Recycling and Clean Energy R&D Tax Incentive Case Study

Case Study – ReCycle IT

Recycling & Clean tech R&D activities

Recycling & clean tech projects with eligible R&D activities can include:

  • Development of new or improved cleantech and/or recycling process to improve efficiencies, reduce energy consumption and or to create more eco-friendly/sustainable products. Also process that lower input, reduced costs, and/all improve outcomes.
  • Development of new recycling practices (Methods of recycling, materials to be recycled, etc.) using new or improved technologies in a different location or context that involves uncertain outcomes.

Companies claiming Recycling & clean tech R&D activities can range from startups to large multi-nationals, research-based companies, recycling plants or cleantech retailers wishing to extend their product offerings.

ReCycle IT

ReCycle IT Pty Ltd is a small start up with an employee count of 3 people. ReCycle IT have developed a new method to recycle certain components of IT hardware waste and are also developing a unique online platform using machine learning and AI to efficiently manage the tracking, return and recycling process

The company conducts a range of projects that includes research and development of new recycling practices and process for more e-waste components and engages a university to help with the process design. 

ReCycle IT received a matched funded federal government grant to work with the university, ReCycle IT develop a new process methodology to extract, clean and recycle the platinum, nickel, zinc heavy metals from certain types of e-waste. ReCyle IT is now in the process of trying scale up experiments to figure out the parameters for scale up. 

ReCycle IT concluded that some of the development would be within its existing skills and experience, but that other aspects would require hypothesis driven experimentation. It was able to form this view given the qualifications, knowledge and experience of its team and consultation with third party subject matter experts and reviewing publicly available information. 

ReCycle IT engaged a technical consultant to design and produce the prototype pilot-scale (to ensure scalability of a new production protocol) platinum, nickel, zinc, recycling plant. Trials of the new plant were conducted and  protocol parameters developed by ReCycle IT . 

Eligibility must be assessed on an activity level, rather than project level. Within a Recycling & clean tech 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.

ReCycle IT considered its activities against the definitions of core and supporting R&D activities, guidance materials published by AusIndustry and ATO taxpayer alerts.

It self-assessed that the recycling method for e-waste components and aspects of the platform design met the requirements to be a core R&D activity because:

  • There was limited current knowledge on how to efficiently recycle the e-waste component.
  • Knowledge regarding the extraction process of the component from the body of the e-waste had never been tried and tested.
  • It could only determine the outcome through a systematic progression of work that is based on the principles of established science, in this case the fields of chemical/materials engineering and software engineering.
  • It planned to generate new knowledge about:
  • The chemical technologies required to extract, process and recycle heavy metals.
  • The most efficient way to integrate the complex data models around the collection, processing, treatment and recycling and tracking of e-waste components on a large domestic scale. Which meant figuring out the integration of machine learning and AI to solve for the critical unknown of predictive algorithms around supply, volume and rate of processing.
  • The safety and efficacy of the recycling process.

ReCycle IT assessed that other aspects of the project including project management encompassing travel to the trial site, technology research and pilot-scale testing 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.

ReCycle IT engaged third party experts to assist with the development of the scale up portion of the experiments. ReCycle IT assessed that as it:

  • Bore the financial risk in the activities performed by the contractor,
  • Had beneficial ownership of any technology/knowhow generated by the contractor,
  • Strictly controlled the activities of the contractor including directing activities to alternative lines of research, that the activities performed by the contractor were undertaken ‘for’ ReCycle IT.

ReCycle IT incurred expenditure on R&D salaries, travel to field experiment sites, consumables in the form of agrichemicals, third party contractor costs, and overheads.  ReCycle IT also acknowledged that given it had a grant to conduct some of the work with the University, it would be subject to a clawback adjustment. ReCycle IT conducted the R&D in the hope of developing a new, innovative recycling process and platform that could generate revenue.

ReCycle IT is a Pty Ltd company incorporated in Australia that is not a tax-exempt entity, thus it is the eligible R&D entity.

On the technical side, ReCycle IT kept documentation usually generated as part of its design and construction activities including preparation of progress reports, detailed engineering documents, project management, etc.   

To differentiate the R&D project from routine design and construction activities, it also kept records that evidenced the experimental nature of the work, including:  

  • Detailed laboratory reports from the university including published papers. The lab reports included all the details of the experiments undertaken including fail experiments. 
  • White papers, journal articles, technology reviews and searches that were used to establish the knowledge gap. 
  • Confluence pages that summarise the technical problems, propose a hypothesis or design solution to resolve them, describe the testing method and the success metrics that will be used to evaluate the results.  
  • To demonstrate that its engineers spent time on R&D, ReCycleIT tracked all staff time and expenditure (e.g. contractor costs, chemicals, external analysis, etc.) using specific R&D job codes. Reports were exported to determine how many hours the development team spent on individual tasks and the costs tracked in the R&D job code that formed part of the core and supporting R&D activities vs routine development. Third parties’ invoices, including technical experts, were sufficiently detailed to distinguish between eligible R&D activities (core or support) and ineligible activities. 
  • Conducted education sessions with key technical and financial personnel to help ReCycle IT assess activities against the legislation. The definitions of R&D under the program are not necessarily the same as the common understanding of R&D, or experimentation.  
  • Ensured that none of the core R&D activities fell within the exclusion around complying with statutory requirements or standards. 
  • Drafted the technical descriptions of the core and supporting activities conducted in the project with sufficient detail to allow AusIndustry to understand how those activities met the eligibility requirements. 
  • Prepared the R&D expenditure calculations and information needed to submit the claim as part of the company tax return, ensuring no ineligible expenditure was claimed such as the cost of core technology or expenditure not “at risk”.  
  • Worked with ReCycle IT to improve their record keeping systems and processes to contemporaneously identify, evaluate and record R&D activities. 
  • Successfully assisted ReCycle IT with tis claw back calculations.

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