The creation of innovation is a very important journey for many business operators. It can result in an asset that is worth a lot of money.
It all starts with an “idea”.
The questions then start. What could you do with this idea? Is there any government support for research activities? Who can claim government support?
There is government support - it’s known as Research and Development Tax Incentive Rebate for companies.
To start the research and development project, it is necessary to identify the idea, create a small team, undertake some preliminary investigations and report back to the leadership team.
If there is support from the leadership team, the proponents should then undertake prior art/literature searches, document the results of those searches and identify the core activities to be researched and the new knowledge intended to be produced from the research and development process.
These processes need to be in accordance with the requirements of the Income Tax Act which specifies the type of records and information required on a research and development project.
All of the expenditure on a research and development project needs to be identified and to be able to be supported by documentation – timesheets – tax invoices – documentation of experiments undertaken.
The government support for companies with turnover less than $20m per annum is 43.5% of the research and development expenditure, which must exceed $20,000.
If the company is trading at a loss, the company is able to elect in its income tax return that it wants to receive the “cash equivalent of the research and development rebate” in a direct payment to the company’s bank account, which is normally paid by the Australian Taxation Office within 30 days of the company’s income tax return being lodged.
If the company’s turnover is over $20m the rebate is calculated at 38% of research and development expenditure and there is no opportunity to obtain the “cash equivalent of the research and development rebate”.
In conjunction with your accountant, we can assist in the implementation of a research and development recording system, which will enable you to maintain all of the records that you’re required to maintain to enable your company to substantiate research and development claims.
The Australian government has instigated a special grant known as the Accelerating Commercialisation Grant which provides a grant of up to $1,000,000, on a 50% contribution basis, to companies with turnover under $20m which have undertaken research activities and now wish to commercialise those activities. This grant covers activities from the “completion of the prototype in the research and development phase to the first commercial sale of the completed product being made”.
The government has identified growth sector industries as the preferred industries to apply for this grant. These industries are:
The Early Stage Innovation Company classification is for “young” companies – under 3 years of age (but in some cases can be up to 6 years of age) with turnover under $200,000 (not including an Accelerating Commercialisation Grant) and with expenditure under $1,000,000.
A company then has to pass one of two test series.
This is a process where a Due Diligence Report needs to be produced which can be submitted to the Australian Taxation Office and also submitted to potential investors to give them an assurance that the company has qualified as an Early Stage Innovation Company.
Why is this status attractive to investors? The government deliberately created the legislation to encourage investors to look seriously at “young Australian companies that have been involved in the research and development process”.
Individual investors who contribute their capital at the time the company is seeking the registration as an Early Stage Innovation Company will receive a tax rebate calculated at 20% of their shareholder contribution, subject to a maximum rebate of $200,000 for a sophisticated investor and $10,000 for a retail investor.
If the investor has owned the shares for longer than 12 months and less than 10 years, they will not be liable for Capital Gains Tax when the shares are sold.
Towers Business Development can assist business operators on each phase of this journey of innovation from research and development system establishment through to the application for an Accelerating Commercialisation Grant and assistance on the Early Stage Innovation Company due diligence process. If you have any questions on how the innovation journey operates or how we can assist your business, please do not hesitate to contact us.
We presented a special webinar last week “The Innovation Journey Is Not a Closed Shop”. If you would like to view this webinar recording please click here.
If you would like to discuss the implementation of a research and development system, application for an Accelerating Commercialisation Grant and the development of a due diligence review for achievement of the Early Stage Innovation Company status, please do not hesitate to contact Peter Towers, Managing Director, Towers Business Development Pty Ltd for a discussion. Peter is an experienced accountant, company secretary, director and business consultant.
You might be interested in some of the issues that we have discussed in our recent posts and videos:
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