R&D Tax Incentive | EMDG Updates
R&D Tax Incentive – end of financial year reminders and increased rates of return for 2021 claims
Export Market Development Grants – don’t forget to apply by 30th November for grant funding under the new EMDG scheme
The end of the financial year is upon us again so I wish to remind you to finalise any transactions as required under the R&D Tax Incentive to ensure you don’t miss out on any potential return as follows:
Payments to associated parties
To be eligible to draw down the benefit in your tax return, R&D expenses incurred from associated parties (by reason of family or business ownership connections) must be “paid” by the 30th June or the last day of the financial year for any non-standard reporting period entities. If for any reason these expenses are not paid by the last day of an entity’s financial year, the R&D entity may elect to:
- claim the expenses as a standard deduction in the year they are incurred (foregoing the benefits under the R&D Tax Incentive); or
- carry forward the unpaid cost in the tax return into the following year and claim the benefit after the expense is actually paid. To access the ability to carry forward the unpaid costs the activities and expenses must be registered with AusIndustry in the year they were incurred.
Advanced and Overseas Findings
Applications for Advanced and Overseas Findings covering R&D activities that occurred in the 20/21 financial year must be lodged by June 30th, 2021.
Please note that obtaining a positive Advanced or Overseas finding outcome from Innovation Australia does not ensure that all of the costs you wish to claim are 100% eligible unless you also obtain an ATO private ruling. This has been catching some claimants out recently.
Compliant Record Keeping
As the R&D Tax Incentive is a self-assessment scheme, certain unique records are required to be maintained contemporaneously such as employee timesheets against R&D activities and technical records that describe the iterations of experimental activities undertaken which should include the measurable variables being tested and the performance benchmark you are attempting to achieve. The timestamping of these documents should occur in the year the R&D activities took place so do not get caught out by having to back-build the records when you’re preparing the application. If you require ongoing support to establish better record-keeping practices, please call us to assist.
Updated rates of return under the R&D Tax Incentive
Listed below demonstrates the reductions in company tax rates and in some case an increase in the actual rate of return under the R&D Tax Incentive for the FY 20/21 and FY 21/22 claim years:
- Annual revenue <$20m – Company Tax Rate: 26% – Refundable Tax Benefit: 43.5% (if matched by tax losses) or 17.5% (when trading in profit)
- Annual revenue $20m-$50m – Company Tax Rate: 26% – Non-Refundable Tax Offset: 12.5%
- Annual revenue >$50m – Company Tax Rate: 30% – Non-Refundable Tax Offset: 8.5%
- Annual revenue <$20m – Company Tax Rate: 25% – Refundable Tax Benefit: 43.5% (if matched by tax losses) or 18.5% (when trading in profit)
- Annual revenue $20m-$50m – Company Tax Rate: 25% – Non-Refundable Tax Benefit/2 tier benefit: 8.5% on eligible R&D expenditure which accounts for up to 2% of total company expenses and an additional 16.5% on eligible R&D expenditure exceeding the 2% baseline.
- Annual revenue >$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 an additional 16.5% on eligible R&D expenditure exceeding the 2% baseline.
If you require assistance to prepare your 2021 R&D registration application, please call us now so we can lodge as early as the 1st week of July.
R&D Tax Incentive Pre-Payment Funding Service
Our sister company 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 draw down 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 timeframe.
The Export Marketing Development Grant – EMDG UPDATE
Under the proposed new EMDG scheme, eligible SMEs will be required to register a “plan to export” with an export marketing budget by the 30th November 2021 to enable entry into a pre-approved grant funding agreement which is designed to provide greater certainty of funding for claimants prior to undertaking any of their agreed export marketing or promotion activities.
Grants will target eligible export-ready SMEs with an annual turnover of less than $20 million at three stages of their export journey:
- Eligible SMEs who are new to export – grants up to $80,000 over two years.
- Eligible exporters who plan to expand their presence in export markets – grants up to $240,000 over three years.
- Eligible exporters who continue to expand into new markets – grants up to $450,000 over three years
EMDG entitlements received in the past will be counted in a company’s grant history, so exporters who have received the maximum eight grants will not be eligible for the proposed new EMDG.
As the legislation still needs to pass when parliament resumes in August is the reason why the expected registration date has been pushed back from the 30th June to the 30th November.
Current EMDG arrangements remain in place for the 2020-21 financial year. As such, there will need to be transitional arrangements in place for 2021-22 during which applicants may be reimbursed for incurred expenses in 2020-21 under the current EMDG and seeking pre-approval for future expenses in 2021-22.
– R&D Tax Incentive, EMDG Updates –
- Scope your potential to claim various grant programs
- Assist with the preparation and lodgement of grant applications
- Review or provide a health check on your internally prepared grant applications
- Establish record-keeping practices as required under various grant programs
- Provide prepayment loans against future cash refunds under the R&D Tax Incentive
- Keeping industry informed on all new Government policy and grant initiatives
Don’t hesitate to give us a call.