The RDTI Is Being Audited and You Can Have Your Say

Have your say on the effectiveness of the Research and Development Tax Incentive Scheme (RDTI) by writing in to the Australian National Audit Office (ANAO) here. Contributions are open for submission up until 31st May 2021.

The request for public contributions from the ANAO comes after unpopular changes to the RDTI were rolled back in October 2020, yet still, confusion remained over what software research was actually eligible under the scheme. 

Calls have been made for a whole separate software-focused RDTI scheme to be created, from tech leaders, who, in March 2021, signed an open letter to the ATO, proposing a collaborative workshop to help overcome a “lack of mutual understanding” over how the scheme works.  

What Will Be Audited?

The ANAO will be examining the Department of Industry, Science Energy and Resources, the ATO, and Innovation and Science Australia, and their running of the program.  

On the table for discussion is the effectiveness of:

  • assessment, compliance and assurance arrangements under the scheme
  • measurement and monitoring arrangements
  • planning for changes.

How To Have Your Say

If you’d like advice regarding the audit and making a contribution, please feel free to contact our NOAH Connect team for professional assistance. Or discover more about our services and the R&D Tax Incentive Scheme by reading our Case Studies

 

 

 

 

Case Study: Robotic Systems

“We work with companies to turn their practical real-world experiences into profitable new machines”

Adam Amos, Director, Robotic Systems. 

The Industry

The uptake of automation is set to deliver Australia $2.2 trillion over the next 15 year as more and more companies begin to understand and explore the potential of robotics and intelligent autonomous systems.  

The Company

Robotic Systems creates end-to-end solutions, which combine custom electronics, software and hardware to solve some of the most challenging problems in mining and agriculture. 

The Australian company’s collaborative approach and practical development pathway accelerates the journey from ideas to manufactured products through an advanced prototype development cycle.

robotics systems lab

Image courtesy of Robotic Systems

Robotic System’s clear value proposition and success in solving difficult problems is reflected in the company’s diverse and expanding client base, which includes start-ups to billion-dollar companies, as well as advanced research organisations as repeat customers.

Examples of successful projects include:

  • Weed geolocation and spraying systems for broadacre agriculture
  • Underground wireless monitoring systems for mining
  • Airborne methane analysis systems for the CSIRO

mining truck

Image courtesy of Robotic Systems

R&D Tax Support

The R&D Tax Incentive program has been a key support for Robotic Systems and its clients. Robotic Systems takes an active role in the identification of projects that might encompass some eligible R&D activities, and putting in place the right documentation to support claims.   This includes experiment design, setup and testing methodology, proposed or viable outcomes and actual results, as well related expenditure such as hours and prototype costs. 

For companies that access R&D services through a Registered Research Provider (RSP), it can be a great way to collaborate and gain access to expert R&D resources, without having to invest in specialist staff or infrastructure. And, you can claim an R&D tax offset for eligible expenditure on registered R&D activities even if your total claim is less than the usual expenditure threshold of $20,000 in an income year.

NOAH’s Involvement

NOAH has been working with Robotic Systems for several years now. The Robotic Systems team had made one R&D tax claim themselves, however, Adam Amos, Director of Robotic Systems, was less than convinced that the program was worth pursuing again, given the amount of time and effort it had taken the team for a relatively modest benefit.    

Fortunately, Adam decided to give it another shot, this time with NOAH Connect managing the process. NOAH came on board and refreshed the teams understanding about the scope of the eligibility criteria, took over the technical drafting and updated the cost methodology. Further, NOAH helped Robotic Systems navigate the increasingly complex compliance environment and ensure a sound R&D claims framework was established.  Most importantly, this allowed the team to focus on building and strengthening their core business.

NOAH is proud to be partnered with Robotic Systems and assist them with R&D Tax Incentive claims. To find out more about them, visit them at roboticsystems.com.au or check out their videos, ‘The Robotic Systems Experience’ and ‘How Does Robotic Systems Work?’.

Get in touch with Robotic Systems if you need a practical, affordable and creative solution to an automation problem.  

 

 

 

 

 

 

 

 

A Breakdown of the Victorian Government’s Investment Into R&D, Tech & Startups

Last month’s Victorian State Budget is being celebrated as a ‘’game changing tech budget’’ on the back of a raft of new funding initiatives for start-ups and small business enterprises (SMEs). It is perhaps the breadth and depth of the funding that best evidences what the Victorian Treasurer, John Palls, has called the ‘’government’s optimism’’ in the role that startups and SMEs will play in Victoria’s post-Covid economic recovery. 

Here’s a breakdown of some of the more headline announcements.

R&D

The Vic Government has flagged a move into the R&D lending market by pledging $50 million for an R&D cash flow loans initiative.

Startups and SMEs claiming the federal government’s R&D Tax Incentive will be able to apply for low-interest loans from the State Government, covering up to 80% of their forecast refundable tax offset.

