R&D Tax Incentive – end of financial year reminders | EMDG – Access the new unmodulated $100,000 first tranche payment

TCF NEWSLETTER | 22.06.2020

ASSOCIATED PAYMENTS – R&D ADVANCE AND OVERSEAS FINDINGS –

R&D START UPS –  EMDG – TCF SERVICES

The end of 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 claim eligible R&D expenses incurred from associated parties (by reason of family or business ownership connections) an R&D entity must have “paid” such expenses 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 30th June, 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
  • after registering the eligible activities and expenses with AusIndustry, defer claiming the expenses until the following year when they are actually paid.

Advance and Overseas Findings

Provisional applications for Advance and Overseas Findings covering R&D activities which occurred in the 19/20 financial year must be lodged by June 30th

As an outcome of COVID-19 the scheme administrators have extended the period in which finding applications can be lodged to the end of September but this only applies if a provisional application is lodged by the 30th June – don’t miss out.

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 a ATO private ruling, this has been catching some claimants our recently.

R&D Start-Ups

R&D Start-ups – Founders may be better off taking a salary

If you are bootstrapping and not taking a salary to keep costs low whilst you kick off your R&D start-up business, think again, as this may not be in your best interests. By bootstrapping, you not only undervalue the intellectual property you are developing in your company but you may also negate your ability to claim a 43.5% reimbursement of the true costs incurred under the R&D Tax Incentive. If you are spending most of your time undertaking eligible R&D activities you should consider paying yourself an annual salary by paying PAYG tax and the associated superannuation guarantee levy related to any salaries by the end of June each year.

As the ATO puts no limitation on what you decide to do with the net portion of your salary you may decide to loan it back to your company, by doing so the net benefit would be the differential between the personal tax rate paid on the salary plus super versus the 43.5% tax offset earned by the company.

As the IP you are developing holds value, bootstrapping may result in a under valuation of your business when it comes time to raising capital because you have not substantiated the value undertaken in the early stage of the business.

Please note that Directors fees, franked dividends and trust distributions are not eligible expenses under the R&D Tax Incentive.

The Export Marketing Development Grant – EMDG

Applications for the 2019-20 grant year open on 1 July 2020, and in a further boost to exporters impacted by COVID-19, the Trade Minister Hon Simon Birmingham announced that the initial grant ceiling amount has been increased from $40,000 to $100,000.

Applicants who are entitled to a grant up to $100,000 will receive their full entitlement at the time of determination. Only grant amounts over $100,000 will be subject to a modulated  second tranche payment in June 2021.

The increase in the grant ceiling amount will ensure that the majority of EMDG applicants receive their full entitlement, providing a much-needed funding boost and a timely cash flow injection.

Applications lodged in the early months of July & August are generally assessed and paid within 4 weeks, so there is a clear incentive for exporters to prepare and lodge their 2019-20 EMDG applications as early as possible.

Export Performance Test

The Government also announced that the export performance test, which normally applies to applicants in grant years 3 and beyond, will not apply for the 2019-20 grant year.

Accordingly, eligible exporters will be able to seek up to 50% reimbursement for eligible marketing expenses without the secondary export earnings test applying.

Applicants are still limited to a maximum of 8 grants under EMDG, and the export performance test is likely to return in 2020-21.

Covid-19 Disruptions

Austrade have confirmed that expenses incurred during 2019-20 for activities that did not eventuate as a result of Covid-19, for example overseas flights or trade fairs, will still be claimable expenses provided the exporter has not received, or is not entitled to receive, a credit for those expenses.

Future of EMDG

The Government commissioned a review of the EMDG Scheme and export assistance in Oct 2019. The Review, chaired by SA exporter Anna Fisher, was to report to the Minister by the end of March 2020. Covid-19 has obviously changed the goalposts for not only the Review but also Government assistance in general.

We understand that the Review is being updated and revised, and will be provided to the Minister in due course. How the Government responds to the recommendations of the Review shall become apparent in the later part of 2020. While there is a commitment to export assistance, the Government is examining what is the most effective and efficient form of export support.

Services

TCF can assist  with free, no obligation services such as:

Give us a call.  We may be able to help your business.

Regards,

Gerry Frittmann and the team at TCF Services

R&D Tax Incentive inquiry pushed back again.

 

TCF NEWSLETTER | 12.06.2020

 

Reductions unlikely to affect 19/20 year claim lodgements 

 

The controversial changes to reduce benefits under the R&D Tax Incentive (RDTI) have been further delayed. The Senate Economics Legislation Committee was originally scheduled to conduct public hearings before delivering their report in April 2020. As an outcome of the COVID – 19 pandemic, public hearings will be held over the coming months with the committee’s report now expected to be delivered in December.

The Coalition government originally intended to pass the legislation for applicability to the 19/20 financial claims lodged in the 20/21 tax year, however, as a result of this latest delay, any proposed changes cannot be passed as Parliament won’t resit until February 2021 after which most claimants would have already accessed the existing benefits.

This would indicate that any changes made would not be retrospective – the very point that the Treasurer Josh Frydenberg would not confirm. We do however expect the RDTI offset rates to remain the same for 19/20 Tax claims.

 

What does this mean for you ?

  • Refundable (Turnover less than $20m): Your R&D offset rate for 20/21 will remain at 43.5%. This equates to a 16% benefit above the company tax rate for notional deductions.
  • Non-Refundable (Turnover greater than $20m – $50m): Your R&D offset for 20/21 will remain at 38.5% but as an outcome of the reduction in company tax rates top 27.5% the additional benefit equates to 11% above the company tax rate.
  • Non-Refundable (Turnover greater than $50m): Your R&D offset for 20/21 will remain at 38.5%. This equates to an additional benefit of 8.5% above the company tax rate

 

The future of the bill beyond December is uncertain

While the Government has committed to the new measures and a focus on reduction in R&D spend, the opposition has stated they “want a real and genuine engagement with the stakeholders who are going to be impacted” (Brendan O’Connor, Shadow Industry Minister).

The community response to these changes remains the same. Nearly 100 submissions were received during the initial phase of the Committee review of which nearly all were critical of the new measures.

If successful, the new measures are likely to apply to the 20/21 R&D claims.

 

Services

TCF can assist  with free, no obligation services such as:

 

Give us a call.

Regards,

Gerry Frittmann and the team at TCF Services

Modernisation Manufacturing Fund: Round 1 Recipients Announced

manufacturing companies

 

The $50 million Manufacturers Modernisation Fund is an opportunity for Australian Manufacturing Companies to claim grants to offset the cost of purchasing new state of the art plant and equipment.

As a result of the coronavirus impact on business, the Government decided to fund all worthy applicants and use up virtually all of the $50m in available funds intended for the program over a 3 year period with a view of resetting the program with additional funding to be announced leading up to the October budget.

This merit-based competitive grant program is allocated between large and small scale projects whereby 50% of eligible total project funding is provided up to a $100,000 grant and 25% for projects whereby grants can scale form $100,000 to a cap of $1m.

We are delighted that the claims prepared for our clients under this program were all successful.

Congratulations to all of the 200 applicants who were successful.

Here are the links to the successful large scale and small scale applicants from the first Round 1 of applications lodged before Christmas.

TCF Services will continue to monitor the progression of further funding allocations under the Fund to keep you informed about future funding opportunities as and when they come to hand.

TCF Services Pty Ltd has successfully delivered over $2 billion in tax incentives and grants for its clients over the past 29 years.

 

