The Innovation Journey Is Not A Closed Shop

Issue 004

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.

Research and Development

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:

  • Advanced Manufacturing
  • Oil, Gas and Energy
  • Medical Technologies and Pharmaceuticals
  • Mining Equipment, Technology and Services
  • Food and Agribusiness
  • Enabling technologies and services that support businesses which are within the growth sector can also be eligible. These industries are identified as:
  • Freight Logistics
  • Infrastructure – related construction and services
  • Information and Communications Technology
  • Digital Technologies
  • Professional Services

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.

  • Gateway Test – company must accumulate more than 100 points, based on specific questions relating to what activities the company has undertaken in the previous 3 years.
  • Principles Test – if the company does not pass the Gateway Test, it can then move to this test which comprises five questions that the company directors have to prepare detailed written responses to which will primarily indicate whether the company is able to scale up and run an effective business utilising the technology that has been developed.

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.

  • Email:
  • Telephone: 1800 232 088

You might be interested in some of the issues that we have discussed in our recent posts and videos:

  • The scaling up process comprises leadership team development, team members trained and motivated, development of strategies and implementation of the strategies and adequate funds to finance the business growth.
  • “Scaling Up Requires Planning” - click here
  • Video recording – click here
  • There is a special company status known as “Early Stage Innovation Company” to assist “young companies” to be able to raise capital direct from the public.
  • “Funding for Innovative Companies” - click here
  • Video recording - click here

Towers Business Development Services

Towers Business Development does not give taxation advice but offers consulting services for small/medium sized enterprises and accountancy businesses including:

  • Government Grant Advice for SMEs
  • Establishment of Research and Development Systems
  • Preparation of Business Plans
  • Predictive Accounting – Budgets, Cashflow Forecast, Predictive Balance Sheet
  • Preparation for capital raising for small/medium sized private companies including:
  • Early Stage Innovation Company
  • Crowd Sourced Funding Equity Raising
  • Section 708 Corporations Act Capital Raising
  • Succession Planning
  • Family Businesses
  • Business Review Meetings – monthly or quarterly
  • Corporate Governance Mentoring

Upcoming Free Webinars Presented By Towers Business Development

  • “Research & Development Is The Start Of The Innovation Journey” - Thursday 24th June 2021 at 12-noon AEST. To register - click here.
  • “Having a ‘Virtual Chief Financial Officer Service’ Could Launch Your Business in 2021/22” - Thursday 1st July 2021 at 12-noon AEST. To register - click here.
  • “Grants Can Assist Funding for Research Activities” - Thursday 8th July 2021 at 12-noon AEST. To register - click here.
  • “Early Stage Innovation Company Status - Great For The Company - Investors Love The Incentives” - Thursday 15th July 2021 at 12-noon AEST. To register - click here.

Want to know more about the services that Towers Business Development can supply to assist your business in its business growth?

You are invited to visit the Towers Business Development website; or contact Peter Towers:

  • E: 
  • P:  1800 232 088

Stay safe!
Have a great day!

The Innovation Journey Is Not A Closed Shop

Location

12 Eclipse Street Rowes Bay
Townsville, QLD, Australia, 4810
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Contact Details

(07) 4724 1118

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