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The Complete Guide To Innovating in Australia

for Software and Manufacturing Companies

Improve the Effectiveness of your R&D Program, Including maximising the R&D Tax Incentive Claim

George Mirabelli – R&D Tax Incentive compliance expert and Trainer.

Table of Contents

Table of Contents

According to the Australian 2030 Prosperity through Innovation report# authored by Innovation and Science Australia, critical elements are required for successful innovation. These are education as a whole population with the skills and knowledge; stimulation of industry for high-growth and improved productivity; research and development efficiency and effectiveness – particularly to transitioning to successful commercialisation of the research; and government support to act as a catalyst to all of the above.

As a result, a strong network of assistance for a business seeking to innovate has evolved. By innovating, we mean new product design, process improvement, or simply finding a new way to do something with software or on the production line. As a software or manufacturing company, there are many opportunities to tap into this array of help if you are doing new product design, process improvement or innovation.

What Innovation Attracts Government Funding For Your Industry?

Innovation in Australia is well supported by various government grants, programs, specialist advisors and a range of other help. The key to accessing funding or grant support is to understand the lifecycle of your idea and what area of grants will apply to you as a software developer or manufacturer. 

There are two ways to think about potential grants.

The first is an ‘agenda’ supported at a political or business level, e.g. ESG or sustainability innovation. The second is a general ‘life cycle’ based on where you are on the commercialisation ladder.

Agendas

The government provides Grants to particular areas of interest. For example, these grants target a specific industry sector or have a specific innovation that is being encouraged, such as the recent manufacturing and recycling ones (link to example). These are once-off large competitive grants. There are many of these types of grants, particularly in specialist areas.

How do you discover if there is a grant relevant to you?

1. New grants are constantly being announced, or existing grants are revamped or renewed. These are at both the national and state level.

Being across these takes time, but it’s fruitful to regularly scan the related sites (see list below) to help you understand what grants are available. It also has the bonus of helping you learn how the ‘government’ talks and thinks about your industry. Gaining this knowledge is useful when it comes time to write a grant application. You might like to think about setting up a Google Alert to track any newly published content so that you are across any grants as they are published.

2. Leverage specialist assistance

Innovation grant specialists can save you time identifying what grants would be the best fit for you. In addition, these specialists can provide invaluable advice on navigating a very complex area, particularly when it comes to writing grant submissions.

We recommend finding a reputable Grants specialist such as the Mark Bouw group as they know most grants available and the criteria required to be eligible.

Another service to consider is the Grant Guru website, an aggregator site bringing all grants available in Australia into one database. It is easier to understand which grants apply to you than being across multiple websites.

Both of these services also offer assistance in writing Grant submissions which can help you get the application right first go. A grant specialist usually understands what the provider is looking for and therefore should increase the likelihood of your successful application.

Stages

There are also perpetual or evergreen programs open to software and manufacturing offered by the government. They are more general in the eligibility criteria and are targeted to the stage you are at with commercialising your idea.

The following is a list of grants available based on stage.

1. Early Stage Investment Grant

Targeted at start-ups in the pre-commercialisation phase conducting R&D, requiring additional investment to assist with commercialisation. It provides a 20% tax offset for investors and a ten-year capital gains exemption once the company is confirmed to be early-stage and involved in innovation. The business can self-assess against the criteria and is worth investigating.

Pros

Provides a much-needed cash flow boost and long term reductions in CGT.

A 100 point innovation assessment and eligibility decision tool are provided online.

Cons

Requires careful accounting practices.

The 100 point innovation test and eligibility tool can be onerous for the beginner, seek out a Tax Consultant such as Mark Bouw Group as an example.

Link to more info: here

2. R&D Tax Incentive

Government funding is centred around the concept of generating new knowledge using the scientific principle and a systematic approach. Most businesses shy away from this because their reading of the legislation may indicate that they are not eligible. The legislation contains a lot of legalese and is based on the Frascati Manual from the OECD.

The legislation is meant to be interpreted specifically for your sector. However, you can apply it to your R&D if you meet the basic eligibility criteria with the proper guidance and assistance.

To be eligible, you must spend at least $20,000 on eligible R&D activities, be eligible for a tax offset for your notional deductions for an income year of at least $20,000.

It may still be eligible if your R&D expenditure is less than $20,000, but you must use a registered Research Service Provider (RSP) to conduct your R&D.

Pros

Self-assessment, available to most businesses, and is a generous rebate.

