Innovation Insights for 2022

Share this:

BridgePoint Group’s Innovation Advisory service is led by Alan Baghdasarayan. In this article Alan shares his insights on the innovation space leading into 2022. 

R&D Tax Incentives – Australia

Covid created a lot of uncertainty. Some clients pulled back on their R&D. Companies that doubled down on R&D during this time, in many instances, have really come out better than the ones who decided not to. The time spent in lockdown focusing on their R&D led to them producing innovative new products and services. They are now in a much stronger position now that the market has started to open up. In fact, the money spent on R&D during the lockdown period is starting to reap rewards. 

Examples such as Andi Health (winners of BPG Innovation Award 2021) who were established just before the pandemic, continued to operate during that period and even raise funds. Ultimately allowing the business to grow through that period.    

There is always an opportunity regardless of the market conditions if you are meeting a current market need. 

For larger businesses, for the income year starting after 1 July 2021, changes to the R&D Tax Incentive benefits can increase, based on R&D expenditure relative to total expenditure.  If it’s less than 2% of total expenditure, the after-tax benefit remains at 8.5% return. However, if the R&D intensity is greater than 2% then the benefit jumps up to 16.5%.  That’s creating a shift in the mindset in the bigger end of town. So, if companies are looking to invest in R&D, then to really make it count, they should be investing more into their R&D efforts.

R&D Tax Incentives – New Zealand 

Looking at the New Zealand market, the R&DTI program has only been in place for the last couple of years. Business was constrained by shutdowns during the Covid period and given that it’s a relatively new program, the uptake has been slow. With the return to fully functioning business levels, we’re anticipating an increase in R&D activity. While the end of the NZ financial year is normally the 31st of March, we are looking forward to a much more robust output in the R&D space next financial year. 

Export Market Development Grants (EMDG) – Australia

Recently, Export Market Development Grants have undergone a structural change to the program. 

Previously, export promotional activities (and costs) undertaken in the financial year were collated and submitted to Austrade at the end of each financial year. The grant application and processing could take between four to six months and your grant (up to 50% of your expenditure) was paid. The existing process meant your outlay was not returned until ten to twelve months after the end of the financial year and up to 24 months after the costs were outlaid. 

Austrade implemented a structural change, with the new program offering funds on a prospective basis instead of a retrospective basis. At the start of the financial year, a grant agreement is initiated between Austrade and the applicant. The applicant provides a prospective/forecasted amount that will be spent in the upcoming financial years on export market development activities. The theory is that the grant will be paid in instalments throughout the financial years. 

Unfortunately, things have not gone to plan for Austrade in this revision. The volume of grant applications has far outstripped their forecasts and they have come up short in their financial modelling. Their model of “spend more and potentially receive more” grant funding has not worked and they have now reduced prospective funding. Our sense is that Austrade may revert back to the old EMDG system sometime soon. The new system promised advanced funding and potentially higher returns to businesses. Both of these promises have failed to materialise. We’ve got enormous respect for the folk at Austrade, so perhaps it’s just teething issues and it may work out better in the long term.

Early Stage Innovation Company (ESIC) – Australia

This is for companies who are just starting-up and as the name implies, can qualify as both ‘early stage’ and as an ‘innovation company’. Possibly as a result of Covid, we are seeing a surge in applications for this. People appear to be wanting to start their own business and bring investors on board. The ESIC program involves utilising tax advantages that investors can get when a new business is raising capital. A lot of people don’t know about this tax incentive and BridgePoint Group can advise them on the process to access ESIC tax benefits. 

Other Government Grants – Australia

There are other government grants which aren’t as well known. This area of finance and accounting is highly specialised. Knowing the nuances to the Federal Government’s thinking is key to securing them. Some grants are open for a very small window and require an extensive application process. 

An example is the Manufacturing Modernisation Grant. Round 2 of the grant was opened just before the Christmas break and the deadline for submission was the 14th of January 2022. How’s that for a bureaucratic tailspin? The key is to watch out for grants opening and to be prepared in advance when they do. Generally speaking, the grants come around each year at the behest of the Government. They will choose the successful applications (particularly the ones that attract the most media attention or create employment opportunities) and reignite them for a short period of time. Keep your eye out for Round 3, probably about the same time this year.

A Specialist area

If you’re reading this and you’re not a client of BridgePoint Group, you might be wondering why your accountant hasn’t talked to you about it. Well, that’s because it’s a specialist area and only the really big firms and a handful of boutiques know what it’s all about. Numerous accounting firms look to BridgePoint Group to make sure their clients don’t miss out on Government grants. Feel free to introduce us to your accountant too.

In Summary 

The 2022 Innovation landscape is ‘all systems go’. There is robust activity in the ‘start-up’ sector and the established businesses in corporate-town are spending more in R&D and getting increased rewards (tax incentives) for doing so. The bio-tech space is booming. 

If you have any questions or would like assistance in securing relevant Government grants for your business, or if you have spent money on research and development and would like to access the Government’s R&D tax incentive scheme, then please call Alan Baghdasarayan on 0418 957 003 or email – alan@bridgepointgroup.com.au. 

One call can change it all. 

 

Share this: