Research & Development Assisted by Government Grants

Articles supplied by
Mih Chowdhury Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au
INDEX
Research & Development Assisted by Government Grants 1
Crowd Sourced Funding Might Be The Answer 1
The Business Planning Process Helps! 2
Predictive Accounting Identifies The “Financial Picture" 2
Virtual Chief Financial Officer Services Help SMEs 3
“Scale Up” To Implement Your Vision 3
Thinking About Being A Business Person? 3
Issue - July 2021
Happy New Financial Year - Best Wishes for 2021/22!!
Research & Development Assisted by Government Grants
The Research and Development Tax Incentive Rebate is of tremendous assistance to companies that have undertaken research activities.
The rebate amount was changed from 1st July 2021.
There was virtually no change for a company with a turnover under $20M. The new rebate, which is a refundable benefit, is the “appropriate corporate tax rate that applies for that company +18.5% premium”.
The government has indicated that, from 1st July 2021, the small company tax rate will be 25%, meaning that the Research and Development Tax Incentive Rebate will be 43.5%, which is the same amount as it has been for the last few years, but with a different set of components in the calculation.
There has been significant changes to the non-refundable rebate for companies with turnovers between $20M and $50M.
Companies which spend up to 2% of their total expenditure on research and development will be deemed to have a research and development intensity of 2%. This will be referred to as “2% Research and Development Intensity” and they will receive a non-refundable research and development tax offset of the appropriate corporate tax rate +8.5% premium.
With the corporate tax rate expected to be 25% the companies in this category, this will have an effective research and development rebate of 33.5% of the eligible research and development expenditure.
Where companies in the $20M – $50M category spend more than 2% of their total expenditure on research and development, they’ll have a research and development intensity of over 2% and the premium will be 16.5%.
Based on the corporate tax rate of 25%, companies in this category will have an effective research and development rebate of 41.5% of the eligible research and development expenditure.
The “refundable benefit” for companies with a turnover under $20M means that, if the company is trading at a loss, the company can elect, within its tax return, to receive a cash refund of the research and development rebate so long as the company’s losses exceed the amount of the research and development rebate.
If you are interested in finding out more information on the research and development scheme, please do not hesitate that to contact us for a discussion.
Crowd Sourced Funding Might Be The Answer
If your company needs additional funding and your group turnover is under $25M, your company may be able to utilise Crowd Sourced Funding Equity Raising to raise up to $5M, in a 12 month period, from the public.
You can raise this capital without having to mortgage assets or issue personal guarantees. The company has to allocate ordinary shares to the investors.
To go through this process the company will need a Business Plan that clearly articulates the directors’ and leadership team members’ vision for the company and the strategies that they intend to implement so that the vision can be achieved.
Crowd Sourced Funding Equity Raising has been introduced by the government making amendments to the Corporations Act so as to facilitate this type of capital raising.
There is a process for the directors and leadership team members to participate in to have a clear understanding of how this system of raising capital operates.
A company has to work with an accredited Crowd Sourced Funding Intermediary (who has been appointed by the Australian Securities and Investments Commission) who has the authority to approve a company to be able to use the Crowd Sourced Funding Equity Raising process.
If you have any interest in this process or questions, please do not hesitate to contact us.
The Business Planning Process Helps!
Business Plans are like maps for tourists – you need a plan for where you are intending to go, what you want to look at, where you are going to stay and, if you deviate off track, you need to be able to identify where you’re at and then navigate to get back onto your original path.
Planning a business activity is very similar.
The Business Plan should incorporate commentary from the people involved in the business – directors, owners, shareholders, leadership team and other team members, together with a summary of the strategies that have been developed, the tactics for the implementation of those strategies and the allocation of responsibilities for monitoring the supply of funding for the business.
A new financial year has just commenced. This is a great time to be planning what you’re going to do in your business during 2021/22. With the continuation of COVID-19 causing problems all over Australia, there is going to be ongoing problems, particularly for businesses, until the immunisation rates are at the level required for “herd immunity”. In the meantime preparing a “realistic but flexible” Business Plan can give you a map for the conduct of your business until something approaching “normal business conditions” emerges.