Can be self-claimed for smaller less complex businesses, but a Tax Consultant would be a good idea if things are more complicated.

Cons

Must meet the eligibility criteria. Self-assessment leads businesses to sometimes take a relaxed approach to compliance and documentation.

Just as you would not submit a Tax Return without the appropriate bookkeeping, do not claim the R&D Tax Incentive without the appropriate strategy, plans, evidence and expanse tracking.

Make sure to use templates to ensure easy compliance and to streamline the process.

Link to more info: here

3. Commercialisation Accelerator

Once your R&D is proving fruitful before you start selling the resulting products, you can apply for the Commercialisation Accelerator. Once your R&D is reviewed and approved, you will receive matched funding up to $250,000. 

Pros

Very generous matched funding option that can give your business a substantial boost.

Cons

Must meet eligibility criteria. Must be applied for before selling the product. Can require detailed discussions with the department so start this journey early.

Link to more info: here

4. Export Market Development Grant

It does not have to follow the Commercialisation Accelerator but would be a natural progression if you go down that path. Once your product is ready, you can apply for funding to help you open up export markets. This grant covers all expenses, including Patent Applications, right through to international staff/sales personnel.

Pros

Will assist with a variety of costs related to opening up an export market and able to be claimed in several financial years.

Cons

Requires a detailed application that clearly articulates the objectives and expected expenses. Then the Department will decide how much of your expenses it will co-fund.

Link to more info: here

In summary, you may be able to access government funding no matter what stage you are up to. These evergreen funding options are the best starting place since they are always available.

They also require varying degrees of project reporting, evidence of R&D and experiments and detailed tracking and financial records, which leads to the next point.

Check out Our Training Courses, Workshops And Template Packs!

Process Matters

Much of the information available on innovation talks about Research and Development using a Scientific Process.

R&D can seem like a foreign concept for a software development or manufacturing company doing product development or process improvement.

However, the systems and processes in traditional R&D sectors like science and medicine can be easily applied with great benefit to the work you are doing to innovate in either of these sectors.

Firstly, there is an underlying imperative to have processes that align with some more traditional R&D practices. For example, understanding what new knowledge you are seeking to create, the ‘experiments’ you are undertaking as part of the innovation work and tracking time and effort.

This documentation is often required as part of the grant or incentive programs available to you as a company undertaking innovation. For example, putting in place a robust R&D process and documentation will allow you to fully maximise the R&D Tax Incentive by ensuring you have all of the evidence required for all of your R&D and can therefore claim all expenses.

While some of the R&D processes that are recommended apply to accessing grants information, they also provide you with a robust approach to innovation that will result in more ideas, rigour and market alignment in preparation for commercialising your ‘R&D’.

We recommend that you think about your work as an iterative process – an easy leap for the software sector that already embraces agile methodologies. Therefore, we encourage a simple template approach to make it quick for your staff to comply and create consistency.

The following documents are recommended as part of your R&D program of work:  

  1. Product strategy with project roadmap and new knowledge clearly explained and justified.
  2. R&D project documentation with project hypothesis (objective) explained: 
    • R&D project eligibility proof for core R&D activity (the R in R&D) documentation
    • R&D project timelines, plans and budgets with a report to demonstrate they have been monitored.
  1. R&D work records that track time and materials as core vs supporting (R vs D) expenses.
  2. Experiment plans capture how you plan to prove the hypothesis.
  3. Experiments conducted and evidence recorded with the results evaluated/reported.
  4. Minutes of meetings when results were assessed, corrections to the hypothesis agreed, and iterations approved.

While these may seem a lot, the reality is that these are the core documents required for the R&D Tax Incentive and form the foundation of the most effective innovation programs. They provide you with the strategy, the iterative process to evolve your idea into a commercial consideration. Even more critical, when it comes time to apply for any patents, you have most of the required information.

Taking steps to establish a repeatable R&D process with monitoring documentation and report templates will ensure that you are not at the mercy of the previous staff. The last thing you need when the request for information about your past claim arrives is to be thinking that a past employee handled the R&D, and no one knows where the documents are or what document contains which information. When you have 30 days to report back to AusIndustry or the ATO, you don’t want to be guessing, stressing, searching emails, etc.

Optimising your R&D Processes, training your staff and providing them with templates that allow consistent and efficient adherence to the defined processes will enable your R&D to proceed smoothly. Sounds just like an expert software development team – or an efficient manufacturing process, right?