Manufacturing Modernisation Fund Grant Recipients – Large scale projects

Applicant Organisation Grant Amount Supported Total Investment Project Description Suburb State
4 Pines Brewing Company Wholesale Pty Limited $700,000 $3,421,727 Automated multi-function packaging line with data capture & analytics Brookvale NSW
Alcolizer Pty Ltd $181,156 $724,627 Automation of the Druglizer “Test Cartridge” production Balcatta WA
Allshelter Pty Ltd $747,213 $2,988,864 Engineered Tensile Fabric Manufacturing plant Stage 2 Lake Cargelligo NSW
Architectural Designer Products Pty Limited $850,000 $3,561,059 Project 336 Unanderra NSW
ATP Science Pty Ltd $1,000,000 $4,973,483 Collagen Protein Bar Line Loganholme QLD
Australian International Foods Pty Ltd $750,000 $3,800,000 Project Skippy Scoresby VIC
Australian Plastics Extrusions Pty Ltd $998,223 $3,992,892 Project Polymer Evolution Heidelberg West VIC
Ben Furney Flour Mills Pty Ltd $1,000,000 $7,427,070 Extrusion Plant Capital Upgrade Dubbo NSW
Beurteaux (Australia) Pty Ltd $932,500 $3,730,000 Advanced Manufacturing of the Smart Part Seat for Global Markets Henderson WA
Bracton Industries (N S W) Pty Ltd $136,978 $547,915 In-Housing Design Processes: Purchasing Robotic Welding Machine & CNC Mill Brookvale NSW
Brauer Natural Medicine Pty. Ltd. $1,000,000 $6,357,000 Nutraceutical Manufacturing Line to Meet Export Growth Tanunda SA
Brent & Warburton (N’Cle) Pty Ltd $133,000 $532,760 5-Axis Machining Capability Tomago NSW
Cathrx Ltd $204,146 $816,587 Acquisition of an Automated Laser Slot Cutter Rydalmere NSW
Cirrus Ag Pty Ltd $675,676 $2,702,707 Efficient Granule Manufacturing Kawana QLD
Class Plastics (Aust) Pty Ltd $228,305 $913,220 Class Plastics will invest in an Electric Extrusion blow moulding machine Truganina VIC
Cloyne Holdings Pty Ltd $280,875 $1,123,500 The modernisation and transformation of Springhill Farm Delacombe VIC
CNC Components Pty Ltd $260,000 $1,040,000 Next Level CNC Machining Geebung QLD
Cop-A-Mate Products Pty Ltd $497,875 $2,001,500 Modernising Manufacturing through Internalising Manufacturing Processes Heidelberg West VIC
Country Chef Bakeries Pty Ltd $562,027 $2,248,111 Project Pillar – Transformative Growth through Technology and Innovation Kunda Park QLD
Daecon Trusses Pty Ltd $685,616 $2,742,467 Advanced Automation for Timber Frame and Truss Manufacturing at Derrimut. Tullamarine VIC
Darkon Pty. Limited $304,987 $1,219,950 Acquiring plant to increase competitiveness, quality & production capacity Collingwood VIC
Directed Electronics OE Pty Ltd $513,475 $2,053,903 Phase Four – Advanced Manufacturing For Automotive Melbourne Airport VIC
Droneshield Limited $120,486 $481,944 Build manufacturing test chamber and new cloud-based testing process Sydney NSW
Ellenex Pty Ltd $700,000 $3,170,379 Modernisation of manufacturing process for pressure and level sensors South Melbourne VIC
Epicurean Products Pty Ltd $294,983 $1,339,933 Industry 4.0: Rapid Development & Flexible Manufacture – Dressings & Sauces Yandina QLD
Essential Flavours And Ingredients Pty Limited $247,500 $990,000 Enhancement of Encapsulation Capacity Carrum Downs VIC
Ferguson Plarre Bakehouses Proprietary Limited $950,000 $7,356,888 Robotics Led Automation of Bakery Manufacturing – Future Bake Project Keilor Park VIC
Ferretti International Ottoway Pty Ltd $750,000 $4,021,000 Install new equipment to create Ferretti Whyalla modularisation hub core Wingfield SA
Firefeast Pty. Limited $316,133 $1,404,534 FF 6.0 Windsor NSW
Flavour Makers Pty Ltd $986,588 $3,946,355 HFFS Dry Sachet Packing Line Capital Investment Project Braeside VIC
George Lovitt (Manufacturing) Proprietary Limited $765,750 $3,063,000 Next Generation Machining Technology for Expanded Aerospace Opportunities Greensborough VIC
Giddyup Enterprises Pty Ltd $223,944 $895,779 Life Savers for Livestock Maryborough QLD
Hydraulic Controls Pty Ltd $272,300 $1,089,214 Transformation of Hydraulic Controls Pty Ltd’s manufacturing technology Brookvale NSW
Klinger Limited $514,750 $2,059,000 Modernization of Klinger Metal Gaskets Manufacturing Plant in Perth Welshpool WA
LAI Industries Pty Ltd $1,000,000 $5,400,000 Industry 4.0 for Switchboard Manufacturing Ferryden Park SA
Laserbond Limited $548,217 $2,192,871 Modernising Manufacturing at LaserBond – Automated Laser Cladding Cell Smeaton Grange NSW
Light Culture Australia Pty Ltd $125,000 $501,350 Light Culture Factory Equipment Upgrade Somersby NSW
Macnaught Pty Ltd $250,000 $1,583,616 Automated machines for manufacturing MX series Flowmeter Parts Turrella NSW
Majans Pty. Ltd. $1,000,000 $5,109,518 Majans’ Industry 4.0 Smart Factory Integration Sumner QLD
Marpac Pty Ltd $240,211 $960,847 Project Reclaim & Replace Knoxfield VIC
Mayfield Industries Pty Ltd $397,488 $1,589,955 Transformation for Sustainable Growth 2 Edinburgh SA
Merino Country Pty. Ltd. $330,500 $1,322,000 Sustainable Merino Manufacturing – From Farm to Fashion Shailer Park QLD
Mickies Bikkies Pty Ltd $882,806 $3,531,224 Kez’s Kitchen Factory Modernisation, Innovation and Expansion Noble Park North VIC
Nissan Casting Australia Pty Ltd $862,537 $3,450,150 Nissan Casting Australia TdC Efficiency upgrade Gen2 Dandenong South VIC
Omniblend Pty Ltd $800,000 $5,196,209 Advanced manufacturing infrastructure for solid form nutritional foods Mordialloc VIC
Oxworks Trading Pty Ltd $305,000 $1,342,000 Transformation to an Advanced Manufacturer Crestmead QLD
Pakpot Pty Ltd $800,000 $3,200,000 Expansion of capacity for the production of thin-walled containers. Wingfield SA
Palla Pharma Limited $263,371 $1,053,484 A manufacturing system for the efficient recovery of alkaloid from waste. Coolaroo VIC
Roband Australia Pty Limited $669,317 $2,677,270 Fibre Optic Laser & Auto Panel Bender – increased capacity & efficiency Cromer NSW
Robern Menz (Mfg) Pty Ltd $1,000,000 $5,241,984 Transforming manufacturing for global markets Glynde SA
Seer Medical Pty Ltd $1,000,000 $5,201,250 Manufacturing wearables for epilepsy diagnostics and management Melbourne VIC
TJM Group Holdings Pty Ltd $1,000,000 $6,780,778 New automation facility for TJM Group Holdings, leading food innovation Sunshine West VIC
Top Cat Installations Pty. Ltd. $1,000,000 $5,450,000 Modernisation of Engineered Stone Technology for Silica OHS Compliance Campbellfield VIC
Trumps Pty Ltd $171,272 $685,090 Increased Efficiency with AutoCoding Software & Automatic Labelling Systems Rocklea QLD
Tumbuh Pty Ltd $922,212 $3,688,851 Advanced Manufacturing for Live Biotherapeutics Coolum Beach QLD
Unsurpassed Australian Grown Bio Nutrients Limited $489,654 $1,958,618 Advanced winding hollow-wall pipe, extrusion-moulding production line Collaroy NSW
V-B Granite (Aust) Pty. Ltd. $934,681 $3,738,727 VBG SilicaSafe Automtion Project (Phase 2) Cheltenham VIC
Vossloh Cogifer Australia Pty Ltd $1,000,000 $15,816,900 VCA Castlemaine Modernisation Project Stage 1 Castlemaine VIC
Wine In A Glass Pty. Ltd. $210,250 $841,000 WIAG: Advanced manufacturing technology & facility Echuca VIC

 