If you would like to discuss with us the development of a “realistic but flexible Business Plan” for your business, please contact us.
Predictive Accounting Identifies The “Financial Picture"
A good Business Plan contains a commentary on the strategies to be implemented over a range of activities as well as the business’ vision.
“Predictive Accounting” creates a “financial picture” of the visions and strategies by preparing four key documents:
1. Key Drivers – the key compilation data relative to the predictive reports:
- sales estimates
- raw materials required
- raw materials’ inventory
- labour team required
- labour cost estimates including productivity percentages
- labour on cost estimates
- electricity, gas, oil estimates
- overhead budget
- markup on external purchases for clients
- estimated outlay for client purchases that has to be funded through the cashflow forecast
- sales’ budget
- inventory of completed products
- work in progress
- research and development
- debtors’ budget
- creditors’ budget
- operational budgets for each business activity
- loan accounts
- taxation payments
- capital expenditure
- shareholder accounts
- cashflow forecast
- projected balance sheet
2. Budgets – prepared for each business activity.
3. Cashflow Forecast – reflects the financial figures shown in the budgets and from subaccounts within the key drivers – debtors, creditors, inventory etc.
4. Projected Balance Sheet – highlights the impact of the various financial decisions.
If you would like to discuss with us the concepts involved in the development of a “financial picture” for your business, please do not hesitate to contact the person in our organisation with whom you normally deal.
Virtual Chief Financial Officer Services Help SMEs
Virtual Chief Financial Officer (CFO) services are provided by accountants who have wide commercial experience in a range of business activities to assist growing SMEs.
A key aspect of the role is to be able to “dig down” into the business’ records other than just to extract key financial data.
Virtual CFOs are performing this function for small or growing businesses that haven’t yet reached the scale to justify the investment in a full-time CFO.
The engagement of a virtual CFO fills a void in SMEs’ commercial financial management capability by providing high value, essential strategic financial management advice and enabling business owners to focus on commercial matters within their business and in dealing with their own clients.
Any business that is contemplating “scaling up” possibly by approaching external investors, will benefit by being able to indicate to those investors that a virtual CFO engagement with their accounting firm is assisting the leadership team in the development of the key financial policies for the business.
If you are interested in exploring the concept of utilising a virtual CFO Service, please contact the person in our organisation with whom you normally deal.
“Scale Up” To Implement Your Vision
“Scaling up” is a process that normally follows after the Business Plan has been finalised incorporating the vision for the business.
“Scaling up” requires the following key items to be attended to:
• The business needs to assemble a “leadership team” that is committed to ongoing training and professional development and that are prepared to ensure that they conduct quality communications with the team members.
• Businesses that are attempting to scale up need enthusiastic “team members” who are well trained and who are committed to the culture of ongoing skills development. To achieve this, the business needs to have an ongoing commitment to the concept of succession planning in every segment of the business’ operations.
The leadership team needs to have been able to develop “workable strategies” for every aspect of the business.
We then come to the challenging part of a scaling up process and that is the “implementation of the strategies”. This is a major commitment to ensure that the business will operate in accordance with the vision. Unless there is commitment to implement the vision, it probably will not happen!
Businesses need “money” to implement their strategies. The leadership team needs to have a complete understanding of the financial position and to have developed strategies to raise additional funds, loans or capital from the public, if need be, to ensure that sufficient funding is available.
“Scaling up” is a process that is available for every company/business that has a vision. If you would like to have a discussion with us about the process to implement a scaling up strategy for your business, please contact the person in our office with whom you normally deal.
Thinking About Being A Business Person?
That’s great – but there are a few issues that you should think about before starting a business or purchasing a business.
Unfortunately, there is a high failure rate in the first 3 years of a business’ life. An accountant’s role is to advise you on systems and processes that will contribute to your business being successful. Some of the problems which confront new business operators include:
• Inadequate Planning – it is important that adequate consideration is given to planning when considering starting or acquiring a business. Will the lifestyle of running a business suit you and your family? Most small business people have to work longer hours than they would if they were in paid employment - sometimes on weekends and at nights. How will these working hours fit with your family and sporting commitments and perhaps studies?