Self-governance is essential

Collecting all the records is particularly important for the R&D Tax Incentive because it is a self-assessment programme. No one will check that you are keeping the records and locate the evidence until you are selected for Audit, which may be several years later. There may be a short term gain by ignoring the detailed documentation, but it will be long term pain when there is an Audit. So why would you risk paying it all back with a fine?

Paying attention to the processes and documentation sets you up to be ready for:

i. Patent applications

ii. Grant applications

iii. R&D tax incentive claiming

iv. Repeatable and scalable innovation

v. Risk management (staff/reporting/tracking etc)

If you need a head start to put these documents in place, we have a Start-up & Small Business Head Start Value Pack that provides you with templates for each of these.

The Tools You Pick Make A Difference

Systems for managing your R&D are critical to ensuring efficiency both in the R&D and record-keeping. Using the right tools to manage your system can make your life easier and smoother. For example, you may be keen to introduce a timesheet solution. Instead, why not look at a tasking solution that allows you to track work progress and collect timesheet data. These optimisations mean that staff will be less resistant to producing the records because it is not represented as an extra thing that needs to be done, but rather an essential and efficient means for prioritising, allocating and keeping track of tasks in this case.

In addition, automating the reporting of expenses for your projects and separating the Core and Supporting R&D expenses is crucial. Similarly to the Timesheet issue above; we could solve the expense separation in the task system and the project management or inventory systems.

We have listed some of the tools we use and recommend to clients below.

Project Management

Smartsheet, MS Project etc.

Knowledge Management

SharePoint/OneDrive/Teams, JIRA/Confluence, Notion

Collaboration

MS Teams/ Notion/ SharePoint

Task

MS Planner, JIRA, Asana, Monday

Cost Tracking

JIRA/Tempo, Clockify, Harvest, TimeNye/Teams/Planner Combo

Templates/processes

SLS R&D Process Manual and Templates – Word/Excel

Those familiar with LEAN manufacturing or process improvement will realise this type of optimisation is what we propose you do for your R&D Processes. After all, you are spending hard-earned profit on your R&D, so why be inefficient. While you are at it, include what is needed for the R&D Tax Incentive or by the grant that you have won so that you can report on it as required.

Learn what records, their format and wording you need to substantiate and maximise your claim.

Timing Is Everything

The protection of the R&D is critical and usually takes the form of Patent protection and is particularly important to ensure your newly generated knowledge cannot be copied. Once the patent is assigned, it will allow you to use Australia’s Patent Box when it becomes available. In addition, patents and associated documentation will enable you to add the R&D to the balance sheet as per IAASB138.

To achieve patent protection or convert your R&D into Assets requires that you have evidence of your R&D, the costs, the process, the successes and failures that led to a successful product.

As you can see, these are the same documents and evidence called for by the R&D Tax Incentive and most Grant terms and conditions.  By having your R&D Processes Optimised, you will naturally produce all the strategy, design information and expense records necessary to take full advantage of the innovation and increase the value of the business on the balance sheet.

When should you apply for your patent?

Once you can see that your R&D is likely to come to fruition, it is time to contact a Patent Attorney such as Michael Cooper from CooperIP. They will assess your invention using Patent criteria substantially different from the R&D Tax Incentive. As mentioned above, the EMGD can come into play at this point to protect the invention in multiple jurisdictions.

Being Prepared Will Pay Off

Having your R&D well documented and a clear process for conducting it that conforms to the requirements of the R&D Tax Incentive will mean that your claim will stand up to any audit. Once you achieve this level of confidence, you may consider accessing Forward Funding or, more simply, a loan against your claim rebate. The availability of these funds will either help fund the R&D, assist you in conducting more R&D or simply provide additional cash flow at Tax time.

When Should You Pay For Help?

1. Identifying which grant applies to you

If you have struggled to find or fit into a category for your innovation, then working with an innovation specialist can shortcut the process, and they can advise which grants will be the best fit for you

2. Writing the grant and completing R&D Tax Incentive claim applications

There is an art to writing a grant. If you are not confident in this area, then hiring a specialist can mean the difference between a successful application and not.
R&D Tax Consultants often offer Grant applications as a service and the R&D Tax Incentive Claim, a ‘tax form’. There is a lot of hype around this activity, particularly with promises of making it easy and taking all the paperwork away from you. These promises are usually a sign that the consultant may be taking shortcuts that will be an issue for you down the track. There is no shortcut around the paperwork, and an accountant cannot write up your hypothesis, experiments and outcomes, particularly after the fact.