Manufacturing Modernisation Fund Grant Recipients – Small scale projects

Applicant Organisation Grant Amount Supported Total Investment Project Description Suburb State
17 Rocks Pty Ltd $100,000 $220,000 Automating Functional Chocolate Production Seventeen Mile Rocks QLD
3Done Australia Pty Ltd $100,000 $205,000 3Done Cancer Treatment Additive Manufacturing Expansion Salisbury QLD
Adelaide Trimmings Pty. Ltd. $100,000 $273,150 Stenter Production Process Somerton Park SA
Advanced Composite Structures Australia Pty Ltd $85,000 $175,982 Automated Multi-purpose System to Manufacture Advanced Composite Structures Port Melbourne VIC
Alba-Edible-Oils Pty Ltd $100,000 $363,400 Export Plus – Value add innovation Hamilton Hill WA
Alevo Pty Limited $100,000 $269,195 Robotics automation cell investment for leading manufacturer Athlegen. Alfredton VIC
All Fish For Dogs Pty Ltd $100,000 $449,000 Pet Treat Production Expansion with Computerised Extrusion Technology Mission Beach QLD
Alliance Electroplaters Pty Ltd $98,000 $285,000 Alliance Tesla Project Modernisation Campbellfield VIC
Allied Heat Transfer International Pty Ltd $99,945 $235,491 Improved efficiences in pressure vessel manufacture Canning Vale WA
Allmould Plastics Pty Ltd $100,000 $495,400 Allmould Optimisation of Modernisation and Capacity Orange NSW
Altair Aviation Pty. Limited $99,550 $199,100 Efficiency & capability improvement through installing a 4-axis CNC machine Carpendeit VIC
Arrosto Investments Pty Ltd $99,550 $199,100 Automated bottling for innovative liquid coffee products and power upgrades Renmark SA
Aset Engineering Pty Ltd $100,000 $327,044 Upgrade of manufacturing equipment to improve efficiency and create jobs Hartley SA
Aussie Lifts Pty Ltd $99,450 $198,900 Operations Modernisation Project Acacia Ridge QLD
Australian Construction Systems Operations Pty Ltd $91,329 $182,658 Industry 4.0 automated jump form kit manufacturing investment Campbellfield VIC
Australian Custom Pharmaceuticals Pty Ltd $100,000 $252,716 ACP Process Optimization and Export Facilitation Project Caringbah NSW
Australian Distilling Pty Ltd $100,000 $309,364 Distillery Manufacturing Expansion Henley Brook WA
Australian Water Engineers Pty Ltd $100,000 $215,000 Modernising Manufacturing Operations with CNC Fibre Laser Cutting Riverview QLD
B.E. Switchcraft Pty. Ltd. $100,000 $291,787 Upgrade of manufacturing equipment to improve efficiency and create jobs Royal Park SA
Baker & Mcauliffe Holdings Pty Ltd $100,000 $200,000 Intralux CNC Project Darlinghurst NSW
Ballistic Beer Company Pty Ltd $79,008 $158,017 Brewhouse Upgrade Salisbury QLD
Beechworth Honey Pty Ltd $100,000 $440,313 Honey Diversity & Differentiation for Food Security Beechworth VIC
Beeinventive Pty Ltd $100,000 $200,000 Flow Hive Factory – Laser Upgrade Newrybar NSW
Bendigo Woollen Mills Pty. Ltd. $100,000 $200,000 Upgrading Fibre Carding Process & Introduction of ERP for Manufacturing Bendigo VIC
Bespoke Engineering Pty Ltd $92,000 $192,000 5 Axis CNC Machine for local manufacture of an Australian designed engine Lonsdale SA
Boron Molecular Pty Limited $99,325 $198,650 Increased fine chemical manufacturing capacity and capability Noble Park VIC
Byron Aviation Pty Limited $100,000 $387,000 Grow Australian capability in efficient high-quality aircraft refurbishment Wetherill Park NSW
C.E. Bartlett Proprietary Limited $100,000 $321,830 Improving competitiveness through advanced cutting capability Wendouree VIC
Calabria Family Wines Pty Ltd $100,000 $417,600 Membrane Contact – Sparkling Wine Production Griffith NSW
Cathrx Ltd $94,954 $189,908 Development of an Automated Cardiac Catheter Electrode Filleting Robot Rydalmere NSW
CCMSM Manufacturing Pty Ltd $100,000 $367,300 Leading Edge CNC Composite Machine investment Epping VIC
Chemistry House Pty Ltd $100,000 $380,000 Expansion of Plant to Provide Agile, Efficient Consumer Packaged Product Molendinar QLD
CNC Components Pty Ltd $100,000 $1,040,000 Next Level CNC Machining Geebung QLD
Coldstream Brewery Pty Ltd $100,000 $255,000 Automated and Innovative Bottling Technology for CSB Coldstream VIC
Columbia Corporation Pty. Ltd. $100,000 $267,000 ACORA’s investment in Robotic Welding technologies Eden NSW
Converte Pty Ltd $97,700 $195,400 Manufacturing modernisation for Slow Release bio fertiliser Griffith NSW
CQ Fibreglass Direct Ops Pty Ltd $99,972 $212,488 Automated Filament Winding Production Line Bondoola QLD
Croydon Industries Pty. Limited $54,852 $109,704 Purchase of new CNC Router Marrickville NSW
Crystalaid Manufacture Pty. Ltd. $100,000 $313,000 Modernising Print Circuit Board Manufacturing Tingalpa QLD
Davidson Engineering (Victoria) Pty Ltd $100,000 $274,447 Davo’s Fencing Clip Machinery Upgrade Wando Bridge VIC
DBW&Co Pty Ltd $54,771 $109,542 Industry 4.0 automation for indulgent artisan chocolate experiences Buderim QLD
Diacon Australia Pty Ltd $100,000 $250,000 Modernise Diacon Australia’s Manufacturing Operations – $100k Grant Funding North Mackay QLD
Direct Injection Systems Pty Ltd $100,000 $763,800 Increase innovation of DIT’s Technology Manufacturing Plant in Townsville Toowoomba City QLD
Direct Solutions (Australia) Pty. Ltd. $100,000 $230,580 OMSG Shot Blasting Machine Commissioning Truganina VIC
DJM Fabrications (Vic) Pty Ltd $100,000 $201,062 Investment in welding automation technology for growth & diversification Warragul VIC
Dolphin Products Proprietary Limited $100,000 $253,000 Installation of a high-precision machine for complex over-moulded plastics Heidelberg West VIC
Dresslier And Company (Australia) Pty Ltd $100,000 $334,655 New Filling and Capping Production Lines Newton SA
Elexsys Energy Pty Ltd $100,000 $233,003 EleXsys Grid Stabilisation Support Enoggera QLD
Encat Pty. Limited $100,000 $251,575 Encat’s Advanced Manufacturing Pedestrian Fencing Production Line Unanderra NSW
F. & D. Normoyle Engineering Pty. Limited $100,000 $702,401 Water Cutting Upgrade St Peters NSW
Fairmont Medical Products Pty. Limited $100,000 $270,000 Insufflation Tubing Assembly Automation Bayswater VIC
FH Management Pty Ltd $90,000 $185,000 Advanced Manufacturing of Timber Building Systems Westbury TAS
Five Rings Aerospace Pty Ltd $52,520 $105,040 3D Scanning and Rapid Prototyping Cell Keilor East VIC
Fortress Systems Pty Ltd $88,812 $195,386 Sheet Metal Fabrication Capability Improvement Braeside VIC
Gelista Pty Ltd $100,000 $322,865 To strategically grow the production output of artisan stick ice creams Ridleyton SA
Gin Gin & Dry Pty Ltd $100,000 $200,000 Innovative “Fruit Water” Closed Drying Tunnel Gin Gin QLD
Glenroy Bakery Pty. Ltd. $100,000 $479,985 Manufacturing Modernisation Project Glenroy VIC
Go Medical Industries Pty. Ltd. $100,000 $348,846 Modernised Characterisation Techniques for Controlled Release Film Coatings Subiaco WA
Grounded Pleasures Pty Ltd $100,000 $232,500 Global Artisan – Drinking Chocolate Manufacturing Flow Line, Export & More Ballarat Central VIC
Howard Mining Systems Pty Ltd $100,000 $319,658 Rapid design & prototyping capability for mining & industrial applications Thornton NSW
ICT International Pty Ltd $96,742 $193,484 Creating a competitive advantage: Accredited Calibration Service Armidale NSW
ILLUMODx Pty Ltd $100,000 $220,000 Point-of-care diagnostics for infectious diseases Fairfield VIC
Intel Engineering Pty Ltd $100,000 $244,911 Advanced Manufacturing Robotics Welding & Chassis Automation Line Install Campbellfield VIC
Intellidesign Pty Ltd $99,999 $245,600 Advanced Robotic Coating and Encapsulation Equipment Seventeen Mile Rocks QLD
Jardin Estate Pty Ltd $50,000 $100,000 Expansion of Production Capability Cowaramup WA
Jax Wax Pty Ltd $100,000 $264,581 Visual Robotics Automation programme for specialty wax manufacturer in VIC Officer VIC
K2K Holdings Pty Ltd $100,000 $240,291 Manufacturing Scale Up Project Seaford VIC
Kangaroo Island Distillery Pty Ltd $100,000 $350,000 Acquisition of new still to improve productivity Menzies SA
Keech Castings Australia Pty Limited $100,000 $254,200 Keech ERP Modernisation Project East Bendigo VIC
Kingston Estate Wines Pty Ltd $100,000 $363,557 Red Fermenter Air Injection Kent Town SA
Kolmark Pty Ltd $100,000 $335,000 Spirit Still Manufacture for the 21st Century Westbury TAS
Kookaburra Sport Pty. Ltd. $100,000 $307,762 Blending artisan skills and robotic automation for cricket ball production Moorabbin VIC
LBFR Creative Pty Ltd $100,000 $256,085 Garment Cutter Automation for Modernising and Scaling Local Manufacturing Burleigh Heads QLD
Lee Mu Tsai Investment Pty Ltd $85,780 $171,560 Bio-sludge fertiliser manufacturing facility Waterloo Corner SA
LGM Industries Pty Ltd $73,000 $146,150 LGM Welding Capability Upgrade Picton East WA
Little Bang Brewing Company Pty Ltd $100,000 $206,682 Little Bang manufacturing modernisation and efficiency project Stepney SA
Luxmy Furniture Pty Ltd $50,893 $101,786 Install New Robotic Arm to Existing Edge Banding Machine Punchbowl NSW
Lyrian Pty Ltd $92,000 $185,000 New CNC Machine Wagga Wagga NSW
Magnetica Limited $100,000 $323,352 MRI Accessory Manufacturing Facility Upgrade Eagle Farm QLD
Mansalem Pty Ltd $100,000 $205,066 Prosthetic Rehabilitation of Crainofacial Disfigurement Tanah Merah QLD
Mark’S 4WD Adaptors Pty Ltd $98,801 $197,603 Robotic Welding Cell installation to improve efficiency & quality Dingley Village VIC
Marmik Holdings Pty Ltd $100,000 $1,529,415 Segment machine Beckenham WA
Medikane Operations Pty Ltd $100,000 $432,500 World first facility to manufacture value added products from sugar waste North Ryde NSW
Melbourne Chef (Aust) Pty. Ltd. $100,000 $320,000 Sustainable packaging and sauce line investment Kensington VIC
Melvelle Equipment Corp. Pty Ltd $100,000 $214,035 Machining & Fabrication Modernisation Maryland NSW
Merino Country Pty. Ltd. $73,500 $147,000 4.0 Smart Merino Garment Manufacturing Shailer Park QLD
Milford Industries Pty Ltd $100,000 $413,583 Advanced Manufacturing Capability – Robotic Welding Cell (Strategic Stage) Camden Park SA
Miller Metal Imaging Pty Ltd $88,529 $177,058 Purchase and implementation of a DSE Aluprinter 100 Byron Bay NSW
Milliken (Australia) Pty Ltd $100,000 $345,840 Smart factory robotic loading system for bespoke carpet tile printing Northmead NSW
Modular Innovations Pty Ltd $87,309 $174,618 Automate Manufacturing of AcoustiSorb Noise Panels Kurnell NSW
Moon Deck Pty Ltd $100,000 $374,000 Moon Deck Growth Project Wy Yung VIC
Moove Holdings Pty Ltd $70,000 $145,206 Machine Vision Systems & Robots in cutting wheel production Campbellfield VIC
MPI Global Pty Ltd $100,000 $227,536 Bending Machine Cunderdin WA
Multipanel Pty Ltd $100,000 $264,876 Increasing production efficiency of the innovative MULTIPANEL product Mount Eliza VIC
New Touch Industries Pty Ltd $100,000 $284,870 Deburring and Edge Rounding machine for increased sector competitiveness Bayswater VIC
Nowra Chemical Manufacturers Pty Ltd $98,000 $370,138 Pharma Automation Nowra NSW
Omni Tanker Pty. Ltd. $100,000 $242,500 Automated Waterjet Manufacture Cell Smeaton Grange NSW
Oneva Holdings Pty. Ltd. $99,999 $200,000 Vegan cheese and pastry manufacturing Alstonville NSW
Opti Grow Pty Ltd $87,500 $175,000 Unique Air-Drying System for Biopharmaceutical and Nutraceutical Production Kelvin Grove QLD
Optotech Pty. Ltd. $99,350 $198,700 Laser Workstation for Processing Ceramics and Welding Medical Capsules Southbank VIC
Paarhammer Pty Ltd $85,000 $170,000 Lifting Equipment for diverse workforce & Veneer Press for new product line Ballan VIC
Pacer Profiles Pty Ltd $100,000 $265,000 Acquisition of a plastic extruder for drainage channel Edinburgh North SA
Parnham Group Pty Ltd $97,500 $195,000 Pathfinder Material Cutting Machine for Parnham Group Cheltenham VIC
Patterson Glass Pty Ltd $50,000 $100,000 CNC Machine Nerang QLD
Perfection Food Group Pty Limited $100,000 $240,000 Modernisation and expansion of ice cream plant Botany NSW
Pharmaoil Pty. Ltd. $95,033 $190,067 Manufacturing Capability and Capacity Increase for Overseas Export Dandenong VIC
Platypus Fishing Pty Ltd $92,468 $184,937 Braided Fishing Line Manufacturing Modernisation Brendale QLD
Polytuff Automotive Pty Ltd $62,313 $124,627 3-Belt Curing Line Oven for Polyurethane Auto Parts Brendale QLD
Porcelain Bear Pty Ltd $100,000 $250,000 Porcelain Bear Factory Upgrade Collingwood VIC
Proform Gourmet Pty Limited $100,000 $465,355 Production streamlining using IQF Mount Kuring-Gai NSW
Provectus Algae Pty Ltd $100,000 $350,000 Next generation biologics from Algae Cooloola Cove QLD
PTE Hydraulics Pty. Ltd. $67,703 $135,407 Spline Measuring & Hydraulic Fluid Analysis for Hydraulic Rotary Actuators Acacia Ridge QLD
Quincey Jones Jelly Preserves Co. Pty Ltd $60,156 $120,313 Modernising Manufacturing at Quincey Jones Jelly Preserves Co. Moama NSW
Rapid Spray Pty Ltd $97,995 $195,990 Automated Bulk powder handing and dispensing system McDougalls Hill NSW
Ray Fry Investments Pty. Ltd. $100,000 $259,820 AMM Project Procurement SMEC SL3500AL CNC Lathe Portsmith QLD
Red Range Stock Supplements Pty Ltd $94,022 $188,045 Automated Manufacturing Solution with Sales & Operations Integration Kununurra WA
RiE Group Pty Ltd $100,000 $475,000 Calibrations and Well Site Services – Surat & Eromanga Basins Chinchilla QLD
Sentek Pty. Ltd $86,255 $172,510 Automated Encapsulation Process Line Stepney SA
Stabilcorp Pty Ltd $90,450 $180,900 Increasing the efficiency of the ShoulderMaster manufacturing process Wauchope NSW
Starkbrau Pty Ltd $100,000 $200,000 Canning Line for Brewery Production Growth Beechworth VIC
Stealth Special Vehicles Pty Ltd $100,000 $250,382 OzPOD Mobilisation Project Springvale VIC
Stritek International Pty Ltd $80,500 $161,000 Purchasing Cutting-Edge Elite Sportswear Manufacturing Technology Broadmeadows VIC
Tactical Research Pty Ltd $90,000 $180,000 Establishing an Electro-Optical Advanced Manufacturing Capability Jindabyne NSW
The Bench Top Factory Pty Ltd $97,189 $194,379 Advanced Manufacturing for Stonemasonry Braeside VIC
Third Zeton Pty Ltd $100,000 $245,000 Tieman Tankers – investing in state of the art automated welding equipment. Campbellfield VIC
Tip Top Blinds (Victoria) Pty Ltd $96,067 $192,135 Modernisation of Blind Manufacturing Process Clayton VIC
TJM Group Holdings Pty Ltd $100,000 $270,484 Automation investment for TJM Group Holdings, leading food innovation Sunshine West VIC
Trafford Group Pty Ltd $100,000 $200,000 Implementation of a Manufacturing ERP System & Modernising Processes Nathalia VIC
Travtel Investments Pty Limited $100,000 $692,000 CAD CAM Innovation and Boutique Dental Clinic Woollahra NSW
Treat Enterprises Pty Ltd $89,100 $178,200 Product Equipment Modernisation Fairfield VIC
Tribotech Pty. Ltd $98,500 $197,000 Robotic automation to manufacture conveyor rollers and frames Wangara WA
Trimec Industries Pty Ltd $99,008 $198,016 Modernisation of calibration facilities to increase product marketability Caringbah NSW
Ums: Production Services Pty Ltd $100,000 $275,312 Pre-production Automation and Efficiency Project Brooklyn VIC
U-Neek Bending Co. Pty Ltd $100,000 $486,942 Uneek Integration of Revolutionary Bending Technology Dandenong South VIC
Urban Aluminium Pty Ltd $55,000 $110,527 Urban Aluminium Pty Ltd – CNC Machine Mount Kuring-Gai NSW
Violet Light Pty Ltd $100,000 $338,000 Revolutionary thermodynamic cycle technology and automation for brewing Thornbury VIC
Wayne Duffy Consulting Pty Ltd $99,650 $199,850 ERP system for the whole of company efficiency and resources utilization. Beverley SA
Westurn Engineering Pty Ltd $100,000 $286,885 Implementation of Advanced Portable Metrology Tools in CNC Machine Workshop Greenfields WA
Willow Springs Packaging Pty Ltd $100,000 $416,224 Willow Springs Packaging Automation and Recycling Project Nobby QLD
Young Henrys Brewing Company Pty Ltd $100,000 $223,600 Fermentation CO2 sequestration/recovery and greenhouse gas abatement Newtown NSW
Zuster Pty Ltd $100,000 $206,613 Leading edge design differentiation via advanced technology Hawthorn VIC

R&D Capital Partners $3million COVID Fund | R&D Tax Incentive and other Govt. Grants – Update

TCF SERVICES | R&D CAPITAL

NEWSLETTER | 30.04.2020

R&D Tax Incentive | Prepayment Loans | EMDG | MMF

 

Trying to navigate your business through the ongoing threat of the coronavirus whilst maintaining the security of your staff and clients will no doubt be a juggling act we will all have to manoeuvre for some time.  As such, industry assistance from both Federal and State Governments has never been more crucial, but don’t just look at current cash flow assistance stemming from the economic response to the virus. Other business grants and tax incentives are also available and can make an enormous difference to your ongoing viability.

