How to Access R&D Tax Dollars

How to Access R&D Tax Dollars

Jane Drummond – MJA Senior ManagerTony Partridge – MJA Associate

R&D Tax Program

Agenda

1. Administration and claim process

2. The benefit

3. What is R&D

4. What $ can be claimed

5. German Creek example

R&D Tax Program

Key gov’t support for industry R&D

Assists around 8,500 companies annually

$1.6 billion (tax revenue foregone)

R&D Tax – Administration

AusIndustry/ATO joint administration

Innovation Industry

Science & Research

TreasuryInnovation Australia

(AusIndustry)

Technical Issues

ATO

Expenditure Issues

R&D Tax - Claim Process

Self-assessment basis

Annual Registration of R&D – Lodge with AusIndustry within 10 mths

after FYE

Annual Company Tax Return Schedule– ATO

R&D Tax – Program change

Effective 1 July 2011

R&D Tax Concession = 125% deduction – 7.5c/$ R&D (+175% premium)

R&D Tax Incentive =Tax Offset (40/45%)– 10c/$ R&D (companies >$20 mil turnover)– 15c/$ R&D (companies <$20 mil turnover)

R&D Tax Incentive – The benefit

R&D spend $1 million $ benefit $ refund

Company T/O >$20 mil $100,000 -

Company T/O <$20 mil $150,000

$450,000

max refund dependant on tax lossR&D spend unlimited

R&D is all about solving defined technical problems.

Where a company identifies a technical problem then essentially all work done to solve that problem is R&D

Innovation Australia Board

What is R&D?

What is R&D – Legislation

R&D claimed on a project basis

R&D activities defined as•Core – must be experimental•Supporting – must be directly related

What is R&D – Definition

Core (experimental) activity

(a)Whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:

– Is based on principles of established science;

What is R&D – Definition cont

– Proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and . . .

(b)That are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).

What is R&D – Project examples

New/improved processes for higher efficiency, safety, productivity• New plant and/or process design

New/improved products• New market requirements

Not R&D• Supplier trials (on whose behalf?)

What is R&D – Project work

.Conceptual/ hypothesis &investigative work

Production TrialsProduction Trials

Prototypes & Pilot PlantPrototypes

& Pilot Plant$

What is R&D – Production trials

R&D can involve production activities (even when product is sold)

Claim restricted to portion of plant/ process that R&D relates

Trial period defined by minimum time

• technical improvements being sought and/or

• KPIs met

What is R&D – Production trials

Evidence that supports the case of experimentation

Additional non- routine procedures eg heightened monitoring

Factors such as production disruption

What $ can be claimed?

Salaries Contracts to RSPs eg Uni’s, CSIRO Other:

• Contractors• Hire of equipment • Travel• Overheads (direct/allocated)• Operation/production trial costs

Plant & pilot plant (tax deprec. only) Feedstock

German Creek mine

Premium open-cut coking coal

operation

Opened in 1981

Raw coal stockpile and reclaim

Friable coal (HGI ~ 100)

Case Study:

German Creek CHPP - Then!

Key features . . .

• Rotary breaker to 50mm

• Screened at ~ 0.7mm (0.5mm

wedge wire)• 4 DMCs and two-stage Flotation (4

banks primary, 2 banks secondary)

• 900 tph nominal capacity

Original CHPP (1981-1983)

ORIGINAL CIRCUIT

Underground mine opened – increased production rates

Advance sales!

ROM stockpile + Rehandling >>> Feed size variation and plant imbalance

Inadequate surge capacity

Coal particle losses to flotation tailings.

Problems

Spirals trialed IN-HOUSE to recover coal lost to flotation tailings

The required increase in product tonnage not achieved

Shell Coal Australia (major shareholders) offered services of their Senior Coal Prep Engineer as INTERNAL CONSULTANT

Flew from Melbourne for two-week visit (subsequently extended).