• Lack of Professional Advice – the CEO of a public company, or even a larger business, has a team of in-house experts or other key advisors readily available to assist him/her in making decisions. Small business operators do not normally have this luxury of having key advisors readily available.
Successful small and medium-sized business operators establish a network of key advisors who can assist them very early in their business careers. The key professional advice areas include:
- Accountants who are offering proactive business advice – not just preparing annual accounts and income tax returns.
- Commercial solicitor to advise on agreements, leases, terms of trade agreements, personal property securities register requirements, retention of title agreements etc.
- Marketing consultant to advise on the establishment of a marketing strategy, social media strategy and general communications with clients/customers and prospects.
- Web consultant – to implement and maintain a suitable website for your business.
- Sales coach – to advise on the implementation of appropriate selling strategies for your business.
- Business mentor (who could be your accountant) – to assist in the setting of business strategies, business plans, budgets and cashflow forecasts.
- Experienced business people/directors – to be a board of advice and subsequently a board of directors for your business – this is a very important concept because even though it is your business, it introduces the “accountability function” for you by instigating a regular reporting function to your own board of advice/directors.
• Inadequate Capital – this is a big problem for many types of businesses – at the beginning you need to prepare an honest appraisal of your capital needs in your business. Discuss your calculations with your accountant. Your accountant would advise you of some of the financial issues to which you will have to give consideration.
• Not Establishing Appropriate Systems – this is where you should be heeding the advice from your accountant, relative to the establishment of appropriate systems and then implementing those systems so that your business receives prompt accurate monthly financial accounts and, in some businesses, weekly profitability estimates and key performance indicators for each business activity, daily, weekly and monthly, so that you are fully aware of your business performance.
• Not Understanding Working Capital Requirements – this relates to your business investment in stock (inventory), work in progress (applies to trades, manufacturing and professional firm businesses) debtors’ management (knowing who your customers are, prompt preparation of tax invoices, prompt dispatch of debtors’ statements at the end of a month, calculation of debtors’ days outstanding each month, having effective debtors follow-up processes in place.
• Periodic reviews of expenses in each of the business activities to ensure that “value for money” is being achieved from each purchase transaction.
• Preparation of the Business Plan which incorporates all aspects of the business and clearly identifies the strategy that the company wishes to implement.
If you are contemplating starting or buying a business, please don’t hesitate to contact any of the accountants within our firm for a discussion.
Mih Chowdhury Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au

Research and Development Reminder

Articles supplied by
Mih Chowdhury Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au
INDEX
Research and Development Reminder 1
Reportable Payment Reports 1
Early Stage Innovation Company 1
Trustee Distribution Minutes 2
Payment Summaries, If Not Using Single Touch Payroll 2
Shareholders’ Loans 2
What Strategies Are You Considering For 2021/2022? 2
Charge Out Rate Calculations 3
Issue - June 2021
Happy End of Financial Year!!
Research and Development Reminder
• If your company has undertaken research and development activities during 2020/21, you have conducted part of the research and development activities in an overseas country and you wish to claim that expenditure under the Research and Development Tax Incentive Rebate, you must lodge your Overseas Finding application with the Australian Taxation Office by 30th June 2021. If you need any assistance with the preparation of this application, please do not hesitate to contact us.
• If your company commenced a research and development project during 2020/21 and you would like us to review the records that you have maintained, please contact the accountant in our organisation you deal with as soon as possible.
• If you are giving consideration to undertaking research and development activities during 2021/22, please contact us for a discussion on the research and development recording system that needs to be implemented so that your company complies with the research and development rules as advised by the Australian Taxation Office and AusIndustry.
Reportable Payment Reports
A reminder that, if you’re operating the following industries, you are required to submit a summary of payments, made during 2020/21, to the Australian Taxation Office by 28th August 2021:
• Building and Construction Industries
• Courier Services
• Information Technology
• Road Freight
• Security, Investigation and Surveillance Services
• Cleaning
If you require assistance with the preparation of these reports, please do not hesitate to contact the accountant in our organisation with whom you normally deal.