 

TCF Services is OPEN for business

Like so many businesses around the country, we at TCF Services are following the Government’s advice to self-isolate with all our staff working from home. We are fully operational with our consulting team available during normal office hours and beyond. We have taken all appropriate digital security measures to continue working through our usual channels and are well equipped to service our client’s needs through this crisis.

 

R&D Tax Incentive 18/19 Financial claims

The cut-off date for end June 2019 financial year claims is normally 10 months after the year end being the end of April 2020 but AusIndustry has now extended the deadline to end September 2020. If your business is on hold and your looking for ways to survive, the time is now to work with an R&D tax consultant to check your eligibility and prepare your current 18/19 and 19/20 claims.

 

R&D Tax Incentive 19/20 Financial claims  

From 1st July, applications can be lodged under the R&D tax Incentive. If you incurred costs undertaking research and development activities please call us as you may be eligible to claim a cash reimbursement of up to 43.5%  against eligible costs incurred. All R&D companies should consider fast-tracking the claim preparation and contemporaneous record keeping requirements to ensure compliant claims.

Conversely, if you are planning to undertake R&D in 20/21 we also encourage you to call us so we can assist you with keeping the appropriate records to allow you to claim benefits in the following year.

 

R&D Tax prepayment loans

In addition, if you need cash NOW,  our sister company R&D Capital Partners is also able to prepay up to 80% of the expected cash refund expected from your clients 18/19 OR 19/20 R&D Tax claim. This applies to companies eligible for a refundable tax offset that are cashing out tax losses against R&D expenses claimed.

In response to the Covid-19 business impact on cash poor technology companies claiming the R&D Tax Incentive, TCF Services in partnership with R&D Capital Partners is offering reduced rates for a 6 month period only to provide:

  • R&D Tax prepayment loans of up to 80% against expected 18/19 or 19/20 financial year R&D tax cash refunds and;
  • R&D Tax claim services including the establishment of compliant record keeping practices.
  • Free scoping of other grant opportunities

Speak with David Tonkin,  Director of TCF Services  and R&D Capital, for more information.

 

Export Market Development grants:

This program has been under-funded for many years resulting in a modulated grant being paid to recipients of less than 50% of what they were entitled to. As part of the additional support provided by the Federal Government an additional $49 million has been provided so that all 2019 claims are fully paid in June. Perhaps it is a good time to consider preparing documentation now to be ready to lodge an application from the 1st July to enable a faster payment turnaround.

 

Manufacturing Modernisation Fund:

$50m Federal Government grant program which supports manufacturers to modernise, adopt new technologies, become more productive and create more jobs by co-funding capital investment and up-skilling your staff.

·        $20m will be allocated for small grants ($50,000 to $100,000) to support technology and efficiency improvements. Co-funding is on a 50/50% basis.

·        $30m will be allocated for larger grants ( $100,000 to $1m) to support transformative investments in technologies and processes. Successful claimants will be provided with grants equal to 25% of projects costs with the 75% balance funded by the claimant.

* Round 2 – Applications are expected to open in May with a end of June lodgement deadline.

 

TCF Services Pty Ltd has successfully delivered over $2 billion in tax incentives and  grants for its clients over the past 29 years.

 

R&D Tax Incentive Funding Consultants Services Government Grants Research and Development Australia

Call David Tonkin on 0411304445 or email david@tcf.net.au

Government industry assistance available NOW >> Govt. Grants | R&D Tax Incentive | Federal and State Stimulus Packages

TCF NEWSLETTER | 24.03.2020

R&D Tax Incentive

Government industry assistance available NOW

Trying to navigate your business through the ongoing threat of the coronavirus whilst maintaining the security of your staff and clients will no doubt be a juggling act we will all have to manoeuvre for some time.  As such, industry assistance from both Federal and State Governments has never been more crucial, but don’t just look at current cash flow assistance stemming from the economic response to the virus as other business grants and tax incentives are also available and can make an enormous difference to your ongoing viability.

Listed below, are a few current grant opportunities that may be worth considering as well as a Federal and State by State rundown on the cash flow assistance stemming from the coronavirus, be sure you don’t miss out!

Manufacturing Modernisation Fund:

A $50m Federal Government grant program which supports manufacturers to modernise, adopt new technologies, become more productive and create more jobs by co-funding capital investment and ups-killing your staff.

·        $20m will be allocated for small grants ($50,000 to $100,000) to support technology and efficiency improvements. Co-funding is on a 50/50% basis.

·        $30m will be allocated for larger grants ( $100,000 to $1m) to support transformative investments in technologies and processes. Successful claimants will be provided with grants equal to 25% of projects costs with the 75% balance funded by the claimant.

Round 1 – Successful applicants will be announced by the end of March

Round 2 – Applications are expected to open in early April with a end of May lodgement deadline.

R&D Tax Incentive:

It has been reported that over 800,000 SME’s in Australia had a payment plan with the ATO even before the virus hit. Despite negative press over the past 3 years concerning the behaviour of the scheme administrators in conducting heavy audit tactics to either reclaim or reduce benefits paid out, the recent Ombudsman’s report has now quelled this behaviour and claimants can now feel more secure in proceeding with making sound claims. As the benefit is delivered in the form of either cash refund or a tax offset to be netted off taxes owed, it’s a tremendous cash flow boost. As such we encourage all potential claimants to make claims without the fear of audit risk taking up your time and efforts to survive. The cut-off date for end June 2019 financial year claims is normally 10 months after the year end being the end of April 2020 but AusIndustry today extended the deadline to end September 2020, I would suggest you don’t wait, if your business is on hold and your looking for ways to survive, this is a great time to work with an R&D tax agent to pull your current 18/19 and 19/20 claims together. 19/20 financial claims can also be lodged from 1st July onward. All R&D companies should consider fast-tracking your claim preparation and contemporaneous record keeping requirements to ensure compliant claims.

Export Market Development grants:

This program has been under-funded for many years resulting in a modulated grant being paid to recipients of less than 50% of what they were entitled to. When the GFC occurred in 2007 the then Labor Government decided to pay out 100% of all claims as part of their stimulus package to assist industry. This very same initiative is now being lobbied for by exporters and may form part of the next tranche of announcements made to further assist industry. You heard it here first. If your business is on hold you may wish to consider preparing your documentation to claim from the 1st July as the earlier lodgements are made the quicker you will get paid.

Federal Government stimulus package

The Government yesterday released a second, far reaching $66bn stimulus package that boosts income support payments, introduces targeted changes to the superannuation rules, provides cash flow support of up to $100,000 for small business employers, and relaxes corporate insolvency laws.

The stimulus measures are not yet legislated, however, parliament reconvenes today, and it is expected that these measures will be legislated quickly.

The Prime Minister has warned that there are no “quick solutions” and that business should prepare for 6 months of disruption.

 What does this means for Small Business?

·        Tax-free payments up to $100,000 for small business and not-for-profit employers. An increase in the previously announced initial tax-free payments for employers to a maximum of $50,000. In addition to this, a second round of payments will be made up to a maximum of $50,000, accessible from July 2020.

·        Solvency safety net – temporary 6 month increase to the threshold at which creditors can issue a statutory demand on a company from $2,000 to $20,000, and an increase in the time companies have to respond from 21 days to 6 months. Directors also are provided with temporary relief from personal liability for trading while insolvent for 6 months.

·        Access to working capital – Introduction of a Coronavirus SME guarantee scheme protecting financial institutions by guaranteeing 50% of new loans to SMEs.

·        Sole traders and self-employed eligible for Jobseeker payment – the eligibility criteria to access income support relaxed for the self-employed and sole traders.

·        Temporary relief from some Corporations Act requirements

What does this means for Individuals?

·        Early release of superannuation – individuals in financial distress able to access up to $10,000 of their superannuation in 2019-20, and a further $10,000 in 2020-21. The withdrawals will be tax-free and will not affect Centre-                   link or Veterans’ Affairs payments.

·        Temporary reduction in minimum superannuation draw down rates – superannuation minimum draw-down requirements for account based pensions and similar products reduced by 50% in 2019-20 and 2020-21.

·        Deeming rates reduced – from 1 May, superannuation deeming rates reduced further to a lower rate of 0.25% and upper rate of 2.25%.

·        Supplements increased, access extended and eased – for 6 months from 27 April 2020:

·        A temporary coronavirus supplement of $550 will be paid to existing income support recipients (people will receive their normal payment plus $550 each fortnight for 6 months).

·        A second one-off stimulus payment of $750 will be paid automatically from 13 June 2020 to certain income support recipients (in addition to the payment made from 31 March 2020).

·        Eligibility for access to income support eased to include sole traders and the self-employed, and to those caring for someone infected or in isolation.

·        Waiting periods and assets tests temporarily waived.

·        Bankruptcy safety net – temporary 6 month increase to the threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings against a debtor from $5,000 to $20,000.

The Government has flagged that additional stimulus packages will be required, and we include below the detail in relation to each announcement.

Tax-free payments up to $100,000 for employers

·        From: 28 April 2020

·        Eligibility: Small and medium business entity employers and not-for-profit entities, with an aggregated annual turnover under $50 million.

The Government has increased the previously announced measures to provide cash flow support to business.

Now, eligible businesses with a turnover of less than $50 million will initially be able to access tax-free cash flow support, with the minimum amount being increased to $10,000 and the maximum amount increased to $50,000 (previously $2,000 to $25,000). However, additional support will be provided in the July – October 2020 period so that eligible entities will receive total minimum support of $20,000 and up to $100,000.

In order for a business to qualify for this support it must have been established prior to 12 March 2020. The rules are more flexible for charities because the Government recognises that new charities might be established in response to the pandemic.

