Government grants can help our clients to prosper and survive. They can make up a large part of our clients incoming cash flow. So it makes sense for us to know a bit or two about government grants.
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A grant is like a gift. There is no requirement to pay it back. Unless of course you got it when you shouldn’t. Grants are usually not for day to day operations or wages but for a specific purpose. And they often but not always require the business to match the funding.
There are a huge number of government grants in Australia. From local councils over state level to federal grants. All up there are probably around 10,000 to 12,000 grants around. But some are very specific and very targeted. Most businesses probably only ever qualify for one or two, maybe three grants over their lifetime.
The three largest programs are the R & D Tax Incentive, the Export Market Development Grant and the Entrepreneurs Infrastructure Program.
Grants can be so-called entitlement grants. Examples are the Export Market Development Grant and the R & D Tax Incentive (RDTI). The business incurs the costs upfront and then receives a grant to a set threshold or a set percentage. So if you meet the conditions attached to the grant, you get it.
With so-called merit grants there are limited funds and winners compete against other applicants. Examples are the NSW Medical Devices grant or the Australia Council Arts Grants, Waste NSW or AIIA. With these grants even if you meet all conditions, it doesn’t mean you receive something. You first have to compete against other applicants and win on merit.
With so-called agreed grants, you negotiate and if you win, you get what you agreed. Examples are the Accelerating Commercialisation and EIP Business Grants.
R&D Tax incentive
The R & D Tax Incentive is by far the largest of government grants in Australia. The incentive comes through a refundable tax offset. The actual amount of the tax incentive depends on the amount of eligible expenses. In a loss position the incentive results in an immediate cash refund. In a profit position the company benefits from a lower tax liability.
You can only claim it for a minimum threshold of $20,000 eligible expenses unless you engage a research provider. Claiming this grant requires well documented projects and experiments.
For more details please see Episode 34 about the R & D Tax Incentives.
The rules around the R&D tax incentive are about to tighten. The 2018/19 Budget includes a reform to improve its integrity and fiscal affordability. Meaning it costs too much at the moment.
There had been a review of the R & D tax incentive in 2016. So this reform doesn’t come out of the blue.
According to the Treasurer the government wants to use the R & D tax incentive to encourage companies to do more, and not just to reward R & D that would have happened anyway without the incentive.
The changes apply from 1 July 2018. So they already apply now, even though not law yet.But the draft legislation (and explanatory material) is already out.
EMDG Export Market Development Grant
The Export Market Development Grant (EMDG) is the second largest of government grants in Australia. It provides for a 50% reimbursement of export market spending up to a total grant of $150,000. There is a total of $1.2m available over 8 grants per applicant.
Applicants must be Australian residents with a turnover of less than $50m. Products are eligible if intellectual property, goods or services, including tourism or events.
The threshold is $15,000 GST exclusive as a minimum, but there is no maximum. So if you incur expenses to develop export markets below $15,000 exclusive of GST, then you don’t qualify for the EMDG.
Claims are lodged July to 30 November and audited by Austrade. Payment usually occurs 8 weeks after audit. The minimum payment is $5,000 ($15k – threshold $5k = $10k @ 50%) and maximum is $150,000. The payments are not subject to GST.
Only two countries are currently excluded from the EMDG: New Zealand and North Korea.
First time exporters must be able to demonstrate capacity to export i.e must have a product or services available for sale, not just a concept
Eligible Expenditure includes Overseas Representation, Marketing consultants, Marketing visits, Communications, Free samples, Trade Fairs and promotional events, Promotional literature and advertising, Overseas buyers or Intellectual property protection.
Here is an example of how the EMDG is calculated.
1st and 2nd Claim together: Eligible expenses are $105,000 Less threshold of $5k Equals $100,000. So the EMDG is 50c in the $1 = $50,000
3rd claim includes the 40% export sales test, same expenses as in 1st and 2nd claim: Sales are $120,000 so the sales test sets a limit at 40% = $48,000. The actual claim paid = $48,000 and not $50,000
Entrepreneurs’ Infrastructure Programme
You receive a selected consultant to provide a free business diagnostic and up to $20,000 1:1 (meaning you need to match the cost) for productivity projects.
Your turnover must be over $1.5m and you must have been trading for at least 3 years.
So this is a short overview of the three largest government grants in Australia.
Disclaimer: Tax Talks does not provide financial or tax advice. This applies to these show notes as well as the actual podcast interview. All information on Tax Talks is provided for entertainment purposes only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 27 January 2020