Federal and Victorian state support for Australian Manufacturing

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.

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.

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.

–       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!