The cash flow support measures will be provided in the form of a credit in the activity statement system. The support will be provided in two phases.
·        The first phase ensures that eligible employers receive a credit equal to 100% of the PAYG amounts withheld from salary and wages paid to employees during the relevant period, up to the maximum amount of $50,000.

·        The second phase ensures that eligible employers receive another series of credits, equal to the credits that were received under the first phase. For example, if a business received $40,000 of credits in the first phase it will receive a further $40,000 of credits in the second phase. These additional credits will be spread over two or four activity statement periods, depending on whether the employer lodges on a quarterly or monthly basis.

If a business pays salary and wages to employees but is not required to withhold any tax then a minimum payment of $10,000 will be made in the first phase and a further payment of $10,000 will be made in the second phase.

The credits are automatically calculated by the ATO and employers will need to lodge an activity statement to trigger the entitlement. If the credit puts the business in a refund position the excess amount will be refunded by the ATO within 14 days.

Businesses that lodge activity statements on a quarterly basis will be eligible to receive credits in the first phase for the quarters ending March 2020 and June 2020. Credits in the second phase will be available for the quarters ending June 2020 and September 2020. The minimum $10,000 payment will be applied to the first lodgement.

Business that lodge on a monthly basis will be eligible for the credits in the first phase for the March 2020, April 2020, May 2020 and June 2020 lodgements. Credits in the second phase will be available for the June 2020, July 2020, August 2020 and September lodgements. The minimum $10,000 payment will be applied to the first lodgement.

Eligibility for the measure will be based on prior year turnover. We will have to wait for the legislation for the finer details.

Not-for-profit employers, including charities, with an aggregated turnover under $50 million will also be able to access the cash flow support.

·        See: Cash flow assistance for businesses

Solvency safety net

A safety net has been put in place to protect businesses in temporary financial distress as a result of the pandemic by lessening the threat of actions that could unnecessarily push them into insolvency and force the winding up of the business. These include:

·        A temporary 6 month increase to the threshold at which creditors can issue a statutory demand on a company from $2,000 to $20,000.

·        The time a company has to respond to statutory demands will increase from 21 days to 6 months.

·        For 6 months, directors will be provided with temporary relief from personal liability for trading while insolvent.

·        See also bankruptcy safety net below

It will be more important than ever for business to stay on top of their debtors.

Debts incurred will still be payable by the business. Only those debts incurred in the ordinary course of the business will be subject to the safety net measures.

·        See: Temporary relief for financially distressed businesses

Access to working capital for SMEs – supporting lenders

The Government has announced a Coronavirus SME guarantee scheme that will guarantee 50% of new loans to SMEs up to $20 billion. These loans are new short-term unsecured loans to SMEs.

SMEs with a turnover of up to $50 million will be eligible to receive these loans.

The Government will provide eligible lenders with a guarantee for loans with the following terms:

·        Maximum total size of loans of $250,000 per borrower.

·        The loans will be up to three years, with an initial six month repayment holiday.

·        The loans will be in the form of unsecured finance, meaning that borrowers will not have to provide an asset as security for the loan.

Loans will be subject to lenders’ credit assessment processes with the expectation that lenders will look
through the cycle to sensibly take into account the uncertainty of the current economic conditions.

This latest measure builds on the previous initiatives to ensure small business can access capital, including:

·        An exemption to the responsible lending obligations to enable financial institutions to provide new credit, credit limit increases, and credit variations and restructures,

·        $15bn to the Australian Office of Financial Management to invest in wholesale funding markets used by small banks and non-banks to enable these lenders to support SMEs, and

·        Australian Banking Association members will defer loan repayments for 6 months for small businesses (affected small businesses will need to apply for relief).

Jobseeker payment’s

The eligibility criteria to access income support payments will be relaxed to enable the self-employed and sole traders whose income has been reduced, to access support.

More:

·        Income support for individuals

·        More financial support for coronavirus affected job seekers

Temporary relief from Corporations Act requirements

The Treasurer has been given a temporary instrument-making power to amend the Corporations Act to provide relief or modifications to specific compliance obligations.

ASIC has announced measures for those companies with a 31 December financial year that need to hold their AGMs by 31 May 2020, providing a two month no action period and enabling hybrid virtual AGMs.

Early release of superannuation

From mid-April, individuals in financial distress will be able to access up to $10,000 of their superannuation in 2019-20, and a further $10,000 in 2020-21. The withdrawals will be tax free and will not affect Centrelink or Veterans’ Affairs payments.

To be eligible to access your superannuation you need to meet the following requirements:

·        you are unemployed; or

·        you are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or

·        on or after 1 January 2020:

·        you were made redundant; or

·        your working hours were reduced by 20% or more; or

·        if you are a sole trader — your business was suspended or there was a reduction in your turnover of 20% or more.

For those eligible to access their superannuation, you can apply directly to the ATO through the myGov website from mid-April.

More:

·        Early access to superannuation

Time limited fortnightly $550 ‘coronavirus supplement’

For the next 6 months, the Government is introducing a new Coronavirus supplement to be paid at a rate of $550 per fortnight. This supplement will be paid to both existing and new recipients in the eligible payment categories.

The payment will be made to those receiving:

·        Job-seeker payment (and those transitioning to the job-seeker payment)

·        Youth allowance job-seeker

·        Parenting payment

·        Farm household allowance

·        Special benefits recipients

In addition, eligibility to income support payments will be expanded to:

·        Permanent employees who are stood down or lose their job

·        Casual workers

·        Sole traders

·        The self-employed

·        Contract workers who meet the income test

The Government notes that these criteria could include those required to care for someone affected by the Coronavirus.

Asset testing has also been reduced and will be waived for 6 months. Income testing will still apply.

The payment is not available if you have access to any employer entitlements such as annual or sick leave or income protection insurance.

More:

·        Income support for individuals

Second $750 payment to households

The Government is now providing two separate $750 payments to social security, veteran and other income support recipients and eligible concession card holders residing in Australia (see the full list here). The payment will be exempt from taxation and will not count as income for the purposes of Social Security, Farm Household Allowance and Veteran payments.
·        Payment 1 from 31 March 2020 (previously announced on 12 March): Available to people who are eligible payment recipients and concession card holders at any time between 12 March 2020 to 13 April 2020;

·        Payment 2 from 13 July 2020: Available to people who are eligible payment recipients and concession card holders on 10 July 2020.

The payments will be made automatically to those that meet the criteria.

More:
Payments to support households

Bankruptcy safety net

A temporary 6 month increase to the threshold for the minimum amount of debt required for a creditor to initiate bankruptcy proceedings against a debtor will increase from $5,000 to $20,000. In addition, the time a debtor has to respond to a bankruptcy notice will be temporarily increased from 21 days to six months.

Where someone declares their intention to enter voluntary bankruptcy, the period of protection from unsecured creditors will be extended from 21 days to 6 months.

More:

Temporary relief for financially distressed businesses

State by State rundown of stimulus packages 

NSW:

·        The waiver of payroll tax for businesses with payrolls of up to $10 million for three months (the rest of 2019-20). This means these businesses will save a quarter of their annual payroll tax bill in 2019-20

·        $56 million to bring forward the next round of payroll tax cuts by raising the threshold limit to $1 million in 2020-21

·        $80 million to waive a range of fees and charges for small businesses including bars, cafes, restaurants and tradies

VIC:

·        $550 million which would go to 24,000 small and medium-sized enterprises with a payroll of less than $3 million as a payroll tax refund.

·        $500 million  into a fund for hardship payments, small grants and tailored support which would be distributed in consultation with the Victorian Chamber of Commerce and Industry, the Australian Hotels Association, the Australian Industry Group and other industry representatives.This money will go towards sectors that “really are doing it tough” who may not pay payroll tax and require more tailored support to survive.

·        $600 million, included a range of measures such as the waiving of 12,5000 venues’ liquor licence fees due this month and worth a total of $30 million

·        2020 land tax deferred for people that have at least one non-residential property and total taxable landholdings below $1 million.

·        2020 renewable liquor licence fees waived.

QLD:

·        $500m loan facility to  assist QLD business to retain staff.  Loans will be offered at a low interest rate of up to $250K over 10 years. The first year will be interest free.

SA:

·        $350 million stimulus package

·        Stimulus provides up to $100,000 to eligible small and medium sized businesses, and not-for-profits (including charities) that employ people, with a minimum payment of $20,000.

·        The Coronavirus SME Guarantee Scheme will support small and medium enterprises (SMEs) to get access to working capital to help get them through the impact of COVID-19.

·        Increasing the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive.

·        The Government is increasing the instant asset write-off threshold from $30,000 to $150,000 and expanding access to include businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020.

WA:

·        $114 million in measures to support Western Australian small and medium businesses.

·        Payroll tax paying businesses with a payroll between $1 million and $4 million will receive a one-off grant of $17,500

·        $1 million payroll tax threshold brought forward by six months to July 1, 2020

·        Small and medium sized businesses affected by COVID-19 can now apply to defer payment of their 2019-20 payroll tax until July 21, 2020

More Federal and State stimulus package announcements will be made over the next coming days and weeks.

Call Gerry Frittmann on 0413 647 664  or email gerry@tcf.net.au

The 30th April R&D Tax incentive lodgement deadline looms fast and why good record keeping is paramount.

TCF NEWSLETTER | 12.03.2020

R&D Tax Incentive

Please be reminded that if you have not already prepared and lodged your 2018/19 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.

Simple things like:

  • populating an annual R&D project plan,
  • writing monthly technical reports,
  • taking photos evidencing stages of prototype work and
  • completing weekly time-sheets for R&D staff

is paramount in maintaining your successful participation on the program as well as good business practice as it establishes and values your greatest asset; your IP.

Don’t get caught out!

Here are a few reasons why claims can be rejected after review or audit:

Poor and/or insufficient R&D record keeping – Records must be contemporaneous; projects must be broken down and tracked by activities (core, supporting and ineligible); Weekly time-sheets are required to confirm the percentage of time /salary to be claimed by R&D staff that relate to eligible R&D activities; Technical reports should be written regularly that evaluate the results of the experiments including knowledge gap evidence to prove the knowledge is not already in the public domain; evidence that the R&D manager or CTO is a competent professional in the field and not playing industry catch up or learning a new technique.

Whole of project claim approach – claiming the total costs of running the business whilst it’s in start-up phase with no revenue on the basis that it’s all risky and contingent on the success of the business.

Claiming business model innovation in absence of high levels of technical or scientific risk – just because the new business model disrupts the old and uses technology to do so does not constitute eligible R&D under the program.

Claiming unpaid associated party fees – if an entity or person is associated in any way with the R&D entity the fees for R&D services must be paid by the 30th June in the year of the activity to allow the benefit to be claimed and paid. Otherwise it must be carried over in the tax return until the payment is made, after which the benefit can be claimed in later years.

Claiming late superannuation payments – Claiming superannuation on R&D staff where the super was not paid on time or before the end of the financial year. Generally, compulsory superannuation payments paid late (outside the time limits) 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 (ie, acknowledged by the complying superfund 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 – don’t get caught out.

If you require assistance with your 18/19 claim preparation or establishment of compliant record keeping for your 19/20 R&D activities or if you would like to discuss these matters further please contact Gerry Frittmann – Managing Director at TCF Services on gerry@tcf.net.au or contact your R&D Tax consultant at TCF Services.