3. Help with processes and templates

A company that is just getting started on the grant program tract or R&D Tax Incentive can super track their progress by following proven processes and templates that provide them with the correct language and evidence upfront. It can save reworking and do-overs and failed applications and a failed audit should this occur as part of the R&D Tax Incentive Program. Getting the processes right is often the area where most companies struggle.
Yet, the return on investment is the greatest as it underpins the quality of the work, setting them up for success with grant and claim applications and ensuring that the commercialisation aspects have been built into the overall processes.

4. Patentability searches

Some firms specialise and are economical in their ability to do the necessary searches required to establish that you have a unique idea or innovation and apply for various grants. Some grants require this information upfront. For example, many people start with a Patent Lawyer, but this is expensive. An organisation like TrueIP can do searches for a fraction of the cost.

5. Patent Lawyer

If you are at the stage where you need to apply for your patent, then a lawyer is non-negotiable. They are necessary to prepare and submit your patent applications successfully.

Do It Once, Do It right

Backtracking to create evidence after the fact is frowned upon by AusIndustry and the ATO. They expect that you will create records and evidence, track progress and expenses as you go (which they call contemporaneously).

It is far more achievable and more effective to optimise your R&D Process from the beginning of your project, integrate appropriate records in your day to day work, and avoid all the pitfalls.

Glossary

A

AusIndustry

Services for Australian businesses and industry. Industry innovation and science. Artificial intelligence. Australian Radioactive Waste Agency. Australian Space Agency. Blockchain etc https://www.industry.gov.au/

ATO

The ATO is the Government’s principal revenue collection agency. Our role is to manage and shape the tax, excise and superannuation systems that fund services for Australians.

C

Collaboration Tools

Tools that facilitate cooperation and sharing of information between the members of a team or group of staff members. Examples include MS Teams/ Notion/ SharePoint.

Contemporaneously

At one and the same time. Synonyms: coincidentally, coincidently, concurrently with the R&D Activities being conducted.

Core R&D

Considered the “R” or Research in the R&D being conducted. Must meet appropriate eligibility criteria in order for associated expenses to be claimed. Criteria are in the form of selection criteria, documentation and expense tracking.

Cost Tracking

The tracking of expenses such as time and materials utilised in the R&D. Core and Supporting expenses need to be accounted for and tracked separately. Tools can be used to encourage the collection of cost data, such as JIRA/Tempo, Clockify, Harvest, TimeNye/Teams/Planner Combo etc.

D

Documentation

It is information regarding the R&D that is captured Contemporaneously throughout the R&D as required by the Frascati Manual and the R&D Tax Incentive Legislation and associated government guidance.

E

Evidence

It is information regarding the R&D that is captured Contemporaneously throughout the R&D as required by the Frascati Manual and the R&D Tax Incentive Legislation and associated government guidance.

Experiments

Planned scenarios in which the R&D that has been produced is subjected to conditions that allow it to be exercised to determine if it meets the objectives expressed in the Hypothesis.

Experimental Results

The results of the experiments that are reviewed, discussed, and conclusions determined will guide the next steps in the R&D project. Therefore, the results must be kept as evidence and the meeting minutes where such results are reviewed need to be maintained.

F

Frascati Manual

The OECD standard for R&D which the Australian R&D Tax Incentive references for the definition of what is to be considered R&D.

G

Grant

An apportionment of funding from a Government Agency for the provision of an improvement of progression of research or development of a facility within Australia.

Grant Service

A service provided by businesses in Australia for the identification of suitable grants (Spotting Grants) and the preparation of a response to the Grant (a proposal).

H

Hypothesis

A key objective of a Core portion of an R&D project expressed an assertion and measurable outcomes. It also needs to meet the criteria set out in the Frascati Manual and the R&D Tax Incentive legislation.

K

Knowledge Management System

A software solution for the storage of documents in a way that allows for categorisation and retrieval of the documents in a timely manner. Examples include: SharePoint/OneDrive/Teams, JIRA/Confluence, and Notion.

O

OECD

The Organisation for Economic Co-operation and Development (OECD) is an international organisation in which governments work together to find solutions to common challenges, develop global standards, share experiences and identify best practices to promote better policies for better lives.

