Over the last 8-10 months, COVID-19 has crippled global supply chains, and while Australia is finally heading towards COVID normal, the pandemic has brought to light a topic that’s been in discussion for years – Australia has become reliant on offshore supply chains and has given up its once booming manufacturing industry. It’s crucial, going forward, that a portion of Australian manufacturing industry returns onshore to better mitigate any future risks relating to scheduling and shortages.
To turn the situation around, the Commonwealth and the Victorian governments are offering support (some of which was announced in the 2020-21 Federal and State budgets) to local manufacturers to help kickstart the ailing industry. Below we summarise some key initiatives and opportunities available for Victorian manufactures.
Modern Manufacturing Strategy
If your manufacturing activities and operations align with the Federal Government’s six manufacturing priorities, then you may have access to $1.5 billion of federal support provided as part of the Modern Manufacturing Strategy.
This focused support is intended to propel specific industries which the Government believes have comparative advantage and strategic importance to reboot our economy. These include:
- Resources technology & critical minerals processing
- Food & beverage
- Medical products
- Recycling & clean energy
The Modern Manufacturing Strategy will offer support to these targeted manufacturers by way of the following grants and industry support:
- $1.3B Modern Manufacturing Initiative
If you are looking at scaling up manufacturing operations, collaborating and or commercialising production in Australia, then you may have access to one or more of the three streams of funding available in the first half of 2021 under this initiative:
- Manufacturing Collaboration Stream – will fund 1/3 of project costs for very large collaborative projects that build economies of scale
- Manufacturing Translation and Integration Streams – these can be applied for the one application and support manufacturers on a 1:1 co-investment basis, translate good ideas into commercial outcomes, non-R&D innovation, and for integration into local and international supply chains and markets.
- $107.2M Supply Chain Resilience Initiative
If your business provides essential goods and services critical to Australians at times of crisis (such as a pandemic), then support will be provided to assist your business to help Australia manage and address any potential future supply chain disruptions. The funding will assist to establish or scale capability in Australia that addresses supply chain vulnerabilities.
- $52.8M Manufacturing Modernisation Fund (Round 2)
If you are a trading company with less than 200 staff and are looking to purchase new state of the art equipment, modernise your manufacturing operations, implement new technologies, and/or improve productivity whilst creating more jobs in the process then you may want to consider applying for round 2 of the Manufacturing Modernisation Fund. This grant will fund 25% of eligible project costs (funding between $100,000-$1M for projects costing in the range of $400,000 – $4M) and is expected to be opened for a limited time before the end of 2020.
- The Advanced Manufacturing Growth Centre and other industry growth centres (such as Food Innovation Australia, METS Ignited and MTPConnect) will receive a combined $50M in funding which is available to Victorian manufacturers.
R&D Tax Incentive
If you are designing, developing and/or testing new or improved products or manufacturing processes then your company could be eligible for the R&D Tax Incentive.
To recap, companies that undertake eligible R&D activities involving experimentation a scientific nature to overcome technical challenges and uncertainties and to develop new knowledge may be eligible to access either the 43.5% refundable R&D tax offset (if its aggregated turnover is below $20M) or the 38.5% non-refundable R&D tax offset (if its aggregated turnover is above $20M)
Changes to the current R&D Tax Incentive scheme were announced in the Federal Budget, which will take effect from 1 July 2021 (ie for the 2022 financial year). The main changes to note include:
- Changes to how the R&D rate is calculated:
- The R&D rate for companies with an aggregated turnover below $20M, will be 18.5% above the company tax rate instead of being a flat 43.5% rate. Considering the company tax rate in 2022 will be 25%, the overall R&D rate for SMEs in 2022 therefore remains unchanged at 43.5%
- For companies with an aggregated turnover above $20M, two intensity tiers have been included. These entities will be entitled to an R&D tax offset equal to their corporate tax rate plus:
- 5% if its R&D intensity is 2% or below or
- 5% for R&D spend that is over the 2% intensity threshold where R&D intensity is defined as the percentage portion of R&D expenditure over total company expenditure.
- The proposed $4M capped refund has been abolished and there will be no caps on R&D refunds
- The capped R&D spend will be increased to $150M from $100M
- Other updates include changes to how claw back calculations and how other adjustments are calculated
- The amounts claimed will be made public two years after claiming.
Although smaller manufactures won’t observe any significant change with respect to their R&D claims, larger companies will be impacted by the new measures. Some may experience a drop in R&D benefits that is currently available to them and while others will enjoy significant benefits.