Gerry Frittmann

Managing Director

Tax agents registration number 39849006

P: 02 8219 4900

Review of the R&D Tax Incentive – A redacted version of the key findings and recommendations

REVIEW OF THE R&D TAX INCENTIVE

TCF Services would like to congratulate Ms Kate Carnell AO (who lead the review into the administration of the R&D Tax Incentive) in her role as the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) for precisely laying bare the many issues which have left the R&D Tax Incentive in an uncertain state over the past 3 years. The level of detail in this report demonstrates how Ms Carnell and her office have listened and understood the many issues put forward by the stakeholders interviewed. All in all, it is a very positive and realistic report. It should be noted that the legislation under which the Ombudsman was acting, limited the review to Small Business with an annual turnover of $5m or less. However, her observations are equally applicable to claimants under the scheme with turnovers > $5 million. It will be interesting to see if the scheme administrators now take up the recommendation of “redressing the claimants” that were wrongly subjected to heavy audit activity with demands to pay back 4-5 years of receipts OR whether its too late as they have all been forced into administration or have lost the business impetus as an outcome of the process. Likewise, the Government is not giving up on re-introducing legislation to further reduce benefits under the program despite the fact the Senate committee lead by their own party members rejected the very same amendments a year ago. Talk about uncertainty….   

The full 50 page “Review of the R&D Tax Incentive” report can be found here 

Likewise, if you would like to review the newly re-introduced Bill seeking to reduce benefits under the program it can be found here

A redacted version of the key findings and recommendations are noted below:

Executive Summary (pg.4)

My office is recommending that this important incentive be retained, and a suite of reforms are made to the way the system is administered.

This report details how small and family business taxpayers have been subjected to review, examination and audit by the 2 agencies responsible for the delivery of the program. In all cases, this compliance activity was retrospective and commenced several years after the relevant research and development (R&D) activity was undertaken and the R&DTI refund received. In almost all cases, the R&DTI claims were rejected in total. This has had a devastating impact on the companies, with some saying they face financial ruin. Others have scaled down their R&D efforts in Australia and reduced their R&D staff.

It is therefore critical that wherever possible the program is improved for small and family businesses and that R&DTI risk and compliance activities are conducted as close as possible to when “they” register their R&D activities and before they claim the benefit with the ATO.

We identified an overall shift in the way the R&DTI legislation has been interpreted over the last three to four years; a narrowing of focus leading to a rejection of claims, which in previous years has been regarded as low risk.

There appears to have been a broad-brush approach to program integrity with a view to recouping Government expenditure on the R&DTI. Valid claimants have been swept up along with those who have been badly advised by unscrupulous R&D “consultants”

The ATO and AusIndustry tell us that they are revising their approach to R&DTI compliance, which we welcome. It is also critical that there is a mechanism by which those businesses adversely affected by past poor processes can seek redress. 

Recommendations (pg.5)

We have grave concerns that the administration of the program does not provide sufficient certainty for small business and that compliance activity by the regulators can and does negatively impact the continued viability of small businesses. The potentially devastating impact on the business is primarily due to audit activity coming years after an incentive has been invested back into business – with many having relied on expert professional advice. Small businesses simply do not have the cash-flow or retained earnings to repay the R&DTI together with accumulated interest and penalties.

The program requires a fairer, more consistent, educative and customer-focused approach by both AusIndustry and the ATO embedded consistently throughout both networks. Our recommendations are based on the importance of the characteristics of good governance including transparency, clarity and certainty to ensure that companies are encouraged to undertake R&D activities and claim the R&DTI. The recommendations have the following 4 themes: 

·       Where compliance examinations / audits are necessary, they should take place as close as possible to the first year of registration of a project and should not be retrospective beyond one year

·       Guidance materials needs to be comprehensive, clearer and up-to-date and developed in consultation with small business.

·       Substantiation and record-keeping requirements should reflect commercial practicality with regulator personnel fully equipped to understand and collaborate with small business

·       Small business must be assisted to help identify and retain professional and responsible R&D consultants.

The recommendations are:

1.     ATO and AusIndustry administration of the R&DTI should be seamlessly integrated.

2.     Clear joint ATO and AusIndustry guidance must be provided and maintained

3.     The approach to compliance should be: (pg.6)

Proactive – assisting a company to comply in the first year of registration of a project

Professional – ensure staff reviewing/auditing/examining companies are properly trained and experienced in both the technical aspects of the legislation and how to apply it to industry sectors (particularly when R&D is underpinned by software using Agile and Rapid development methods).

Collaborative – AusIndustry’s statutory examination process should include as standard a meeting with the company to allow it to explain the registered activities and work through the company’s records.

Proportionate – Both ATO’s and AusIndustry’s requirements for supporting evidence should be proportionate to the size and complexity of the business and the amount of the claim

Advisors should be skilled and responsible for their advice:

Like the company tax return that includes a declaration by the tax agent, the R&DTI schedule should include a declaration by the R&DTI adviser.

Registered tax agents who prepare or lodge R&DTI claims should meet specialised further education criteria that demonstrates understanding of the requirements of the R&DTI.

Additional Continuing Professional Education (CPE) opportunities through structured courses should be provided by the ATO and AusIndustry to support registered R&D consultants achieve their CPE requirements.

Program Governance (pg.10)

The agencies should engage with small business in the same way and within the same time-frame that they expect of small business.

Changes to R&DTI Compliance Approaches by AusIndustry and the ATO

Both AusIndustry and the ATO in the second meeting, in October 2019, and in subsequent correspondence have advised that they have changed their practices in relation to R&DTI compliance

Under AusIndustry’s new Integrity Framework, each company (R&D entity) will be grouped in particular risk categories:

·       Those “getting it right” are in a lower risk and support when required

·       Those that “are trying to get it right” are medium risk with targeted education and advice 

·       R&D entities “who do not comply” are considered higher risk would be receive correspondence and meet with AusIndustry to discuss eligibility issues – the company may withdraw their application or AusIndustry may commence a statutory assessment…. after which AusIndustry can either discontinue if evidence is provided by the company. A review process is also available if activities are still found to be ineligible.

AusIndustry has released a Service Commitment outlining the level of service their customers can expect. In addition, AusIndustry has told ASBFEO that they will undertake training for staff in stakeholder management and customer experience.

Value of the Program (pg.12)

Claimants increased from 6,475 in 2013 to 13,156 in 2017-18.

A reduction of $700 million (or 13 per cent) in tax offsets paid in 2017-18 from the previous 2016-17 year despite a small increase in the number of claimants.

This reduction in tax offsets paid could be attributed to increased compliance activities, clawing back prior year claims.

Of particular note is that software claims on the program have increased (Software R&D expenditure represents 25-30 per cent to total claimed expenditure) and that SME expenditure claims on the program have increased significantly. Approximately one third of the 13,000 companies registered for the R&DTI are undertaking software development. The other companies are in a wide range of industry sectors.

Approach / Methodology (pg.14)

ASBFEO has investigated the effect of the R&DTI legislation, policies and practices on small businesses or family enterprises as a result of a number of companies approaching ASBFEO about the treatment and outcomes of their R&DTI audit/examinations by the ATO and AusIndustry. They reported that the interpretation of the legislation by AusIndustry and the ATO regarding the eligibility and substantiation of software R&D claims, has shifted to become more rigid. Companies that are not software related, raised concerns with ASBFEO where the ATO had retrospectively ruled that their R&D Incentive activities were not eligible R&D even though AusIndustry advised they were.

In undertaking its investigation the ASBFEO:  

1.      Examined how small businesses typically use the R&DTI;

2.      Determined if there had been a change in what activities were considered eligible by AusIndustry and the ATO pre and post the 2019 software guidance material published by AusIndustry and how this had been conveyed to small businesses.

3.      Determined the impact on a small business of the ATO and AusIndustry being able to audit/examine R&DTI claims going back four years.

4.      Identified the circumstances in the legislation where the ATO can decide that the registered activities are not eligible activities.

5.      Examined the liability a R&D consultant incurs where the ATO and/or AusIndustry has audited/examined their client’s R&DTI claim, ruled the claim ineligible and ordered the benefit be paid back to the ATO.

ASBFEO interviewed and received communications regarding over 20 small business R&DTI claimants who had been reviewed/audited/examined by the ATO and AusIndustry to understand the agencies process and the impact they had on the businesses, with a ‘deep dive’ into eight of these companiesASBFEO examined the ATO and AusIndustry correspondence/decisions/position papers from the agencies to these companies (pg. 15)

Six small and medium R&D consultants were interviewed, as well as with eight R&D consultants from major firms.

Summary of Findings (pg.16)

·       Overall, the program is exceedingly complex.

·       The operation of the ATO and AusIndustry are not properly integrated.

·       The ATO and AusIndustry have critical roles to play in providing further clarity of operation and administration of the law.

·       The ATO and AusIndustry guidance material is fractured and incomplete.

·       Compliance activities have been reactive, lack the commercial understanding of how small businesses operate, assume guilt, are resource intensive and result in long lag times for decision making so that the viability of the scrutinised business is threatened.

·       Many companies are scaling down their R&D efforts in Australia and have reduced their R&D staff due to experience with both agencies compliance activities and the uncertainty surrounding eligibility and the substantiation of the R&D and its expenditures.

·       The program complexity and issues with the administration of the program results in the R&D advisor role being critical to the company. While the R&D consultants we spoke to operate professionally, there are those who are incentivised to increase claims and are not held responsible for their advice. Unscrupulous operators are able to continue to advise businesses for long periods of time.

The Retrospective Nature of Program (pg.17)

AusIndustry has the ability to make a finding that is binding on the ATO for four retrospective years. Statutory examinations undertaken years after the R&D has been undertaken has created an uncertain environment for innovative companies undertaking R&D in Australia.

AusIndustry advise that R&D projects and activities can span across multiple years. Businesses are required to register their activities annually. As such, an examination being undertaken in one year on R&D activities for a project covering previous years may require examination of those earlier years, particularly, if the core activity was conducted in a previous year.

It is however unfair to adversely affect a company at such a late stage following the incentive payment, particularly when they had, for several years, self-assessed using the guidance material that was available at the time and which they believed they could rely upon. The majority of the companies spoken to had registered R&D activities which they genuinely believed were eligible, on the information provided to them by AusIndustry and the ATO. Many had reinvested the offset back into the business.

AusIndustry’s contention is that ‘the legislation has not changed’. There is evidence however that the current AusIndustry software guidance, in particular, has an effect of narrowing their interpretation of the legislation

Anecdotal evidence suggests that some companies are reporting their R&DTI estimated refund as a liability in their financial records, to recognise the potential of the company having to repay the funds accessed in previous years. This has an impact on possible investment into the company.

A finding about the eligibility or otherwise that is applied as close as possible to when the R&D is undertaken has the potential to be fairer to a company, especially for first time registrants.

AusIndustry has said that, in practice, this is difficult as a high percentage of registrations occur close to the 30 April cut-off date and it would be very resource intensive to reach a high number of those.

AusIndustry, will have additional resources to assist in their integrity functions early in 2020. A procurement process was advertised in early 2019 to engage a third party provider to assist with a range of R&DTI integrity functions. When questioned, AusIndustry said that this was as part of the reform measures to the R&DTI announced in the 2018-19 Budget, where the Government committed additional resources to support program integrity and administration.

All decision making will be retained by AusIndustry, however the contractor will assist with integrity activities and provide recommendations for review and decision. The expectation is that there will be a contract in place in late 2019 with activities commencing in early 2020. A significant proportion of these new resources should be directed to pre-registration examinations, particularly for first time registrants to ‘help to get it right’.