Early Stage Innovation Company
If your company has completed the due diligence requirements to be classified as an Early Stage Innovation Company during 2020/21 and you have to raise capital from new shareholders, you are reminded that you are required to lodge the company’s New Investor Statement with the Australian Taxation Office by 31st July 2021.
Trustee Distribution Minutes
The minutes of trustee meetings, relative to distribution of trust profits in 2020/21, should be signed by the chair or another of the trustees by 30th June 2021.
Payment Summaries, If Not Using Single Touch Payroll
These summaries are required to be lodged with the Australian Taxation Office by 14th July 2021.
Shareholders’ Loans
If your company has made loans to shareholders, the minimum interest rate to be charged in respect of those loans for 2020/21 is 4.52%.
A reminder that the company must have prepared Loan Agreements for each loan and, if the loans are for in excess of 7 years, the borrower is required to submit securities to the company.
What Strategies Are You Considering For 2021/2022?
The latest shutdown of State borders, the continual discontinuance of most International tourism to Australia and the shortage of labour to work in agricultural areas, highlights that many segments of the Australian economy are still finding it tough, even though the unemployment rate has decreased well below expectations for this time.
This is the background for business operators to be planning operations in this new financial year. As an accounting firm we are committed to offering our clients a broader range of professional services then just the preparation of annual accounts and income tax returns.
Some of our clients are already receiving some of these services to assist them in the implementation of their business strategies. If you are not currently receiving these services, we are interested in hearing from you as to whether you’d like to review the services that we’re providing to you. We have prepared the following summary of some of the strategies that you might like to discuss with us. Please don’t hesitate to contact the accountant in our organisation with whom you normally deal if you require further information on any of these strategies.
Strategic/Business Plan
This is a fundamental business document that basically every business should have. Our recommendation is that your Strategic/Business Plan should be updated each year so that it reflects your current vision for your business and outlines strategies as to how you’re going to implement that vision.
Budgets, Cashflow Forecasts, Predicted Balance Sheets (This is known as “Predictive Accounting”)
This trifecta of services is developed from the Business Plan and is the “financial picture” of the information contained within your Business Plan so that you can ascertain whether your business needs an injection of additional funding which would come via loans or capital raising direct from the public.
Loans
The special COVID-19 loan 50% guaranteed by the Australian government with a maximum loan of $250,000 to be utilised for working capital purposes, closes on 30th June 2021. If you intend to submit an application you will need to do so urgently. If you require assistance in the preparation of the application, please contact us.
Capital Raising
There are three opportunities for private companies to be able to raise capital direct from the public, without having to issue a Prospectus. These opportunities are:
1. Section 708 of the Corporations Act
A private company is able to raise up to $2,000,000, in a 12 month period, from a maximum of 20 investors. There can be no advertising for this capital raising and therefore investors normally come from family, close friends, customers and employees. Companies will need a Business Plan and Budgets and Cashflow Forecasts which clearly identify the company’s vision, to be able to raise capital in this manner.
2. Early Stage Innovation Company
A “young company” – under 3 years of age, but in some cases up to 6 years of age, with a turnover in the last 12 months of less than $200,000 (not including funding from an Accelerating Commercialisation Grant) and expenditure less than $1,000,000 in the last 12 months will have passed the first test to be and Early Stage Innovation Company.
The company is then required to pass one of two additional tests series which are:
- Gateway Test – the company has to accumulate more than 100 points relative to a series of eligibility criteria; or
- The Principles Test – which requires the company to submit written responses to five key questions relative to the company’s ability to be able to successfully develop for commercialisation a new product, process, service, marketing or management methodology.
There is a due diligence test requirement that we can conduct to ascertain whether the company meets the requirements for an Early Stage Innovation Company.
The government developed this type of company status to assist young companies to be able to attract investors.
The attraction for investors is that they receive a tax rebate calculated at 20% of their investment in the company with a maximum rebate of $200,000 for sophisticated investors (people with a net worth the $2.5 million or who have earned income of $250,000 in each of the last two years and who produce an Accountant’s Certificate that this information is correct).
If the investors retain their shares for more than 12 months and less than 10 years they do not have a liability for Capital Gains Tax when the shares are sold. If the shares are held for more than 10 years, the cost price of the shares can be revalued in the tenth year, to reflect a higher new cost price.
