R&D Tax Incentive lodgements are approaching – lodge by 30 April 2019
At this meeting, Austrade provided an overview of the 2016 Export Market Development Grant (EMDG) program, as well as a range of topics related to the 2017 EMDG program. One of the more topical issues raised at this meeting was around the timing of the audits for 2016 claims and how this has adversely impacted the speed at which early lodgers are being handled with respect to their 2017 claims.
It has always been Austrade’s practice to finalise most, if not all, of the year’s EMDG audits by mid-June each year. This time lag (i.e. between lodgement in February and audit in June) has historically been attributed to the significant number of claims lodged in February each year. For example, in the 2016 grant year, one quarter of all claimants lodged in January and February, placing a high level of demand on Austrade resources.
The result of such a high proportion of claimants lodging in January and February (February being the deadline for lodgement with Approved EMDG Consultants) was that 10% of EMDG audits by Austrade for the 2016 year were delayed (i.e. did not take place before the payment cut off for the 2016 year) and have been carried over to the 2017 year. In fact, as of September 2017, a number of claimants for the 2016 EMDG program have still not been reviewed by Austrade, a delay of more than 6 months between lodgement and receipt of the EMDG refund.
The delay in finalising the 2016 EMDG program has also had a significant impact on the progress of the 2017 EMDG program. In previous years, Austrade has indicated that claimants who lodge their EMDG application within the first few months of the program opening (i.e. 1 July each year), should expect their claims to be reviewed by Austrade within 4-6 weeks, meaning they should also receive their first tranche payment within 4-6 weeks of lodging.
With the significant audit carryover from the 2016 grant year, Austrade’s reviews of applications submitted by early lodgers under the 2017 grant program are delayed. This has consequently resulted in a significant delay in payment of claims made by early lodgers to the 2017 EMDG program.
This issue was a topic for significant discussion at the recent EMDG consultants’ professional day, with Austrade indicating that the delay in finalising audits was due to a number of resignations during the 2017 year, the result of which placed significant time demands on the remaining EMDG auditors.
While Austrade officials indicated their understaffing issue is currently being addressed, it is unlikely that Austrade will catch up on the delayed audits in the near future, with extended delays expected well into the 2017 grant program.
Despite this issue and the expected delays in assessing claims, there is still significant merit in lodging an EMDG claim before October this year. EMDG lodgements before October each year have historically been dealt with within 2 months of lodgement.
Even with the identified issues within Austrade, claimants who lodge their 2017 EMDG claim before October 2017 should expect a significantly shorter period between lodgement and receiving their first payment, likely to be around 2-3 months, compared to the expected 5-6 months for claims lodged after October 2017.
Early lodgement will enable claimants to access their first tranche payment of up to $40,000 much earlier than lodgement after October, providing a much welcomed cash flow injection into these businesses. Applicants with grants higher than the $40,000 first tranche cap will receive a second tranche payout in June, when the payment pool for the EMDG claim is finalised.
In the past few grant years, the second tranche payment to claimants has been less than 100%, due to the fact that the EMDG program has a finite budget, and there have been more claimants than funding available. If the program has been oversubscribed, Austrade applies an adjustment rate to the second tranche payout, effectively reducing everyone’s second tranche payouts. In the 2016 year, the second tranche payout adjustment rate was 64.5%, meaning only 64.5% of the grant value in excess of $40,000 were paid out.
Understaffing and underfunding are clearly not an ideal situation for the continuing value of the EMDG program to Australian businesses seeking to export their products and services, but there is action you can take. The EMDG program is the Federal Government’s flagship program to support Australian exporters. The program is well supported by both sides of Parliament and has been in existence for over 40 years. But in the past few years, its benefit to exporters has declined due to underfunding and the lack of certainty as to the potential level of rebate claimants can expect to receive.
To combat this decline in value of the program, we are encouraging businesses to lobby their local federal member of Parliament, to increase the funding for the EMDG program.
One strategy potential applicants may like to adopt in preparing their 2017 claim is to limit your EMDG grant to a maximum payment of $40,000 (which would require $85,000) in eligible EMDG expenditure to be claimed).
By claiming ‘low hanging’ fruit (i.e. expenses that are easy to document and free from doubt), claimants can limit their effort whilst ensuring a smooth audit process, with a guaranteed $40,000 payout at 100% (on the basis that all claimed expenses are eligible). While this strategy is not for everyone, it does provide an option for those applicants who want to move through the claim and review process quickly and with limited stress.
No matter what approach you take in making an EMDG claim, it is important to remember that the timing of the lodgement of EMDG claims is crucial for an early refund.
If you would like to discuss any aspect of the EMDG program with our Austrade approved EMDG Consultants, please contact Glasshouse Advisory.