An interesting anomaly about government funding is that, on the one hand, it is such an attractive source of cash, but on the other hand, so many eligible companies either don’t know it exists or don’t know how to access it, says Lior Stein from Rimon Advisory.
If I were to simplify research and development and export grants in Australia, I would explain them in two points:
The first being Innovation and the second being assistance for bringing foreign revenue to Australia.
The benefit involved in attaining government funding can be large and at times could amount to between 40% – 50% of funds spent on innovation within Australia or marketing to foreign markets.
The beginning of assessing innovation is quite simple. Ask yourself the following question: Are you doing something different that you believe your competitors aren’t doing and that is new in the space?
If the answer to that question is yes, then the next step would be to consider the 3 basic principles of research and development grants.
The 3 basic principles of innovation grants are
- New Knowledge
- Experimentation
- Uncertainty
These three principles all flow into each other.
Lets explain these principles using actual case studies.
1. New knowledge begins by identifying a gap in the market.
An organic beverage manufacturer and formulator (Organics Pty Ltd) realised that the short shelf life of organic beverages is a limiting factor for exportation. Some web searches were done, and the result was that there seems not to be an off-the-shelf product available in the world that solves this problem.
A doughnut maker (Jam Pty Ltd) realised that the insertion of jam into doughnuts was exceptionally time-consuming and limited the speed of their production run. Some web searches were done, and the result was that there seems not to be an off-the-shelf product available in the world that solves this problem.
2. Experimentation
At this point, Organics Pty Ltd started developing a solution to fill the gap that was found. The development process required experimentation and different iterations of the product. The process is an ongoing process as Organics Pty Ltd is continuing to improve their findings in this area.
Jam Pty Ltd needed to automate the process for inserting jam and cream into their doughnuts. Process engineers were hired to design and develop the process. Experiments were required in order to get the process precisely correct to optimise the automation.
3. Uncertainty
Neither Organics Pty Ltd nor Jam Pty Ltd had certainty at the outset that these new projects were going to work. They did believe thNeither Organics Pty Ltd nor Jam Pty Ltd had certainty at the outset that these new projects were going to work. They did believe that each would be a success, but the final products were achieved through much trial and error.
These final products are the items that filled the initial gap and are now the new knowledge that each company has brought to the world.The main research and development grant in Australia is the R&D Tax Incentive, which is available to the food industry for eligible projects. Check your eligibility for the R&D Tax Incentive to see if your business can benefit from the grant.
Foreign revenue being brought to Australia
This avenue is simpler to explain than that of Australian research and development grants.
There is funding available for exporters who are spending money on marketing their products to foreign markets.
Again, 3 basic principles, the first being an Australian product, the second being that revenue flows to Australia, and the third being that marketing expenses are recognised in Australia.
1. Australian Product
The product needs to be either completely made in Australia or the majority of the product made in Australia.
If the products have an element made in a foreign country, e.g. China, it could still be considered an Australian product.
2. Revenue flows to Australia
The revenue gained from the Australian products being marketed abroad needs to be recognised in the Australian entity.
3. Marketing expenditure being recognised in Australia
Expenditure spent on marketing to foreign markets needs to be recognised in the Australian entity.
These expenses could include staff and consultants employed in the foreign country, flights, conferences attended, Google and Facebook advertising, websites targeted overseas, trademarks and patents, pamphlets and flyers made and free samples being given to enter a market.
The incentive described above is known as EMDG (Export Market Development Grant). EMDG offer up to a 50% grant on the expenses described above with funding limits between $30,000-$80,000 per year on eligible spending.
Statistics show that about 70% of eligible Australian companies are either unaware that they are eligible or simply don’t know how to go about accessing the funding available.Best practice would be to consider the principles explained above and enquire as to a possible benefit. Contact our R&D tax specialists at Rimon Advisory for tailored advice and guidance to identify eligible funding options to support your innovations.