These benefits make an Early Stage Innovation Company very attractive for investors who have a keen interest in emerging companies which have been involved in the development of new technologies.
3. Crowd Sourced Funding Equity Raising
A private company, with a turnover less than $25,000,000 and gross value of assets less than $25,000,000, could consider the requirements for eligibility as a company that can seek to raise capital from the public as a Crowd Sourced Funding Equity Raising Company. These companies are able to raise up to $5,000,000, in a 12 month period, and can return to the market to raise a further $5,000,000 in the following year – subject to market support of course – if they wish.
We can guide you through this process and inform you of the roles and responsibilities of the Crowd Sourced Funding Intermediaries and assist you in the preparation of the documentation, primarily the Crowd Sourced Funding Offer Document, which is based on the company’s Business Plan, Budgets and Cashflow Forecasts.
If you are interested in having a discussion with us about any of these capital raising opportunities for companies, even if you are currently not incorporated as a company, please do not hesitate to contact us
Charge Out Rate Calculations
Tradies’ Manufacturing Businesses
Now is a good time to review the charge out rates that you are using within your business. The key requirements for establishing charge out rates for your team which will generate your targeted profit for the year include:
• Team member classification showing wages, working hours, holidays and other special leave and the productivity that you can reasonably expect.
• The markup that you intend to charge (if any) on materials that you have purchased on behalf of clients for installation on the client’s premises.
• The business’ overhead costs for the 12 month period.
• You can then indicate what your desired profit is for the year – this is normally based on the value of the business.
These factors are then brought together within a spreadsheet to determine appropriate charge out rates to be used based on the estimate of working hours, labour costs, productivity, mark-ups on external purchases and overhead costs to determine whether this mix of various factors will generate the targeted profit for the year.
Professional Services Firm
A similar approach is also taken for the determination of appropriate components of professional charge out rates.
Professional firms also relate to productivity being achieved by the individual team members.
In some professional firms there will not be the mark-up on materials purchased for clients.
The combination of estimated working hours, salaries, productivity, overhead costs are then factored into a spreadsheet to determine individual classification charge out rates that, when applied to the productive hours estimate for each person, will generate the targeted profit for the professional firm.
Retail Businesses
Retail businesses are not “selling labour hours” even though labour is a key cost in operating a retail business.
The key factor within a retail business is the “product mix” which comprises various types of stock that has variable potential units of sale and invariably significant different mark-up rates which can apply to those individual types of stock.
The business’ overhead costs and labour costs need to be budgeted for the year based on the anticipated level of sales.
We can then utilise our calculator to prepare an analysis on various levels of the stock mix over a range of products and mark-up percentages to determine one or more combinations which will generate the targeted profit for the retail business.
This type of approach gives the manager, responsible for an individual retail business, a guide to the type of product mix that they should be trying to generate so that the business will earn the targeted profit.
Business Review Meetings
A business review meeting is a worthwhile investment for a business to make to enable a full review to be undertaken of a business’ performance. This type of meeting is preferably held each month or quarter.
The leadership team should be the key participants in the business review meeting and each of them should have prepared a report on the “portfolio responsibilities” that they have in the business so that their peers can be informed and ask questions, if they wish. It is very desirable that an accurate set of financial accounts is prepared for each business activity so that the Profit and Loss Account and Key Performance Indicator Report for each business activity is available for review.
This process enables an evaluation of the performance within tradie, manufacturing and professional services businesses for which a charge out rate has been established to see whether those charge out rates, together with the productivity being achieved, has generated the targeted profit.
Retailers will benefit from analysing financial accounts to be able to judge the effectiveness of the manipulation of the product mix and charge out rates as part of the challenge of trying to achieve a targeted profit for the business. Other matters which can be considered at the business review meeting include:
• Cashflow Position – what has caused any variance?
• Projected cashflow position for the months ahead – is there a need to consult with the bank now?
• Debtors’ Aged Analysis and, in particular, what is the debtors’ days outstanding figure?
• How is the business performing, as compared to the vision included within the Business Plan?
MIHC Accounting
Mobile Number 0414495057
Email Address : info@mihcaccounting.com.au
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