$2 Billion Breakthrough Victoria Fund

In one of the most significant investments any government has made in innovation for many years, the Vics have allocated $2 billion to a Breakthrough Victoria Fund. The funding is to be spent over 10 years and will be focused on supporting R&D in local businesses in sectors in which Victoria is already strong, namely life sciences, food and agriculture, manufacturing, clean energy and digital technologies.

LaunchVic Receives $40 Million Boost

LaunchVic is Victoria’s start-up agency. Its role is to grow the broader start-up ecosystem by investing in programs, projects and organisations that support startups and help them scale. In welcoming the additional funding, the Chair of LaunchVic, Leigh Jasper, said this multi million commitment was ‘’a vote of confidence in Victorian Startups’’ and recognition that ‘’startups are proven job multipliers’’. In this last respect, studies show that for every high skilled job a start-up creates, a further five jobs are generated in associated service sectors.  This is just one of the many spill over benefits of cultivating entrepreneurship.   

Two other funds established by LaunchVic – the Victorian Start-Up Capital Fund and the Women’s Angel Sidecar Fund – were also the beneficiaries of funding boosts.

Victorian Startup Capital Fund

The Victorian Startup Capital Fund will receive $60.5 million over three years to support early-stage startups. This will inject much needed early stage funding into the start-up and VC ecosystem and will go a long way towards ensuring promising start ups can scale and become the unicorns of the future.  

It’s expected that the government’s investment will be matched by private sector investors (e.g. high-net-worth individuals and super funds) which would mean that the fund’s size could well double within the next couple of years.

Women’s Angel Sidecar Fund

In exciting news, $10 million has been allocated to the new Women’s Angel Sidecar Fund which is dedicated to helping women-led startups gain more ready access to capital to grow and scale.. 

Again, it is expected that the private sector will match the funding, ultimately unlocking perhaps as much as $30 million in early stage funding, with up to $250,000 in co-investments on offer! 

Venture Growth Fund

Finally, the Vics have announced that they will invest $25.7 million to establish a new Venture Growth Fund. This is intended to be an anchor investment that will encourage the private sector to tip in additional funds. The aim is address the challenge startups face accessing capital but the focus here will be on low interest loans, for which so many startups have difficulty in gaining approval. It is likely to be well received by founders who will now not necessarily have to make the difficult decision to surrender equity to scale.

As you can see, a lot of trust is being placed in start-ups and SMEs to lead the Victorian economy out of the doldrums post Covid.  It’s especially pleasing to us to see the role that ‘’innovation’’ and ‘’R&D’’ can play in this journey finally being given due recognition. It’s fair to say that there has probably been no better time for  Victorian start-ups and/ or SMEs to think about making a grant application.  Suffice to say, we also think there is no adviser more expert than NOAH in terms of helping with the identification of likely grant opportunities and the subsequent preparation and management of the application.  Don’t just take our word for it- put us to the test and contact Noah Connect today. 

We provide online consultation, have a proven track record and make seamless processes our top priority. Interested to learn more about grant application processes? Read our blog 6 Musts For Grant Success In 2020

Meet Up: Noah Connect Attends Latest State Reference Group

On 12th March 2020, Noah attended a State Reference Group (SRG), an industry event co-chaired by AusIndustry and the ATO, for which Noah is a foundation member and regular participant. 

The SRG is a stakeholder forum where the tax advisors meet to discuss insights on operational issues surrounding the R&D Tax Incentive. The feedback from the SRG is then used to inform national-level, Roundtable discussions regarding program administration. For a complete list of meeting minutes visit, business.gov.au/program-news-and-updates.

Here follows some key points discussed at the most recent SRG

Integrity Framework User Journey

Much of the discussion focused on an updated ‘Integrity Framework User Journey’ guide: 

detailed user journey guide

Source: https://www.business.gov.au/-/media/Grants-and-programs/RDTI/RDTI-Integrity-Framework–Detailed-user-journey.pdf 

The current User Journey Guide helps you to navigate the steps along your journey and possible issues you may experience, including if you are selected for a review. 

detailed user journey guide

Source: https://www.business.gov.au/-/media/Grants-and-programs/RDTI/RDTI-Integrity-Framework–The-framework.pdf

The updated User Journey Guide will place focus on education and guidance for registrants, as requested by the Department of Industry, Innovation and Science (DIIS). Particular emphasis will be placed on increasing face-to-face engagement with companies and transparency throughout the eligibility exam, which is encouraging to see.  

As the program is based on self-assessment this update is great news – particularly for first time registrants who need assistance navigating the program and understanding its requirements.  

A New R&D Registration Portal

Also coming down the pipeline is a new R&D registration portal. The new R&D registration portal will be web-based and assessed online. It will feature more plain English language and a simplified question structure aimed to guide businesses to provide information required. 

A Refreshed ‘Guide To Interpretation’

The ‘Guide To Interpretation’ is a fulsome document that sets out how AusIndustry interprets key elements of the definition of ‘R&D Activities’. The current guide issued in 2016 can be found here

However, now in discussion is an updated ‘Guide To Interpretation’ that will help assist companies of all sizes, across all sectors to understand and assess whether their work is eligible for the R&D Tax Incentive. 

