Accountants in Sydney think that the problem with government grants is that it’s always someone else that claims them! You hear second hand about a competitor that got a grant for something you achieved two years ago. A third party is pitching some development work to you and they highlight the fact that there are heaps of grants out there which can support the project though they never actually specify what they are.
It’s confusing, if not alarming, and it’s hard to sort out what is actually there and worth pursuing. There are some websites that promise to answer these questions but the reality is that they don’t address the real questions that you have.
In this article, we will highlight some Federal programs that are worth considering. I do not seek to comprehensively address the grants landscape which naturally includes offerings at a State Government level.
In assessing what might apply to your business, you need to answer these questions:
- Am I eligible?
- What is the form of the benefit?
- What resources, internal and external, do I need to prepare the application?
- If the program is competitive, what are my chances of success?
These questions will help frame what you should pursue. For example, a competitive grant application that yields an average grant of $500,000, costs about $50,000 to prepare and has a 75% success rate would be a good punt. One that yields $100,000 at the same cost with a 10% success rate is probably not worth applying for.
It will then be important to gather as much market intelligence as you can before pushing the go button on any application.
Here are 5 Federal Government programs, present and future, worth considering:
- R&D Tax Incentive (RDTI)
The RDTI has survived a prolonged period of proposed Budget cuts and restrictive administrative decisions and, since 2021, has been worth effectively more for all Australian taxpayers. Recent court cases have confirmed the breadth of eligible R&D activities, consistent with the view that the program supports broad-based product and process development acting as an industrial R&D incentive, rather than a narrower scientific one.
The key here is that it is NOT a competitive grant. It’s an entitlement – if you do the eligible work and spend the money, you will receive the benefit.
The tax offset for eligible R&D conducted from 1 July 2021 is now based on a premium on top of your corporate tax rate.
For R&D entities with aggregated turnover of less than $20 million, the refundable R&D tax offset is your corporate tax rate plus an 18.5% premium.
For R&D entities with aggregated turnover of $20 million or more, the non-refundable R&D tax offset is your corporate tax rate plus an incremental premium. The premium increments are based on your R&D Intensity. This is a percentage of your eligible R&D expenditure as proportion of your total expenditure for the year.
- All eligible R&D expenditure up to 2% R&D Intensity will receive a non-refundable R&D tax offset equal to your corporate tax rate plus 8.5% premium.
- Additional eligible R&D expenditure above 2% R&D Intensity will receive a non-refundable R&D tax offset of your corporate tax rate plus 16.5% premium.
The key to a successful claim is the maintenance of original contemporaneous technical and financial records.
The cost of internal resources plus consultants should be no more than 20 % of the after-tax benefit received.
- Accelerating Commercialisation (AC) Grant
AC encourages and assists small and medium business, entrepreneurs and researchers to commercialise novel products, processes and services for trade in Australian markets and/or markets in other countries. The approved projects will be seeking to commercialise products and processes based on disruptive R&D that are scalable globally with some protectable IP.
Accelerating Commercialisation provides expert guidance and connections through Accelerating
Commercialisation Facilitators (Facilitators) to help you to find the right commercialisation solutions
for your novel product, process or service. Facilitators provide advice and support across the delivery of the approved suite of commercialisation activities.
Australian taxpayers with a turnover of less than $20 million are able to apply for the competitive grants which can range from $50,000 to $1 million on a dollar-for-dollar basis over a typical project timeline of 18 months to 2 years.
Grants are awarded on a continuous basis involving about 6 to 8 rounds per annum. The average grant is approximately $450,000 and applications supported by your Facilitator appear to have about a 70% chance of success.
I recommend that you work exclusively with the appointed Facilitator in pursuing an application. Third party consultants do not fit easily within the application process.
- Export Market Development Grant (EMDG)
Austrade’s Export Market Development Grants (EMDG) program helps Australian businesses grow their exports in international markets. These grants encourage small to medium enterprises market and promote their goods and services globally.
EMDG is an eligibility-based, demand-driven program. This means all eligible applicants receive a grant from the available funds. As such, they are not competitive grants.
Austrade does not base grants on the maximum grant tier caps. The grant amount depends on the:
- number of eligible applications in the round (referred to as demand)
- available program budget shared among all eligible applicants.
If you use a third party consultant, the market rate is 10% of the grant awarded.
- Early Stage Innovation Companies (ESIC)
From 1 July 2016, investors in a qualifying early stage innovation company (ESIC) may be eligible for the tax incentives for early stage investors (sometimes referred to as ‘angel investors’) contained in Division 360 of the Income Tax Assessment Act 1997.
The tax incentives provide eligible investors who purchase new shares in an ESIC with a:
- * non-refundable carry forward tax offset equal to 20% of the amount paid for their eligible investments. This is capped at a maximum tax offset amount of $200,000 for the investor and their affiliates combined in each income year
- * modified capital gains tax (CGT) treatment, under which capital gains on qualifying shares that are continuously held for at least 12 months and less than 10 years may be disregarded. Capital losses on shares held less than 10 years must be disregarded.
The maximum tax offset cap of $200,000 doesn’t limit the shares that qualify for the modified CGT treatment.Investors who don’t meet the ‘sophisticated investor’ test under the Corporations Act 2001 won’t be eligible for any tax incentives if their total investment in qualifying ESICs in an income year is more than $50,000.
The onus is on the ESIC company to demonstrate its status to potential investors via one of two pathways – points or principles.
- National Reconstruction Fund (NRF)
The NRF Bill recently passed the Lower House of the Federal Parliament.
The $15 billion Fund will provide loans, guarantees and equity to support projects that create secure jobs, drive regional development, and invest in our national sovereign capability, broadening and diversifying Australia’s economy.
Details of how to apply will emerge in the coming months, assuming the legislation is passed.
If you have any queries in relation to the above don’t hesitate to contact us to discuss.
Author – Kris Gale, Chair, Michael Johnson Associates
*Correct as of 23 March 2023
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.
