-based firms undertaking research and development activities the ability to use their projected R&D Tax Incentive benefit as security to access funding, up to a year before the benefit can be claimed through the tax system.
R&D companies with less than $20 million in annual turnover who are eligible to receive a 43.5% refundable tax offset, may drawdown a prepayment loan of up to 80% of the calculated benefit after incurring eligible R&D expenditure in the current year.
Our typical borrower is an early-stage business focused on R&D which requires new funding between $50,000 to $3 million to support its R&D program through to its next milestone.
- Early-stage R&D companies typically have difficulties borrowing capital from the traditional bank lending community due to limited tangible assets to secure their borrowings.
- The R&DCP loans provide an innovative structure to allow you to borrow funds secured against your future tax return.
- This form of funding does not involve the issue of new equity thus avoiding any equity dilution.
- You can lengthen your cash runway without having to be distracted by the complexities of agreeing on the business valuation and new shareholders’ agreements.
- The additional runway will allow you to achieve further project milestones to trigger an uplift in shareholder value prior to any future equity raising.
- The R&DCP loans are available in a simple, efficient structure that can be accessed in a short time-frame.
The Export Marketing Development Grant – EMDG update
The Export Market Development Grant (EMDG) scheme offers reimbursements of up to 50 percent of eligible export promotion expenses above $5000, including trade shows, digital advertising, marketing consultant fees, and visa fees, with a total of $150,000 on offer each year.
The government introduced legislation last month following through on a number of recommendations from a recent review into the EMDG program. These included transforming the scheme into a more traditional entitlement-based grants program, with funding for eligible activities to be paid beforehand, rather at the end of the financial year.
The reforms also tighten eligibility for the scheme, with the annual turnover threshold reduced from $50 million to $20 million.
The scheme will be split into three tiers, with a total of $80,000 over two years for companies that are new to exporting, $240,000 over three years for those with an existing presence in a market or looking to enter into a new one, and $450,000 available over three years for exporters to continue expanding into a new market.
The legislation will also scrap the existing requirement that a company has a prospect of success, instead just requiring that they are “export ready”. The scheme will remain available to all eligible companies and will not be competitive.
The legislation has now been given the green light by the Foreign Affairs, Defence and Trade Legislation Committee, with its report tabled last week including only one recommendation: that the bill is passed as-is.
A number of submitters to the inquiry did raise concerns that most of the details around the new EMDG scheme will be outlined in legislation instruments and the administration will be managed through guidelines, rather than in the actual legislation.
But the government-led committee pointed to a submission from the Export Council Australia saying that this is consistent with other programs and best practice arrangements.
“This will allow time for an appropriate level of input when developing eligibility rules and other requirements and will provide better flexibility and fine-tuning later down the track, if necessary,” the submission said.
The committee agreed with submitters that more consultation needs to be held with stakeholders before these rules are unveiled.
“The committee agrees that it will be important for the government to work with stakeholders to ensure the efficiency, effectiveness, and clarity of the rules and administrative processes as well as ensuring awareness of the new arrangements, by means such as information sessions,” it said.
“The committee urges the government to make the draft rules available and begin consultations with stakeholders as soon as possible.”
The government has confirmed there will be consultations on these rules before they are introduced as a disallowable legislative instrument.
The reforms are now likely to sail through Parliament and will come into effect from July next year.
Funding for the EMDG scheme is at its highest level in more than two decades, with the government providing $60 million in the lead-up to last year’s election and a further $49.8 million in the 2019-20 financial year.
If you would like to discuss your EMDG eligibility, please do not hesitate to give us a call at TCF Services
TCF can assist with free, no-obligation services such as:
- Determining R&D Tax Incentive eligibility
- Health check on current R&D Tax Incentive claims
- Business scope to assist in accessing other current and future grants
- Eligibility assessment for a Prepayment on your R&D Tax Incentive
Give us a call. We may be able to help your business.