R&D Tax Incentive Finance - Worked Examples
Case Study 1: Prior Year Funding Facility Example
It is 5 July 2017, and Innostart has incurred R&D expenditure of $2,500,000 for the year ended 30 June 2017, meaning it is entitled to Refundable Tax Offset of 43.5% of the expenditure or $1,087,500.
Innostart anticipates it will not complete its registration with AusIndustry and file its income tax return for 3 months. To fund its ongoing R&D activities and cash-flow other business operations, it seeks an R&D Loan Facility for 80% of the anticipated Tax Offset or $870,000 to fund its operations until the filing process is completed and the Tax Offset is received.
Case Study 2 – Current Year Loan Facility
CutCorp Pty Ltd has successfully claimed the R&D Tax Incentive for the past 3 years and has a financial year end of 30 June. It is 1 December 2017, and the company has incurred $1,000,000 of R&D expenditure for the year to date. While that expenditure will entitle the company to a Refundable Tax Offset of $435,000, it is unable to access those funds until after 30 June 2018.
It is currently experiencing cash flow issues, and is evaluating potential sources of finance to fund its ongoing R&D activities and business operations to the end of the financial year.
To fund the company’s R&D activities for the second half of the year through to 30 June 2018, CutCorp elects to raise a Current Year R&D Loan Facility of $348,000 (80% of incurred R&D expenditure to date). PSF can close this transaction and fund within two weeks and this funding will fund the company operations and R&D for the next 3-4 months while it finalises an equity raising to see it through the rest of the year.
Case Study 3 – Hybrid Funding Facility
SmartDev Pty Ltd has claimed the R&D Tax Incentive for the past 3 years and has a financial year end of 30 June. It is 29 June 2017, and the company is currently finalising its R&D Tax Incentive claim for the year ending 30 June 2017 (to be lodged as soon as possible following the end of its financial year). It is also finalising its budgets for FY18, and would like to be certain of its cash flow position so that it can adequately manage both its R&D program and its commercial operations for the coming financial year.
SmartDev’s key R&D claim characteristics are:
FY17 R&D Expenditure: $4,000,000
FY18 R&D Expenditure (forecasted): $4,000,000
$1,740,000 in refundable R&D Tax Offsets expected in each of FY17 and FY18
From the above R&D claim profile, SmartDev may access * $1,392,000 of funding for its FY17 R&D claim immediately as short term funding. In addition, it may access * $348,000 of funding on a quarterly basis ($1,392,000 in total) through an R&D Tax Incentive Finance facility with Paddington St Finance.
*Paddington St Finance provides finance of up to 80% of the refund amount expected to be received from refundable R&D Tax Offset.