Manufacturing R&D Tax Incentive Case Study

Case Study – Make It Fast

Manufacturing related R&D activities

Manufacturing projects with eligible R&D activities can include:

  • Development of new or improved manufacturing processes that improve efficiency, safety, quality and/or throughput.
  • New or improved machine tools, devices, electronics and advanced materials etc.

Companies claiming manufacturing related R&D activities range from start-ups to established companies seeking to improve their production processes and develop new products.

Make It Fast

Make It Fast manufactures high performance metal components for specialised applications.

As part of their manufacturing process, the company use diecast tooling. An issue was identified whereby the sprue assembly in the high-pressure die casting tool was running too hot, resulting in frequent line stoppages. To overcome this problem, Make it Fast sought to develop an engineering solution to increase cooling in their die casting process.

Through literature reviews and discussions with die cast manufacturing engineers at a conference and professional forums online, Make it Fast concluded that they needed to undertake R&D in order to develop a new die cast tool. 

The geometrical features of the die cast tool have a direct influence on the operating temperature during the casting process. These features include the shape, thickness and length of the cooling channels which direct airflow into the sprue area where hot molten metal is injected into the tool cavity to form the casting. As part of the background research, the company determined that the existing tool geometries required redesign, which in turn is impacted by the methods from which the tool itself is produced.

The existing tooling design is achieved by a process called machining, whereby the tool design is manufactured by ‘cutting’ material from the original material until the desired shape is achieved. During the development process, Make It Fast also determined that its proposed new tooling design had increased geometrical complexity including thinner cooling channels and high number of channel passes that could not be achieved with machining. Therefore, Make It Fast explored alternative tooling manufacturing methods, including 3D printing, to achieve more complex tooling designs.

The company sought to access the R&D Tax Incentive program to de-risk the experimental aspects of the project due to uncertain return and invest in a competitive advantage. 

Eligibility must be assessed on an activity level, rather than project level. Within a manufacturing project, there are likely to be some activities that qualify as core R&D activities, some that qualify as supporting R&D activities, and some activities that are not eligible. 

Make It Fast considered its activities against the definitions of core and supporting R&D activities. 

It self-assessed that the new die cast tool, along with a new material composition, to achieve increased cooling met the requirements to be a core R&D activity because: 

  • There was no current knowledge that it could find in technical publications, existing off the shelf manufacturing processes and other publicly available sources that it could leverage to develop a suitable tool design. Tool blueprints are proprietary in nature, and while casting and 3D printing equipment can be readily accessed, they do not provide knowledge on the tooling design to achieve the optimum operating conditions, such as casting temperatures.
  • It could only determine the outcome through a systematic progression of work based on the principles of an established science, in this case the fields of engineering design and materials science. Experimentation commenced with computational fluid dynamics modelling to evaluate the effect of different cooling channel designs (e.g., shape, thickness) on heat dissipation. Finite Element Modelling was used to evaluate the structural integrity of the tool materials against the different channel design options.  One-off tooling prototypes were then produced for real world, physical trials.  Independent variables tested included tooling material and channel shape and dimensions. Dependent variables evaluated included sprue temperatures and production cycle time.
  • It planned to generate new knowledge about the design of a diecast tooling model with highly complex geometries to achieve improved cooling. It was proposed that ‘conformal’ cooling channels with thinner walls could be achieved in the new tooling design to maximise the effects of heat dissipation. Further, new learnings will be gained in selection of a material that could provide the structural integrity to enable conformal cooling channel design to be applied in the die cast tool. 

In addition to the core R&D, Make It Fast assessed that activities including project management, background technical reviews, prototype/ test equipment set-up could be registered as supporting R&D activities. These tasks were all within the skills and experience of the company, however, they were directly related to the core R&D activity and the experiments could not be carried out without them.

Additional activities carried out after new knowledge had been created (such as maintenance and safety related work) did not meet the definitions of core or supporting R&D activities. 

Make It Fast incurred expenditure on R&D salaries, prototyping expenses (including one-off tooling), third party contractor costs (material lab testing), depreciation and overheads. 

Make It Fast is an eligible R&D entity as it is a Pty Ltd company incorporated in Australia and is not a tax-exempt entity.

On the technical side, Make It Fast kept documentation including records of discussion over professional forums, literature reviews, CFD / FEM outputs, design blueprints and test reports outlining the systematic progression of work.

To demonstrate its engineers spent time on R&D, Make It Fast require its manufacturing engineers and technical team to log time. Prototype expenses were recorded and tracked separately in the accounting system along with descriptions of their use in the research process.

  • Had technical conversations with Make It Fast’s engineers and drafted the technical descriptions of the R&D activities.
  • Prepared the R&D expenditure calculations which captured R&D related salaries and wages as well as prototyping expenditure and depreciation costs for tangible assets used to carry out R&D.
  • At the request of Make it Fast, NOAH introduced it to an R&D lender for advanced payments/drawdown of future R&D tax offset refunds so that it could fund its R&D activities without jeopardising normal business operations. NOAH assisted the process by identifying R&D activities, calculating R&D expenditure to date and preparing the R&D lending letter, supplemented with supporting material as required by the R&D lender.
  • Informed the company of the latest case law, guidance and expectations from the regulators (AusIndustry and ATO) expressed through taxpayer alerts and industry reference group meetings.

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