Federal Government Funding For R&D: Perceptions, Reality and All That Kind Of Stuff

December 5, 2023 Kris Gale

Our lives. They’re busy. Keeping up with everything is hard. So hard in fact that MJA only produces this Update when it feels there is something legitimate to say so we don’t unnecessarily add to the clutter.

When recently asked by The CFO Centre to contribute to the upcoming edition of its newsletter about any recent changes in government funding for R&D, the temptation was to say that there was nothing to report.

However, as soon as we turned our mind to it, two things became clear. Many people are still thinking that the R&D Tax Incentive (RDTI) is mired in the middle of an administrative crackdown years after it has stopped. And the Federal Government announced a bunch of stuff worth commenting on in an MJA Update!

So here we go. First up, let’s look at the question as to whether the RDTI is still under the pump.

The RDTI – How Is The Patient Doing?

“I advise my clients not to claim the R&D Tax Incentive (RDTI). The Federal Government is cracking down on taxpayers and it’s just not worth the risk.”

This was the response I was getting from accountants across Australia back in 2019 when one could be excused for thinking that the government, via the dual agency of the ATO and AusIndustry, was trying to so restrict the eligibility criteria of the RDTI that the program was heading to irrelevance. Added to that, there was pending legislation to significantly reduce the value of the RDTI, particularly for larger organisations.

Despite the environment described above, I was able to demonstrate at the time that the program remained worth claiming, provided you understood what the legislation was actually designed to support and you kept contemporaneous records of what you did and what you spent.

Jump forward to 2023 and this is what I am constantly am hearing from accountants all around Australia:

“I advise my clients not to claim the R&D Tax Incentive (RDTI). The Federal Government is cracking down on taxpayers and it’s just not worth the risk.”

Well, if the case to make claims was more than arguable back in 2019, a series of fortunate events since that time has made the business of accessing the RDTI a far more secure and valuable one. So much so that eligible companies really have no excuse not to be making annual claims.

Those key events may be summarised as follows:

• The administrative crackdown came to an end in late 2019 due to a combination of the courts confirming the breadth of the definition of eligible R&D activities, an influential Small Business and Family Enterprise Ombudsman’s report and public debate.
• The Coalition dropped its RDTI cuts in the October 2020 Budget due to the acknowledgement of the critical role played by science and innovation in the early days of the pandemic and the fact that the Coalition pointed to the RDTI as its contribution to the future development of technologies that would deliver its Net Zero 2050 emission target. In fact, in July 2021, the Coalition relaunched a more valuable RDTI which has improved the innovation support framework.
• The return of the Labor Government that has maintained the RDTI in its present form as it looks towards the delivery of its big innovation support play, the $15 billion National Reconstruction Fund, in 2024.

So, the key 2023 RDTI takeaway is that the definitions of eligible R&D activities and expenditure remain unchanged since it was introduced in July 2011. This makes it a highly stable and well understood program in the marketplace.

Those saying that the program is too risky to claim in 2023 need to update themselves so their perception matches the reality, otherwise they are letting their clients down.

Now, while we are talking RDTI ‘stuff’, the latest update from the ATO is a reminder to taxpayers to stay abreast of the program integrity rules:

Of particular concern is the fact that companies need to understand that they can only claim R&D expenditure incurred with their associates in the year they are actually paid unless the R&D entity makes an irrevocable election.

Overall, the update was a reminder to follow the law and was not an indication of any great tightening of the eligibility requirements.

Further to that, an RDTI Random Audit Program commenced on 1 November with little fanfare. Jointly conducted by the ATO and AusIndustry, it will involve 140 claimants (approximately 1% of all claimants) selected randomly from the Refundable and Non-Refundable cohorts across all industry sectors.
 
Other Government Innovation Funding – The Wait Continues?

Last year’s closure of the Entrepreneurs Program and, in particular, the Accelerating Commercialisation grants, has left a considerable hole in government funding for innovative SMEs.

Well, the good news is that the replacement initiative, the Industry Growth Program, is revving up. Stage 1 is open for business and welcomes SMEs (defined as having a combined annual turnover of less than $20 million for each of the three prior financial years) wishing to apply for expert advice to support commercialisation of their product ideas. And, Stage 2 will open in early 2024 and will provide matched grant funding between $100,000 and $5 million for SMEs working in the priority areas identified under the Labor Government’s major new commitment to supporting industry, the National Reconstruction Fund (NRF).

The NRF will provide $15 billion of finance for projects that diversify and transform Australia’s industry and economy and are seen as priority areas to leverage Australia’s natural and competitive strengths.
The NRF will provide a range of finance options including:

• loans
• equity investment
• guarantees.

In more good news, the Fund opened for business on 30 November.

The Bottom Line?

The RDTI is in a sound and stable condition. The government funding for the commercialisation of R&D has brightened considerably in recent weeks. Let’s get innovating, Australia!

Should you wish to discuss any aspect of this article, do not hesitate to contact me at kris.gale@mjassociates.com.au