Start-ups to be affected by proposed Research & Development concession cuts

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By Daniel Livingston, Partner and Scott Colvin, Lawyer

With the distraction of the Federal election behind it, the returned Morrison government will turn its attention back on pushing through proposed legislative packages.

Among these is a package to reform the Research & Development (R&D) Tax Incentive, proposed with the 2018/19 budget.

The changes as originally contemplated would have stripped $2.4 billion from the Incentive, but failed to pass through the senate Economics Legislation Committee prior to the senate breaking for the election.

With the Morrison government having been returned in a majority, the coalition will again look to push through its amendments to the scheme — but as for the final form they will take? It’s too soon to tell.

Chief among the proposed changes is a $4 million annual cap on cash refunds for companies with less than $20 million in annual turnover, with an additional offset thereafter to be calculated as the company’s tax rate plus an additional 13.5%.

For companies with in excess of $20 million in turnover, a premium is to be introduced that will tie the rate of non-refundable tax offset to the ‘incremental intensity’ of the company’s R&D expenditure as a proportion of total expenditure.

This is a departure from the previous structure of calculating the rate of the offset by dividing a company’s R&D expenditure by its total expenses for the income year, and is expected to deprive many of substantial R&D offsets.

Significant concerns were also raised at the prospect of these changes being introduced with retrospective effect — in other words, to apply to monies spent (and offset) in the previous income year, which could result in some businesses having to pay additional taxes on previous turnover.

Concerns were raised during the public submission process that the tech sector — a cornerstone area of growth for the Turnbull administration — would be hit especially hard.

Fortunately, whatever the changes to the R&D Incentive scheme, there are innumerable other Government grants and funding opportunities open to innovative Australian companies — they’re just slightly more difficult to find.

The Government’s flagship initiative is the Entrepreneurs’ Programme, which helps small- and medium-sized business commercialise their innovative ideas, and also provides mentorship and guidance on business, marketing and growing your idea successfully.

Another example is the Export Market Development Grant scheme, which provides reimbursement of up to 50% on eligible promotional and marketing activities undertaken internationally. With so many Australian start-ups targeting the international market, the EMDG scheme offers a great opportunity for those with a global vision.

The scheme paid out $131.6 million in FY2018 alone, at an average of $35,500 per claimant. The EMDG scheme is only available through registered agents — and that’s where we can help.

The Mills Oakley Corporate Advisory Team can assist you with all equity and debt raising, as well as guiding you through the R&D incentives and other Government grants.

No matter the size of your business or stage of its growth story or its funding needs, we can provide targeted advice for your situation.

For further information, please do not hesitate to contact us.

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