Tax Benefits of Doing Things Smarter


There are potential tax benefits of seeking process efficiencies, package innovation, expanding product lines and looking towards developing new markets.

Funding for new project initiatives within any business can be extremely competitive, with management often seeking additional comfort in the form of project spillover benefits and enhanced returns on their investment before devoting project funds.

It makes perfect sense to match your efforts to the available tax incentives and government grants. In essence it is money for activities you have already undertaken by doing things smarter. This in turn provides much needed cash for accelerating your project, perhaps employing that extra researcher, or simply getting your new or improved product to market faster.

Two such initiatives are the Research and Development (R&D) Tax Incentive and the Export Market Development Grant (EMDG), which look to the heart of businesses doing things smarter to find that competitive edge and seek out new markets.

What is the R&D Tax Incentive?

The R&D Tax Incentive is a self-assessment program designed to encourage industry to conduct R&D. AusIndustry (on behalf of Innovation Australia) and the Australian Tax Office jointly administer the program. The program provides a tax incentive to companies who conduct experimental activities, in a scientific way, for the purpose of generating new knowledge. The benefit is taken up in your income tax return following registration of eligible R&D activities with AusIndustry.

For income years from 1 July 2016, eligible R&D entities incurring eligible expenditure on core and supporting R&D activities can claim a 43.5 per cent refundable tax offset (turnover less than $20 million) or a 38.5 per cent non-refundable tax offset (turnover $20 million or over).

Companies with tax losses and less than $20m turnover may be able to cash out tax losses with a direct refund of up to 45 per cent of the eligible R&D expenditure claimed.

Potential R&D activities

Today’s businesses are constantly evolving and innovating to stay ahead, reduce costs, increase efficiencies and find that niche. Key decisions are constantly being made to do things smarter and to embark on projects that will propel businesses forward and make the best use of funding.

The project initiatives below are examples of eligible activities under the R&D Tax Incentive:

Localising ingredients – Reformulating input ingredients and associated processes to adapt to localised ingredients or to suit a particular consumer group i.e. gluten free products. 

Product packaging – Modifying product packaging to increase shelf life or reduce spoilage during transportation.

Increasing automation – Changing processes by modifying existing equipment or introducing automation to reduce labour and increase throughput.

Waste reduction/yield improvement – Process initiatives to remove processing bottlenecks, ensure product uniformity and lower wastage of your inputs.

Production equipment – Investigating production equipment and processes typically used in other industries and adapting them for use within your own industry.

Help fund your export growth through an Export Market Development Grant

Whether you are currently exporting or just in the planning stages of expanding your business beyond Australia, the EMDG scheme is a key government financial assistance program for aspiring and current exporters. Administered by Austrade, the scheme supports a wide range of industry sectors and products, including inbound tourism and the export of intellectual property and know-how outside Australia.

The EMDG scheme encourages small and medium sized Australian businesses to develop export markets through reimbursement of up to 50 per cent of eligible export promotion expenses above $5,000. 

How can an EMDG claim work for me?

Whether you are currently exporting or the next phase of your business plan is to seek new markets, then grants via the EMDG scheme may provide that much-needed financial support. There are nine categories of promotional activities for which you may claim expenditure in any given financial year:

  • Overseas representatives
  • Marketing consultants
  • Marketing visits
  • Communications
  • Free samples
  • Trade fairs, seminars, in-store promotions
  • Promotional literature and advertising
  • Overseas buyers
  • Registration and/or insurance of intellectual property

In the first year of the grant, companies can claim expenses incurred over the last two financial years. Recipient companies are entitled to up to eight grant years under the scheme, with each year’s maximum grant amount closely linked to the company’s export turnover.

Talk to a trusted advisor

Discussing your R&D or export related activities with a trusted advisor who talks your language and understands how integral R&D is to the furthering of your business is paramount.

First published in the October/November issue of Food Australia. Republished with permission.

By David Mumford