Initial trials

Problem seen as the poor performance of DMCs and Flotation for particles of ~ 1mm

Planned additional DMCs and Flotation cells rejected due to time and cost constraints

Spirals known to work best (if not well!) on that size range

CONCEPT of spirals installation as a separate process stream first suggested

Circuit changes

Paper Study by Capcoal / Shell team

HV Plant Visit to see and discuss recent spirals installation

Engineering Company (BMCH) included in preliminary design discussion

COMMITMENT!

Subsequent progress

Decided to . . . Install spirals as intermediate feed

size process stream Size range of 0.4 x 1.4 mm chosen

on basis of feed size distribution 300 tph spirals capacity ( 1/3

increase in plant capacity ) Carry out or commission spirals

trials to determine / confirm operational details

Spirals CONCEPT

REVISED CIRCUIT

Pilot In-Plant Test Circuit

by Plant Personnel

Open circuit test rig using different aperture panels on small section of a deslime screen.

Underflow variable but 3mm aperture screen shown to give required 1.4mm cut.

200mm classifying cyclone and vibrating 0.8 mm sieve bend shown to give 0.4mm split.

Pilot Plant Testwork

Test Circuit at Cyclone Sluicesby Capcoal personnel and Suppliers’ staff

Closed circuit test rig using -5mm +0.5mm slurry samples from wedgewire test panels in the plant.

Tests used to determine performance over different feed rates and feed solids

Results promising, so decided on more extensive steady-state testwork . . .

Pilot Plant Testwork

Test Circuit at Mineral Depositsby Capcoal personnel and Suppliers’ staff

Similar test rig to previous tests but with improved sampling system.

Tests covered higher feed solids concentrations and higher feedrates

Determination of relationships between cut point, efficiency and feed conditions

Evaluation of minor spiral modifications

Pilot Plant Testwork

Activities that are not core R&D activities include:Routine quality controlProspecting/exploring/drilling for minerals, oil

or gas Management studies or efficiency surveysCollection of information to comply with

statutory requirementsReverse engineering

Note: some of these activities may qualify, in a limited sense, as directly related activities.

Excluded ActivitiesTest Circuit at Mineral

Deposits

Spirals would provide acceptable performance on the selected size range

Relationships between the process variables provided the basis for process optimisation

Middlings recycle and product desliming would be necessary to achieve the required yield and ash values

Conclusions

FINAL SPIRALCIRCUIT

50 x 1.4 mm to DMCs600tph

0.4 x 1.4 mm to two-stage SPIRALS

300tph

- 0.4mm to FLOTATION. . . Six banks single stage 300tph

Associated additional pumps, sumps, screens and classifying cyclones

Revised Plant

Six weeks of in-plant trials by Plant Staff

To establish steady state operation To establish control strategy and

operating philosophy

Finally . . .

The installation of flowmeters and variable speed drives to enable optimum control

Plant Optimisation and Control

Summary – R&D Project

Technical problem (defined )

• Fines problem due to high friability and lack of surge capacity

Technical objective (new knowledge)

• Investigation of the use of spirals as a separate parallel process

Summary – R&D Claim

R&D activities (experimental )

Preliminary studies (spirals on tailings) $ salaries

Concept development (spirals as parallel process stream) $ salaries and consultant costs

Preliminary test-work on site (1 spiral)$ salaries, plant costs

Summary – R&D activities cont.

Pilot scale test-work off site (2 trials at 2 locations) $ salaries, travel, contractor/lab costs

Design review (iterative feedback R&D) – 2 stage process requirement identified $ salaries

Full Scale Plant trial (6 weeks)$ salaries, Plant op costs (>$1 mil)

Summary – R&D claim

Project cost approx $ 2 million

Claim value = $ 200,000

Last word – Evidence

You need supporting documents eg:

- Records of technical issues- Approvals for process/product changes- Project plans/scope of works- Trial plans, sheets/logs, reports, photographs - Consultant/contractor reports- Additional testing/monitoring systems - Presentations and publications

Thanks for your time - questions?