Industry Statistics Discussed

Below is a list of some interesting claim stats we came across:

Statistic Detail
SMEs make up the vast majority of companies registering for the R&D Tax Incentive, but large companies tend to spend more Approximately 80% of registrants of the total 14,231 registrants are SMEs, compared to the 20% of registrants that are large businesses. However, large businesses account for 52% of R&D expenditure under the program
SMEs make up the vast majority of companies registering for the R&D Tax Incentive, but large companies tend to spend more
  • Services, Manufacturing and Mining are the top three sectors registering for the R&D Tax Incentive
  • These sectors account for nearly 92% of registrations
The top three fields of research account for 91.0% of all R&D expenditure Engineering is the highest at $4.5bn, then Information, Computing and Communication Sciences at $4.0bn and Medical & Health Services at $1.2bn
Professional, Scientific and Technical Services accounts for 44.2% of registrations in the Services Sector
New South Wales, Victoria and Queensland account for the majority of registrations

 

Summary

Overall, it’s fantastic to note the R&D Tax Incentive Roundtable is taking on our continued feedback regarding the need for transparency, clarity and engagement with applicants. An incredibly valuable program that drives economic growth and productivity, successful applicants can claim up to 43.5% refund for undertaking ‘R&D Activities’. It’s therefore vital that businesses understand the program and believe they can successfully claim through a supportive process. 

If you’d like help registering for the R&D Tax Incentive for R&D Activities carried out last financial year (1 July 2018 to 30 June 2019) the 30th April registration deadline is now extended to 30 September 2020. For professional, competent assistance on the claims process, contact the Noah Connect team.  

What’s the Deal with Software Development as R&D?

The number of companies reportedly making R&D Tax Incentive claims in Information and Communication Technology (ICT) is second only to those in the ‘Engineering’ field of research. One would expect that this number will only increase as uptake by SMEs and the tech Startup community continues to grow.

Recognising this, AusIndustry has issued Guidance Material for ICT that outlines, through commentary and case study, the government’s views on what will and won’t qualify for claim. ‘Algorithms’, ‘cloud computing’, ‘GUIs’ and ‘software modules’ all get a look over. Software development is also always a hot topic in AusIndustry forums and blog posts on the topic abound from every adviser imaginable, including the ‘Big 4’ through to smaller independents.

There’s lots of confusion.

Despite all this guidance, discussion and opinion there is still a lot of confusion as to exactly what software development activities will qualify for claim. To date, we’ve tended to resist putting our two cents worth out there and have preferred to offer tailored advice on a client by client basis. However, in our travels we continue to be asked for our views on software development and R&D tax, so perhaps the time is right to offer up some thoughts.

‘Guidance’ material is exactly that…guidance.

We acknowledge that the guidance material published by AusIndustry should be factored into any discussion on the eligibility of particular software development activities.  But we would qualify this by noting that it is, as the name suggests, “guidance” only that is intended to help address general questions of uncertainty and difficulty. It cannot be regarded as definitive.

 Not all software is created equal.

It seems much of the difficulty with ICT/software development is that it is an area of rapid transformation. Change is embraced and adapting to new technologies is the norm. It seems that innovative methods and techniques are introduced at such a rapid rate that what requires “R&D” one day is almost a routine activity the next. There is a danger when government (and advisers) buy into this popular perception too readily, for it can lead to setting themselves up as pseudo tech experts.

This danger is realised when they then become prescriptive about what qualifies and what doesn’t based purely on false assumptions. The number of times I’ve heard another adviser – with no background or expertise in the technology – pronounce that “the development of a phone app can’t be R&D because there are so many phone apps out there nowadays and so many tools available to help build them”.  Now, the development of that phone app at the end of the day might well not benchmark strongly for claim but the rationale can never be based on the fact that “there are so many of them out there now”. The same approach in respect of the cloud or mobility is equally ill conceived.

Then again, not all software is innovative.

On the other hand, another view might be that all software development is potentially eligible because the agile iterative software development methodology that is now an industry standard is inherently “experimental”. This approach is also flawed because it doesn’t pay sufficient regard to whether there were any precedents for the development and the extent to which any new knowledge was generated.

So, where does all this leave us?

Clearly, there is great potential to claim software development activities under R&D tax and the stats prove that a lot of such activity is indeed claimed. Guidance material from government can help provide a framework when qualifying such activities. Nevertheless, each development should be benchmarked against the legislative definition and treated on its merits, free from any assumptions that certain software development activities in particular areas cannot be “R&D” because they are now “old hat”.

Claimants (and their advisers) should always work from first principles and assess what activities have been conducted and the extent to which they can legitimately be described as “experimental” (remembering evidence of the journey from “hypothesis” to “test” to “analysis of results” to the drawing of a logical conclusion). And not forgetting the need to articulate a compelling argument that some “new knowledge” has been obtained from the exercise.

In this last respect, determining what is “new knowledge” and what is a relatively transparent extension of the “prior art” can be another contentious area. But that’s a topic perhaps best left for another post.