AusIndustry Integrity Measures (pg.17/18)

Although customer service/customer experience and compliance/integrity activities should not be mutually exclusive, we have received many complaints from companies about the fairness and transparency of the statutory examination process and the cultural mindset of AusIndustry assessors. These include:

1.      The summary of key issues in the statutory examination letter is a generic list and provides little specific information relating to the company’s registered activities (a copy of the letter is at Attachment D).

2.      The letter contains little guidance regarding the type and volume of contemporaneous documents that would meet the program requirements (a copy of letter is at Attachment D).

3.      AusIndustry has been very reluctant to meet with companies during the examination process. Evidence is required in writing and many companies are concerned about the correct interpretation of the documents.

4.      Long time-frames for AusIndustry to respond to the company and to make a decision during the statutory assessment process.

5.      We have been advised that there have been instances where the AusIndustry assessor’s attitude is that the registration is ineligible and it is up to the company to prove differently.

6.      We have been advised that an AusIndustry assessor often says ‘A Google search shows me that this existed [at the time of the project] and therefore the core R&D activities cannot be eligible’, thus trivialising the R&D effort and not recognising or acknowledging the fast moving nature of R&D in many sectors.

Both AusIndustry and the ATO appear to take a ‘one-size-fits-all’ approach to companies in examining and auditing the R&DTI registrations/claims. Their requirements do not differentiate between large and small companies – or the size of the offset.

AusIndustry Guidance Material (pg.19)

AusIndustry has issued a range of guidance material over the period of the program.

Incorrect interpretation of the legislation caused confusion for companies.

The Frascati Manual was not referenced in any AusIndustry or ATO’s guidance material released prior to February 2019.

The AusIndustry 2019 Software Guidance material refers to the Frascati Manual, however it makes selective use of the wording in the manual, which in effect, restricts the interpretation of the legislation.

AusIndustry’s responds to Frascati Manual by saying “The test for what is an R&D activity for the purposes of the R&DTI is not the same as the test for an R&D activity as set out in the Frascati Manual.”

“Software is developed in Agile teams, which try things and discard things, it doesn’t map well to the structure that the Frascati model tries to create.”Daniel Petre, Co-founder of Airtree Ventures, quoted in the AFR article of 3 December, 2018 ( pg. 20)

Panel members say no offer was made about revisiting the current guidance material.

The first Federal Court decision in relation to the eligibility of the R&D activities was made on 25 July 2019 in Moreton Resources Limited v Innovation and Science Australia [2019] FCAFC 120 and confirmed that the process of statutory interpretation must always lead back to the text of the legislation, regardless of the wording in any other extrinsic materials. This finding is critical, given the apparent over-reliance on other materials such as the Explanatory Memorandum in recent decisions by the AAT. An analysis of the Moreton Resources decision is at Attachment C. The matter has been sent back to the AAT for further consideration. AusIndustry has not provided further information regarding their ISA’s position going forward.

In summary, there are a number of issues with the new AusIndustry software guidance material which include:

1.     It is written in in a prescriptive way when referencing the principles in the Frascati definition

2.     Its focus is largely on why activities are not R&D with little focus why it would be R&D. for example there is no guidance on how software development using the Agile method can demonstrate that the development is, or includes, R&D activities; and

3.     When its quotes the Frascati manual it has made changes that affect how the definition of understood. (pg. 21)

ATO Integrity Measures (pg.22)

Throughout our consultations however, companies reported that the ATO staff involved in reviews and audits were aggressive in their interactions, exhibited poor client engagement skills, displayed a lack of respect and disregarded the taxpayer’s representation.

Lack of advice from the ATO about the type and volume of documents demonstrating nexus between R&D activities and notional expenses.

When challenged to outline the exact documentation needed, the ATO has been known to advise they cannot provide confirmation as they may give the wrong advice. 

Taxpayers are given strict time frames in which to produce documents or answer questionnaires.

there is no equivalent response time limit applicable to the ATO. Taxpayers are left to wait for months for a response and in cases we have seen, another request for information.

ATO Penalties (pg.23)

The ATO has ruled in some cases that a company did not demonstrate ‘reasonable care’ as the tax advice it received was not considered ‘independent’ because R&D consultant charged a commission based on the value of the tax offset (not a fee-for-service).

ATO Debt Recovery (pg.24)

The ATO continues debt recovery action while a debt is in dispute.

Interest should only be charged once all venues of objection are finalised.

ATO Ruling on Eligibility of R&D Activities

There is no legislative basis for the ATO to determine whether or not the activities are eligible under the legislation.

The Tax Practitioner’s Board (TPB) (pg.25)

Given the complexity of the legislation, the R&D consultant should be an expert in the legislative aspects of the program; however there is no guarantee that a tax agent with the R&D condition understands the rules of the R&DTI and has experience in assessing the validity of a company’s claim. There is also value in the R&D consultant understanding the broader tax landscape. (pg.26)

R&D Tax Consultants (pg.26)

We heard from R&DTI consultants that often client companies elect to pay a percentage of the tax incentive as a fee for the service so they have certainty of the cost and are not required to fund the expense from the current cash flows. (pg.27)

Attachment A – Brief Overview of R&D project methodology using Agile and Rapid (pg.28)

The development of new and improved software can and must be able to be considered R&D where this is appropriate.  The objective is to create new knowledge

The first section ( of the eligibility criteria) clearly states the purpose as including new knowledge in the form of new products, processes and services. The corollary of the exclusion in the second part is that developing, modifying or customising can be a core R&D activity if it is for a different dominant purpose.  This would include: 

Newly developed, modified or customised software for internal use by the R&D entity, a connected entity or affiliate that is for production or any other non-administration purpose, or any newly developed, modified or customised software that is created primarily for external users even if it is internal administration software.

This eligibility would be limited to the degree the development, modification or customisation includes, or is reliant on, the new knowledge created by the core R&D activities conducted for the R&D entity.

The R&D Tax Incentive is not a scientific research program. However, it does require that the experimental development activities needed (if any) to create, or enable the creation of new, modified or customised software for most purposes must be conducted in a scientific and verifiable way.

Application to Agile and Rapid based software development processes(pg.29)

A common error by R&D entities is that the creation of a new piece of software or a new function within an existing software product is R&D because it is a systematic progression of work to create a new or improved product.

Methodology Does Not Determine Eligibility (pg.30)

The experimental activity must be necessary because the outcome could not be determined in advance based on existing knowledge or experience. There needs to a more than insubstantial purpose to resolve uncertainty in outcomes in the conduct of the activity.

This uncertainty must be being resolved by answering the hypothesis in the systematic progression work. That is, the development cycle must be being applied to conduct the experiments and they must measure the outcomes so the R&D entity can determine the logical conclusion to the questions raised in the hypothesis.

How Agile and Rapid Can Demonstrate R&D Eligibility (pg.30,31)

The philosophy behind the development of modern software development processes is to optimise …. processes so they are a complete development management system, but the process does not get in the way of, or needless delay, the deployment of good and tested products. It has allowed the compression of the cycles of development to the extent that at the extreme the time between public release sprints can be weekly instead of the traditional once a year release or less. This has resulted in a sharp decline in the creation, and need for, systematic development documentation. The traditional stages of:

Set requirements → Design → Develop → Test → Maintain

are replaced by a process of many short sprints managed through Scrums or alike: 

* Grouped into User Stories that may be grouped at a higher level into Epics for larger or complex overall goals.

* The Backlog features are ranked and weighted in order of importance.

It would be up to the project manager to document the discussions of the obstacles and the development progress, performance and results.

If a software developer is following this process and documenting the critical uncertainties and their conclusion, then there is no reason to argue that the use of Agile means that the business is not able to demonstrate that the development was, or included, R&D activities within the systematic progression of work.

Summary (pg.32,33)

The use of Agile and equivalent methods can be an effective tool to manage R&D software development activities. So long as the ATO compliance reviews seek to merely readily verify the calculation of estimates, determinations and calculations, then these styles of methodologies should not prevent the R&D entity from providing documentation and the particulars showing the basis and method of these allocations between R&D and Non-R&D activities. This would meet the requirements of s 262A.

Equally, a review by AusIndustry should be approached from an understanding of how the R&D entity applies the Agile process. This would include a judgement of d whether the project manager and development team properly group backlog features into stories that separate the core,

supporting and non-R&D activities and how the conduct of development tasks, processes of managing progress and obstacles and determinations of results and conclusions demonstrates the R&D. They should not expect each ticket against each individual backlog feature to be individually demonstrable as an R&D experiment.

To focus on each individual development ticket and expect each invoice to individually demonstrate the eligibility of the activity and the nexus of the expenditure to that experiment is missing the point of seeking to encourage more businesses to do more R&D. It takes a business’ focus off the R&D to create documentation that is not required by the law and will fail to encourage businesses to better manage their new knowledge creation processes. It is not needed to readily verify what R&D a business did and whether it is reasonably calculated.

Attachment B (pg. 34)

The current R&D legislation and application of the 2015 Frascati Definition to R&D in the development of software.

The R&D legislation was passed into law in 2011.

The legislation enacted a very significant broadening of what is eligible R&D compared to the old definition.

The new definition needs to be considered as a whole and in how it applies to software development in a conceptual way. That is, it should be applied based on the principles it expresses and not as prescriptive list.

Case Study – the Company, the ATO and AusIndustry (pg.38)

Where the project is an entirely new application/system and it is prior to the creation of a Minimum Viable Product (MVP) then the majority of the project will likely be core R&D developments and the supporting setups, frameworks, libraries etc. It is possible that a small proportion of the activities will be neither core R&D experiments or supporting R&D tasks directly required to enable these experiments to be conducted. Typically, this will require a very high percentage of the development activities to be either core or supporting R&D activities

Where the project is an upgrade or improvement to an existing system

Typically, the Core and Supporting R&D activities will drop to around 30 per cent of the development, maintenance and support costs.


Examinations/Reviews by AusIndustry and the ATO (pg.38)

Once the company is selected for a review by AusIndustry or the ATO, the current processes will seek to exclude 100 per cent of the activities for the maximum time allowed (typically 4 years) as the starting point. This will be either because:

a.      AusIndustry has rejected the whole of the claim because it considers the claim to be the whole of the project. Examples have been given of cases where:

·   the claimant has already demonstrated that the claim is limited to only specific areas of improvement or new capabilities.

·   AusIndustry then seeks to exclude any experiments on aggregation, implementation or integration and then breaks down the functional improvements to such a granular level that the R&D is missed.

b.      The competent professional test is often misapplied:

·   would a competent professional consider the outcome should be possible

– instead it is applied as –

·   would a competent professional consider that the method to reach the outcome can be known in advance – so no experimental development activity is required.

c.      The ATO will reject the totality of the expenditure claim because the contract developer costs or the Jira time and task tracking data does not demonstrate the nexus between the expenditure and the activities they are for.

d.      The ATO will expect a level of documentation that is not available or reasonable to expect. This has seen a progressive ramp up in previously acceptable

documentation based on reasonable estimates and allocation methodologies based on previous guidance from the Commissioner of Taxation. Today there is an expectation that all businesses will have highly accurate and separately verifiable time-sheets (whilst admitting that the AAT has stated for internal employees time-sheets are not required) and overhead allocations based on counting emails and envelopes, rejecting invoices from suppliers that only contribute to R&D activities for not detailing the R&D activity and accurate calculations of percentages of office space excluding walkways and amenities.

e. The ATO will increasingly rely on its own determination of whether the R&D entity is conducting R&D unless an assessment has already been by a delegate of Innovation and Science Australia.

