Posted By: R&D SmartTax

Government money is one of the best funding sources for a company seeking to put itself beyond the norm in the name of technology advancement. Generally in Australia there are two main types of government funds available being 1) Government Grants and 2) R&D Tax Breaks. There can be a lot of appeal in trying to access Government Grants due to the funding amount being often up to 50% of a project’s value. This represents money that you don’t otherwise have to come up with and can certainly lessen the financial burden of an investment into new technology.  However, grants do have their downsides too, and if I had to pick a government funding program for my business, I know which one I would choose – R&D Tax Breaks. Here’s why.

1. R&D Tax Money is Guaranteed and Grants are Pot Luck

If you are in the technology development space, it is assumed that you have eligibility for the R&D Tax Offset program.  Submit two forms at tax time and your R&D Tax Money is guaranteed. On the other hand you could spend months preparing a grant application for grant funding only to be knocked back by the assessors at the end of it all. In fact Commercialisation Australia’s programs are currently putting through less than 15% of all applications. That is a pretty poor success rate and could mean that a lot of your time and money have been wasted for no funding result.

2) R&D Tax Money is Tax Free while Grant Money is Taxed

When your R&D Tax Cheque arrives in the mail your company can bank it as is and then spend it on whatever you like. On the other hand your Grant money is classed as Assessable Income in your Company Tax Return which can bite at tax time possibly leading to a bigger tax bill than anticipated.  I genuinely have clients that have faced this problem. With the R&D Tax Offset benefit being 37.5% potentially rising to 45% in 2012, and the after tax benefit of a 50% Grant being as low as 35%, I know which money I would rather have.

3) R&D Tax Money is Spent As You Like; Grant Money is Spent As Per the Grant Agreement Terms

You may not realise that R&D Tax Money is provided by the Government on a purely market driven basis. This means that you and your company are in full control of your projects and the directions they head in, and as long as you still meet the definition of R&D, you can still claim each year. On the other hand, if you have somehow lined up your resources to commence your project when the Government Grant money comes in, you must follow the terms of your Grant Agreement for the way your project progresses which can make it difficult to adjust to changing market forces and project needs.

Now these are three great reasons as to why I would choose R&D Tax Money over Grant Money. However if you still decide that Grants are for you, let me share one last piece of advice with you; you can do BOTH. Yes, it is possible to get a Government Grant and also claim the R&D Tax Offset for the same project. This is because of a tax provision called Clawback. Basically there is a formula that you apply when submitting your R&D Tax Claim to take into account any grants that you have received. And what it does is reduce the amount of your R&D Tax Offset benefit from 37.5% to 30%. But you can still receive that 30% as cash which is a nice little kicker to your project and company.

If you would like to  investigate Government Grants further, I can suggest a fairly comprehensive website called Grantslink  And if you would like to check out R&D Tax Breaks and specifically the cash-friendly R&D Tax Offset program out further, I can definitely suggest you go here: Good luck!

About R&DSmartTax

R&D SmartTax tools were born out of a desire to help the many smart small Australian companies access the R&D Tax Break benefits without the need for hours spent reading tax literature or expensive consultant fees. The R&D Eligibility Wizard is designed to be low cost, easy to use and available for all Australian industries.


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A. Blauensteiner
Australian Institute of Commercialisation

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