It’s also worthy to note that companies that can write off their assets instantly under then new instant asset write off scheme may be able to deduct the full cost of it under the R&D tax incentive if it’s an asset used for 100% R&D purposes.
Victorian State Support
$60M Manufacturing and Industry Development Fund (MIFD)
If your company’s manufacturing activities align with Victoria’s key growth area sectors listed below then your company may have access to the $60M support initiative established to foster essential manufacturing and industry capability in Victoria. These key sectors include:
- Construction technologies
- Defence technologies
- Food and fibre
- Medical technologies and pharmaceuticals
- Retail, transport distribution and logistics and postal
- Visitor economy
- Creative industries
- Digital technologies
- International education
- Professional services
- Space technologies
- Victoria’s racing industry
Not too much information has been released on this initiative to date, so watch this space as we expect more detailed information to be released by the Government over the coming months.
R&D Loans for Victorian R&D Companies
Small to medium enterprises (SMEs) that access the refundable R&D Tax offset for undertaking eligible R&D activities under the R&D Tax Incentive program may now access a low interest loan facility to help fund R&D activities. If you have previously put R&D into the too hard basket, this could be a lifeline to consider undertaking R&D to develop or improve your new or existing products or manufacturing processes!
$50M has been allocated to the establishment of this new initiative which will provide up to 80 per cent of the company’s forecasted refundable tax offset to assist SME companies undertaking R&D with cash flow to fund their R&D activities during the year they incur the R&D expenditure, rather than waiting for the end of a financial year to lodge an R&D claim and receive a refund. It is expected the government will take its cut from the R&D refund that will be received by the company.
Other opportunities for Victorian manufacturers:
– Breakthrough Victoria Fund
Advanced manufacturing is set to be bolstered by the government’s $2B investment into this Breakthrough Victoria Fund. It specifically aims to drive investment in translational research, innovation and commercialisation outcomes to accelerate growth in key industry sectors including advanced manufacturing, health and life-sciences, agri-food, clean energy and digital technologies.
– Australian MedTech Manufacturing Centre
Businesses and manufacturers involved in medtech may benefit from a new $20M Australian MedTech Manufacturing Centre (AMMC), poised to support local businesses to collaborate and pursue MedTech opportunities.
– Coronavirus (COVID-19) direct response:
Companies that manufacture personal protective clothing and equipment have the opportunity to supply public and private companies with stockpiles of essential items, funded by government. These stockpiles will help companies, such as meat and seafood processing and manufacturing, continue to operate with minimal disruption during the pandemic.
– Defence Capture Plan
The advanced manufacturing sector will be further bolstered indirectly by additional targeted support offered to Victoria’s defence industry and supply chains to secure roles in delivering major defence contracts.
– Zero Emissions Bus Fleet
Victoria’s manufacturing and energy industries may have an opportunity to get involved with producing zero emissions bus fleets if a trial of zero emissions bus technology goes to plan.
– Next Generation Trams
Victoria’s manufacturing and supply chain ecosystem is set to receive a boost as the State Government plans to manufacture the Next Generation Trams with Victoria, to replace the high-floor tram fleet.
– Fast Tracking Waste and Recycling Infrastructure
Funding is provided to build regional new material recovery facilities to optimise resource recoveries within Victoria.
- $40M Industry Recovery and Growth Fund
Industry Recovery and Growth Fund will aim to attract more investment and create jobs in areas like manufacturing, clean energy and digital technology. Marketing campaigns will be aimed at positioning Victoria as a manufacturing hub and Australia’s digital and innovation capital. The Local Jobs First Policy will also ensure there is a minimum requirement for local content on specified projects and therefore providing employment opportunities for Victorian apprentices, trainees and cadets.
The bolstered support of Australia’s and Victorian manufacturing industries is set to put Victoria back on the map as a leading hub for Australian manufacturing. The federal and state government support has been specifically designed to stimulate further research and innovation into manufacturing technologies and manufactured goods, encourage investment in new technologies, provide new facilities, reduce supply chain disruptions and most importantly for our economy and recovery post COVID-19, create new jobs. More jobs in manufacturing are what demographers have been yearning for, which in addition to helping our economy recover, will ease congestion and burden off over loaded infrastructure such as roads and transport in and out of the city, by spreading Victorians around Victoria, away from city centres. This is the new normal Victorians can all hope for!
For further information on other more general support available for businesses please visit https://williambuck.com/covid-19-and-your-business/ or read about our previous success with obtaining MMF for our client here.
To find our more or discuss what is on offer for your company please contact our R&D Incentives team.