Attachment C – The implications of the Moreton Decision (pg.40)

The Tax Laws Amendment (Research and Development) Act 2011 sets out the object of the legislation and the definition of core activities. The legislation requires a test that relies on the uncertainty in outcomes that are only able to be determined by the conducting experimental activities. It also accepts that R&D includes the experimental development of new and improved materials, products, devices, processes or services. That is, it recognises that business enterprise expenditure on R&D (BERD) is about the development of new knowledge as defined and grouped in the Frascati definition as Pure and Basic Research, Applied Research and Experimental Development:

the systematic “Experimental development” work that draws on the experiments that developed the new knowledge and/or practical knowledge to produce new or improved materials, products, devices, processes, systems and services 38.

ISA errors in R&D Tests (pg.41)

It was found that there were two errors in the application of the tests to determine if the activities are R&D. The first is that it is incorrect to consider that the first line in s 355-25(1) of the legislation creates a distinction between experimental activities and other R&D development activities that meet the requirements in s 355-25(1)(a) and (b). This line is:

Core R&D activities

1)     Core R&D activities are experimental activities:

The Federal Court’s decision was to reject the ISA position that these two highlighted words create an additional test or requirement over:

a.      whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:

i.     is based on principles of established science; and

ii.     proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and

b.      that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).

That is, the term experimental activities are those that meet the tests in a. and b., not that eligible activities are a subset of activities that meet the tests in a. and b.

The second place that ISA was found to be incorrect is its application of whether the definition restricts R&D to excluding experimental development activities because they are seeking to apply current technologies. The R&D entity was seeking to generate energy from mine gases by using an existing gas turbine generator. Both mine gas power generation and generation using gas turbines are known technologies. However, the R&D entity identified clear and significant uncertainties requiring experiment development activities to use these technologies under the planned circumstances. The Federal Court agreed with the R&D entity that there was uncertainty in determining the outcome in advance of any experimentation on the basis of current knowledge, information or experience.

ISA errors in the purpose: (pg.41,42)

Purpose test by ISA since January 2017 has been to sharply reduce this to more of scientific research support program. This has often seen the rejection of R&D activities on the basis that they are project outcome focused, not knowledge research focused.

This reflects the progress of the development of the Bill in that its intent is to encourage R&D and not just research.

The errors identified in the case are very applicable to R&D in software development.

This is often the only purpose of different phases of development of software development. This would apply to the development of a completely new item of software up to the MVP (minimum viable product) for testing by alpha and beta testers. It would also apply to a project to create new functionality to an existing product or improve the operating processes of that product.

If you would like to discuss any aspects of the ASBFEO “Review of the R&D Tax Incentive” report with me or require assistance with your record keeping, claim preparation work or simply require a second opinion, please feel free to call on 02 8219 4900 or email gerry@tcf.net.au

Controversial R&D Tax changes reintroduced

CONTROVERSIAL R&D TAX  CHANGES REINTRODUCED  

The contentious changes announced in the 2018 May budget to reduce the benefits available under the R&D Tax Incentive have been re-introduced with only minor amendments despite having been rejected by members of both sides of Parliament in the prior Senate Economics committee hearings. The main message is that any changes will not affect the current 18/19 R&D claims being processed and if the changes are passed they will be introduced from the 19/20 financial year onward.

The table below provides a comparison of the key features between the new and current law.

Comparison of key features of new law and current law

 

The expenditure threshold

NEW LAW: The R&D expenditure threshold is increased to $150 million.

CURRENT LAW: The R&D expenditure threshold applies to eliminate the incentive component of the R&D tax offset in relation to notional deductions in excess of $100 million.

NEW LAW: The R&D expenditure threshold is a permanent feature of the law.

CURRENT LAW: The R&D expenditure threshold is legislated to cease on 1 July 2024.

NEW LAW: The R&D expenditure threshold is a permanent feature of the law.

CURRENT LAW: The R&D expenditure threshold is legislated to cease on 1 July 2024.

The R&D Tax Offset for small R&D entities

NEW LAW: R&D entities with aggregated turnover of less than $20 million are generally entitled to an R&D tax offset rate equal to their corporate tax rate plus a 13.5 per cent premium.

CURRENT LAW: R&D entities with aggregated turnover of less than $20 million are generally entitled to an R&D tax offset rate of 43.5 per cent.

NEW LAW: The amount of a refund that an R&D entity can receive is capped at $4 million per annum.

NEW LAW: Offset amounts that relate to expenditure on clinical trials do not count towards the cap and remain refundable.

CURRENT LAW: R&D entities with aggregated turnover of less than $20 million are entitled to a tax refund for any R&D tax offset they receive in excess of their income tax liabilities.

The R&D Tax Offset for companies over $20 million turnover

NEW LAW: R&D entities with aggregated turnover of $20 million or more are entitled to an R&D tax offset equal to their corporate tax rate plus a premium based on the level of their incremental R&D intensity for their R&D expenditure.

CURRENT LAW: R&D entities with aggregated turnover of $20 million or more are entitled to a non-refundable R&D tax offset at a rate of 38.5 per cent.

R&D Intensity

Intensity Premium

Notional deductions greater than 4% and up to and including 9% of total expenses  4.5%

Notional deductions greater than 4% and up to and including 9% of total expenses  8.5%

Notional deductions greater than 9% of total expenses  12.5%

 

Schemes to obtain an R&D tax benefit​

NEW LAW: The Commissioner may also deny a tax benefit in the form of an amount of a refundable or non-refundable R&D tax offset that an R&D entity seeks to obtain from a tax avoidance scheme.

CURRENT LAW: The Commissioner may deny a tax benefit in the form of a deduction or notional deduction that an R&D entity seeks to obtain from a tax avoidance scheme.

The uniform clawback rule

NEW LAW: Recoupment amounts and feed-stock adjustments give rise to an amount of assessable income equal to the grossed-up value of the incentive component of associated amounts of R&D tax offset.

CURRENT LAW: Recoupment amounts are subject to a standalone tax of 10 per cent.

CURRENT LAW: One third of feed-stock adjustments are included in an R&D entity’s assessable income.

NEW LAW: An amount is included in the assessable income of the R&D entity that received or is entitled to the R&D tax offset in relation to a recoupment amount or feed-stock revenue received by a related entity.

CURRENT LAW: In cases involving related entities, the entity receiving a recoupment is subject to recoupment tax.

CURRENT LAW: In cases involving related entities, the R&D entity entitled to the R&D tax offset is subject to a feed-stock adjustment if the related entity receives feed-stock revenue.

Balancing adjustments for R&D assets

NEW LAW: The R&D entity’s assessable income is increased by an amount equal to the grossed-up value of the incentive component of the associated amounts of R&D tax offset.

CURRENT LAW: For an R&D asset held only for R&D purposes where the balancing adjustment amount is included in the R&D entity’s assessable income – the amount is generally increased by one third.

CURRENT LAW: For an R&D asset held partially for R&D purposes where the balancing adjustment amount is included in the R&D entity’s assessable income – the R&D component of the amount is generally increased by one third.

CURRENT LAW: For an R&D asset held only for R&D purposes where the balancing adjustment amount is allowed as a deduction – the deduction is included in the R&D entity’s R&D tax offset calculation.

NEW LAW: The R&D entity is entitled to a deduction equal to the grossed-up value of the incentive component of the associated amounts of R&D tax offset that would have been obtained if the R&D component of the balancing adjustment amount was included in the calculation of the offset.

CURRENT LAW: For an R&D asset held partially for R&D purposes where the balancing adjustment amount is allowed as a deduction – the R&D component of the amount is increased by one third or (for small R&D entities) or one half

NEW LAW: Similar amended rules apply to balancing adjustments for R&D assets held by R&D partnerships.

CURRENT LAW: Similar rules apply to balancing adjustments for R&D assets held by R&D partnerships.

NEW LAW: The transitional rules are amended in line with the primary amendments but continue to apply to R&D assets acquired before the introduction of the Incentive in 2011.

CURRENT LAW: Transitional rules apply to R&D assets acquired before the introduction of the Incentive in 2011.

Should you wish to discuss this matter further, please don’t hesitate to contact Gerry Frittmann on 02 8219 4900 or email gerry@tcf.net.au

Manufacturers Modernisation Fund Now Open

The Australian Government has announced a new competitive grant program for the manufacturing sector.

The Manufacturing Modernisation Fund will provide grants of between $50,000 and $1m to manufacturers to modernise, adopt new technologies, become more productive and create more jobs by co-funding capital investments and associated reskilling.

Modernisation can include technology upgrades, efficiency upgrades, such as energy or process optimisation, or more transformative changes to your business, which will allow you to produce new products or diversify into new markets.

The program has a $50m funding pool over 3 years and will be delivered through two streams of funding:

  • $20 million in co-funded matching grants (50/50) of between $50,000 to $100,000 for
    small scale technology and efficiency investments and;
  • $30 million for larger grants between $100,000 to $1 million which will fund 25% of total project costs to support transformative investments in technologies and processes.

The closing date for the 1st round of applications closes at 5pm on the 31st October, 2019

Round 2 successful applicants will be announced end of March 2020

Round 2 – Applications are expected to open in early April with a end of May lodgement deadline.

For 29 years, TCF Services continue to provide expert R&D Tax Incentive and other Government grants assistance for businesses across all industries.

For more details on the Manufacturers Modernisation Fund and how TCF Services can assist, please don’t hesitate to contact us.

Ombudsman to formally investigate SME complaints over R&D Tax Incentive clawbacks

As reported recently in the Financial Review, a freedom of information search uncovered that over $500m has been reaped back from R&D Tax claims paid out by the joint scheme administrators (AusIndustry and the ATO) who have taken a very heavy handed and narrow approach to rejecting claims paid out by them up to 5 years ago.

The R&D Tax Incentive is an industry assistance program designed to incentivise and de-risk business R&D activities across all industry sectors in Australia. Many claimants chosen for audit feel they were legitimately eligible to make claims at the time of lodgement and the benefits they received many years ago were consequently reinvested back into their businesses; they also feel unjustly treated given only a small percentage of claimants were actually subjected to audit and consequent clawback.

The question that must now be asked is – how did the scheme administrators get it so wrong by paying out benefits if these claims were supposedly ineligible in the first place AND/OR how can they just change their views on eligibility and the level of substantiation required so long after processing up to 15,000 claims a year? It seems fair to glean that the design of the program and the manner in which it has been administered is largely at fault and many of the claimants affected are just the ones who have been selected and caught up in the mess.

Rather than providing an incentive to invest, innovate and create the products, processes and jobs of tomorrow many of these companies now face potential administration causing loss of jobs, investment and IP, quite the opposite effect to what the scheme was originally designed to achieve, it’s now better described as industry resistance than industry assistance, in the meantime Australia’s OECD ranking in R&D investment is at an all-time low and many R&D companies are taking their R&D activities off-shore due to the uncertainty surrounding the program and lack of positive Government policy settings.

If you have been affected by recent audit scrutiny and feel disenfranchised by the whole situation please join the queue and let the Ombudsman hear your story.