Now that the Callaghan Innovation Growth Grant scheme has run its course, here is an update of funding assistance that might be of interest.
Callaghan Innovation Grants
Growth Grant (no longer available)
- Companies proposed a multi-year program of work with broadly defined costs and resources.
- Reimbursement was 20% of eligible R&D costs
- Callaghan Innovation deferred to Chartered Accountants to audit that your R&D met the definition
- Reimbursement was claimed quarterly
R&D Project Grant (still available)
- Companies propose a tightly defined R&D project inclusive of costs and resources and all claims must align to the approved project.
- If you have already held a Growth Grant reimbursement is capped at 20% and eligibility is only projects declined by IRD under RDTI
- Otherwise, 40% reimbursement with conditions based on your R&D spend
- Callaghan Innovation determine the proposed project qualifies as R&D
- Reimbursement can be claimed monthly
R&D Loan Scheme (not open for new applications)
- Approved loans need to be spent by June 30th or refunded
- R&D Experience – Summer internships for undergrads – $8,640 per intern
- Career Grants – reimbursement of six month’s salary for new Masters or PhD employee – $30,000
- Fellowships – a stipend for Masters or PhD project over three years to work on university/private sector project
Research and Development Tax Incentive (RDTI)
In a recent document from PwC discussing lobbying efforts to drive changes within the newly launched but poorly designed RDTI scheme, “…change is coming. Regulators have taken on board feedback and created a matrix to demonstrate the type of activity that should be eligible under the RDTI. This shows that existing Growth Grant recipients should qualify for the new RDTI and could potentially receive support at similar levels”.
These changes do not require changes to legislation so could be implemented soon.
I’ll let you know, when I know!
RDTI General approval
To get started with an RDTI claim, you need to obtain general approval of your core and supporting R&D activities. In the general approval process you set out the R&D activities for which you are seeking approval plus the income years you want your approval to apply for (meaning you can get approval for activities likely to flow over several years).
Your first step is to enrol using the myIR portal and gain access to the supplementary return and the general approval application.
For FY2021, companies that didn’t receive Growth Grant payments, general approval applications are due by 7 May, 2021 (assuming a March 31 financial year). Applications received after this date will not be accepted.
Important RDTI terms
RDTI is very definition heavy so, in the language of the RDTI wonks….
An R&D activity is eligible for the tax credit if its purpose is to resolve scientific or technological uncertainty unless the knowledge required to resolve the uncertainty is publicly available, or deducible by a competent professional in the relevant field.
R&D activity must be conducted using a systematic approach and have the main purpose of creating new knowledge, or new or improved processes, services or goods
A core R&D activity is an activity that both:
- is carried out with the purpose of creating new knowledge, or new or improved processes, services or goods
- uses a systematic approach, which has the purpose of resolving scientific or technological uncertainty
A systematic approach is a methodical (organised and planned) approach to formulate and test possible solution(s) to the uncertainty
Record keeping (this is very important)
The following information must be recorded and kept for every project (you may be asked to provide it as supporting evidence)
- The purpose of the R&D (what is the new knowledge or new or improved process, product or service).
- The scientific or technological uncertainty (the question) that the systematic approach is intended to resolve.
- How you know the uncertainty could not be resolved based on publicly available information or deduced by a competent professional.
- The systematic approach used when undertaking your R&D
- The nature of any supporting activities that are only, or mainly, for the purpose of supporting the core R&D activity.
You will need to implement a suitable project management or record keeping system to keep track of your R&D project and supporting information.
The key requirement is to make sure that where a scientific or technological uncertainty is known to exist, or emerges, the activities required to resolve it are captured as a deliverable or deliverables in their own right and that expenditure is appropriately recorded or apportioned against those deliverables.
This will often require the use of additional project costing codes to capture the expenditure or provide a basis for apportionment.
For records to be sufficient to support a claim they should be kept on a contemporaneous (i.e. done at the time – not after the fact) or timely basis. Records which are created after the R&D is finished or at year end are not likely to meet this requirement.
Where employees are not engaged full time on eligible R&D activities you should be able to show that you have a credible and timely process for apportioning expenditure.
Where staff are allocated to eligible R&D activities on a full-time basis monthly documentation which identified the staff involved with the work and the dates during the month when staff commenced or ceased working on eligible R&D activities would be accepted.
Where expenditure on materials or depreciation is being allocated, usage should be recorded at the time through a stock control system or cost allocation process. If the expenditure on eligible activities is apportioned, the basis for apportionment must be reasonable and be supported by an audit trail
Agile development methodologies
A project being managed by an agile team must also identify the question that was scientifically or technologically uncertain, how your business knew it was uncertain and whether that activity was successful. You should build deliberate consideration of whether there are qualifying R&D activities into sprint planning and review meetings.
Refundable R&D tax credits
The R&D Loss Tax Credit is currently under review by the Government and is expected to be modified within the RDTI framework
You may be eligible for refundability if you are in a tax loss position, or if you have insufficient income tax to pay to offset all of your R&D tax credits against (that is, you have surplus R&D tax credits).
R&D tax credit refunds and cashed-out losses
You may be able to claim both the R&D loss tax credit and the R&D tax credit.
- Callaghan Innovation R&D Project grants may be an option – but are project-specific and not program focussed like the Growth Grant scheme
- Student grants remain unchanged
- RDTI is currently very complex and tightly rule-bound (as would be expected of an IRD program). Significant pressure is being applied on the government and we are anticipating some simplification of the scheme
- High-quality record keeping will be paramount
- If you have just come off a Growth Grant, there is no point enrolling for RDTI for FY 2021
- The R&D Loss Tax Credit cash out appears to be available still for FY2021 but is under review
- Give me a call or email and we can talk through your specific options