P

Patent

patent is a right that is granted for any device, substance, method or process that is new, inventive and useful. A patent is a legally enforceable right to commercially exploit the invention.

Patent Lawyer

Engaged by a business that has or plans to conduct R&D to apply for a patent. The Lawyer will assess the viability of a patent and then complete the appropriate application.

Processes

Defines and documented methods, steps and guidelines for completing a specific task or set of tasks. Processes are generally documented in a Procedure Manual as required by ISO-9001 which sets out the criteria for a quality management system and businesses can be certified.

Product Strategy

For the R&D Tax Incentive, it is a plan for a Product’s R&D over time. Consisting of a series of R&D Projects or stages in an overarching R&D Project. The series of projects illustrates a strategy for the ongoing R&D associated with the Product or Product line.

Project management

is the planning of systematic tasks and activities to be conducted by staff to complete an R&D or Grant activity. Tools that can be used for planning include Smartsheet, MS Project, specialised Excel Templates and MS Planner etc.

R

R&D Manual

Defines and documented methods, steps and guidelines for completing a specific task or set of tasks associated with the conduction of os R&D. It defines the process, steps and tools to be used along with Templates for artefacts such as documents and spreadsheets.

R&D Processes

The defined process, tools and methodologies for conducting R&D, documenting plans, hypothesis and outcomes. For the tracking of time and material expenses. For the storage of evidence required by the R&D Tax legislation to submit a claim.

R&D Process Optimisation

The review and recommendation of improvements to an existing R&D process or the establishment of an R&D Process and Process manual. Including the training and set to work of the processes in the form of coaching.

R&D Tax Consultant

A business that assists R&D Tax Incentive claimers to optimally prepare the information for the claim form from information collected as part of the R&D Processes established in the R&D Process Manual.

R&D Tax Incentive

An aspect of a country’s tax code is designed to incentivize or encourage a particular economic activity by reducing tax payments for a company in the said country. 

Research Service Provider (RSP): an organisation registered under section 29A of the Industry Research and Development Act 1986 as an RSP by Innovation Australia as having the appropriate scientific or technical expertise and resources to perform research and development on behalf of other companies.

S

Supporting R&D

Considered the “D” development in R&D. Supporting R&D needs to be directly required in order for a Core R&D Activity to be conducted or for experiments to be possible.

T

Task Management Tools

The R&D Activities to be conducted need to be assigned to specific staff to carry out the research and development. The tasks need to be segmented into Core R&D and Supporting R&D Tasks so that the expenses can be appropriately apportioned. Tools that assist with this are MS Planner, JIRA, Asana, Monday amongst others.

Templates

A set of defined word and excel document content layouts and examples, with instructions for their use. The Templates assist in ensuring that consistent documentation is produced for each R&D project and that all information required under the legislation is regularly collected and stored in the knowledge management system.

Note to readers: The information in this article is of a general nature and not intended to be taken as Financial, Tax or Business advice but rather as a means to find out about options available to businesses in Australia.

Download Our R&D Tax Incentive Checklist

R&D Tax Incentive FAQ

For new and experienced claimers

Everything you need to know about in our FAQ.

Find the answers you need to reduce your headaches.

Join Our Weekly R&D Process Discussion Group

A COMMUNITY FOR LIKE-MINDED INNOVATORS

Our standing weekly Discussion Group where we meet to discuss R&D Tax Incentive ideas, processes, tools and examples.

What Our Customers Have To Say

A very professional and thorough service. George helped us to put the correct processes in place for our specific business. Correct and accurate record keeping is the crux of any R&D claim and George was instrumental in setting that up so that in the future our application for an R&D grant will flow smoothly. The manual George provided is very professionally put together and through Georges workshops we, as a company, have realised the importance of such thorough record keeping. In fact we hope that by improving our record keeping we will be able to increase our future claims. George also pointed out to us a couple of things that we were unaware that we could claim as R&D expenses. Very helpful!
Robyn Hodgson
Coolpac (Temperature Controlled Freight Packaging)
5Star
There are a lot of consultants out there that are ready to take your money to help you put in an R&D grant, but few that help with making sure you have the process in place to support that application - until now.
George has systematized his successful process for maintaining compliance records into a framework that was easy for us to adapt and apply to our way of working.
With plenty of high profile businesses being audited and found coming up short due to record keeping, we are now sleeping easy that we will not be one of them.


Paul Greenwell
Propel Ventures (Financial Software Development)
5Star
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Frank Jones
ABCFilling
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