Grants vs R&D Tax Incentive: Which Government Funding Option is Best for Your Business?
Accessing various government supported funding programs can be a great way to commercialise ideas and grow your business. The Australian government uses direct and indirect funding to support businesses across different industries, sectors and sizes. If you’re unsure of your government funding options, we’ve highlighted some key differences between the two most popular programs available in Australia: Government grants, and the R&D Tax Incentive.
Grants
A direct source of funding meaning funds are provided by the government to a business for a specific purpose. A committee is usually set up to decide which businesses have the strongest applications and are successful candidates to receive funding.
Forward looking Grants are generally only provided for upcoming projects. You’ll need to consider projects on the horizon and check grants that open at the time.
Diverse objectives Different grants support different types of projects, such as helping businesses purchase new equipment, upgrade processes, improve cyber security, commercialise new products and services and much more.
Access to resources and networks. Grants can provide more than just a cash injection into the business. Some grants, for example, provide businesses with access to experts, facilitators and networks for strategic advise and opening up sales channels.
Increased visibility. Winning a government grant can raise the profile of a business and establish its reputation as a leader in its field. This can open up new opportunities for collaboration, partnership, and investment.
Competitive process. With a limited amount of funding available, businesses should carefully prepare and submit strong applications to stand out from the large number of applicants.
Time/ resource constraints Applying for a grant can be a complex and time-consuming process and may require extensive documentation and ongoing reporting requirements. Further, there are tight deadlines to meet with the application process.
Matched funding grants often require matched funding, meaning businesses need to contribute a certain percentage of the project cost themselves.
Read more about grants here.
R&D Tax Incentive
An indirect source of funding that is delivered by the tax system under self-assessment, rather than a competitive application process. The R&D Tax Incentive is a broad based program that is available to companies regardless of industry or size. It provides an incentive, in the form of a tax offset, to businesses to conduct research and development activities. This may be a cash refund or simply a reduction in tax payable.
Objective The R&D Tax Incentive is designed to encourage businesses to conduct research and development activities that would otherwise be too risky to invest in.
Predictable source of funding that businesses can rely on year after year, as long as the R&D tax eligibility criteria are met. This helps businesses plan and invest for the long term.
Time and resource constraints exist as the R&D Tax Incentive program is governed by complex legislation. There are many eligibility criteria and compliance processes to consider to satisfy its regulators – AusIndustry and the ATO.
Read more about the R&D Tax Incentive here.
| Grants | R&D Tax Incentive | |
|---|---|---|
| Application process | Can be a multistage process, application window might be only a few weeks | Involves registering activities with AusIndustry up to 10 months after the end of your income year, and including your R&D expenditure in the company tax return |
| Assessment | Competitive | Self-assessment |
| Target of support | Depends on the objective of the grant | Research and development activities |
| Timing | A project planned for the future | R&D activities that have already been conducted in your income year |
| Cash flow considerations | May need matched funding | Need to incur expenditure first |
| Availability | limited pool of funding available for a defined number of years | No limited pool of funding, businesses can access the program year on year |
| Documentation requirements | Project specific documentation such as business plan, project plan, project budget, letters of support, purchase orders and more | Contemporaneous records that demonstrate the experimental nature of the R&D and the related expenditure |
Applying for government funding can be a daunting task, but our team of experts can help you navigate the options and find the best fit for your business. There are many scenarios where you don’t have to choose between the two – we can advise on how to leverage both government funding options to maximize your funding potential. Contact us to discuss your options.
