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R&D Tax incentive and EMDG changes with Jessica Olivier

On February 17th, Exportia hosted a special Exportia Lab session featuring Jessica Olivier, an R&D Partner at RSM Australia, to discuss the latest changes to the R&D Tax Incentive (RDTI) and Export Market Development Grant (EMDG).

The 30-minute session provided exporters with critical insights on:

  • How to implement robust R&D management practices.
  • Key changes announced in the October 2020 Federal Budget and their impact from July 1, 2021.
  • A summary of changes to the EMDG program.
  • Latest compliance resources for R&D tax incentives.

Jessica Olivier, with over 15 years of experience advising on government grants and incentives, shared her expertise on how SMEs can maximize their benefits under these two essential programs.

Changes to the Export Market Development Grant (EMDG)

The Export Market Development Grant (EMDG) is an Austrade-administered program that provides subsidies to Australian exporters for eligible export-related expenses.

What Changed in the EMDG Program?

The EMDG program has shifted from a reimbursement model to an eligibility-based grants system, effective July 1, 2021.

Key Changes:

  • Upfront grant funding instead of reimbursement.
  • Multi-year grant approval for better financial planning.
  • New funding tiers based on export stage.
  • Reduced turnover eligibility cap from $50 million to $20 million.

New EMDG Funding Tiers:

  1. New-to-Export Businesses

    • Grants of up to $80,000 over two years.

  2. Expanding Exporters

    • If you are already exporting and looking to expand into new markets, you can receive up to $240,000 over three years.

  3. Established Exporters

    • If you continue to expand internationally, you may receive up to $450,000 over three years.

This change allows businesses to know their funding amount upfront, rather than waiting for a reimbursement. It provides better certainty for cash flow and eliminates the risk of budget caps limiting funding distribution.

Who is Eligible for the New EMDG?

  • Businesses with annual revenue up to $20 million.
  • Exporting or planning to export Australian products or services.
  • Applicants must submit an Export Market Plan, which is now required under the new structure.

There is no minimum turnover requirement, meaning startups and early-stage businesses can still apply.

Eligible Activities Under the New EMDG

Although travel restrictions have impacted international trade, there are still many eligible expenses businesses can claim under the EMDG program, including:

  • Overseas representatives and in-market consultants.
  • Marketing and promotional costs, including advertising, PR, and brochures.
  • Digital marketing expenses, including paid Google and Facebook Ads for international markets.
  • Online trade show participation and virtual conference fees.
  • Training costs for international business development.

What’s Next for the EMDG Program?

The new guidelines are expected to be finalized by mid-2021. The application process will include an Export Market Plan with budget estimates. The first round of applications under the new system will open later in 2021.

Businesses planning to export or expand internationally should start preparing now to align their marketing activities with the new upfront funding model.

Changes to the R&D Tax Incentive (RDTI)

The R&D Tax Incentive (RDTI) is a government-backed program that supports innovation and research in Australia. The October 2020 Federal Budget introduced significant changes to the R&D tax credit system, effective July 1, 2021.

What Changed in the R&D Tax Incentive?

  • More funding for SMEs: The refundable tax offset remains at 43.5 percent for companies with annual revenue under $20 million.
  • No more refund cap: The proposed $4 million refund cap was removed, ensuring full benefits for eligible SMEs.
  • Larger companies now receive benefits based on R&D intensity: Businesses over $20 million turnover will receive different benefit levels based on their R&D spending as a percentage of total expenses.

R&D Tax Incentive Breakdown:

For Small Businesses (Revenue Under $20M)

  • Refundable 43.5 percent tax offset remains.
  • A new 18.5 percent premium tax credit above the company tax rate.

For Large Businesses (Revenue Over $20M)

  • R&D tax incentive now has two-tiered intensity brackets:
    • 8.5 percent offset for R&D up to 2 percent of total expenses.
    • 16.5 percent offset for R&D beyond 2 percent of total expenses.

This system incentivizes high-R&D-expenditure companies while maintaining strong support for SMEs.

R&D Tax Incentive for Overseas R&D Work

Can you claim overseas R&D expenses?

  • Typically, R&D must be conducted in Australia.
  • Limited exceptions exist if the R&D cannot be done in Australia.
  • Companies must apply for an Overseas Advanced Finding, which requires approval from AusIndustry.
  • Spending must be less than the Australian-based R&D activities.

Instant Asset Write-Off for R&D Projects

  • Accelerated depreciation and instant asset write-off rules now apply to R&D activities.
  • Businesses can deduct the full cost of R&D-related assets in the same year.
  • This means higher immediate returns on R&D investments.

Key Takeaways for Exporters and R&D Companies

  • The EMDG program now provides upfront funding instead of reimbursements, which improves cash flow.
  • R&D tax offsets remain strong for SMEs, but large businesses will need to track R&D intensity for maximum benefits.
  • Businesses investing in R&D should leverage the new Instant Asset Write-Off rules for higher claims.
  • Overseas R&D may be eligible, but requires approval.
  • The application processes for both programs will become more structured, so early preparation is essential.

Next Steps: Get Expert Guidance on R&D and EMDG

If your business is involved in exporting or R&D, these changes can significantly impact your tax benefits and financial planning.

Want to learn more?

The new grant structures and tax incentives present a great opportunity for businesses to maximize financial support. Businesses should ensure they are prepared to take advantage of these updates.

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