An Advance Finding (AF) and Advance Overseas Finding (AOF) can be a valuable asset for an innovation company wishing to claim the Australian R&D tax incentive.
An AF can provide certainty about the eligibility of R&D activities which can be particularly valuable for large R&D projects or where investors want to have clarity.
An AOF can allow a company to include overseas activities (which are normally excluded under the R&DTI guidelines) for up to 50% of the cost of an R&D project within the R&D claim.
What are Advance Finding and Advance Overseas Finding?
An AF and AOF are legally binding decisions made by the Department of Industry, Science and Resources (DISR) on the eligibility of your R&D activities. In the case of overseas expenditure, you must have a positive overseas finding if you want to claim expenditure on activities conducted outside Australia.
An AF or AOF application needs to be lodged by the end of the first financial year you wish it to relate to. So, for a standard financial year it needs to be lodged by the 30th of June. An AF or AOF can cover up to three years of activities – the year the application is lodged plus the following two financial years.
What are the benefits of an Advance Finding?
The main benefits of an advanced finding are:
- Certainty of eligibility
- Greater audit protection
- Greater confidence and strengthened position for investment and budget planning
The key additional benefit of an overseas finding is the ability to claim overseas R&D activities up to the value of 50% of the cost of the total project.
Eligibility criteria for an Advance Overseas Finding
Must demonstrate the following:
- Must be an eligible core and supporting activity
- Connection to Australian-based R&D activity
- Experiment cannot be reasonably conducted in Australia due to one of the following:
- access to facilities, expertise, or equipment not available in Australia
- access to population not available in Australia (i.e. for clinical trials)
- would contravene the Biosecurity Act, if conducted in Australia
- Access to a geographical or geological feature not available in Australia
What is involved?
Advance and Overseas Finding applications are substantial pieces of work to prepare. Applying for an AF or AOF requires detailed documentation, including technical descriptions of R&D activities, evidence of experimental processes, and alignment with eligibility criteria. Additionally, in the case of an Overseas Finding, you will need to provide evidence of the inability to conduct the activities in Australia and validation of expected Australian and overseas expenditure on all project activities. This can be time-consuming, particularly for activities that are yet to be conducted.
DISR can take months to complete the review process for an AF or AOF application, and it may involve rounds of additional information requests.
What does it cost?
The AF and AOF process is an additional cost to the normal annual R&D claim process. While preparing an AF or AOF will assist with gathering and structuring information for subsequent R&D claims, R&D activities still need to be registered on an annual basis as normal. In many ways, an AF or AOF application is like the private binding ruling or audit process. It is a very detailed review of the specific circumstances and details of your proposed R&D activities. As a result, the amount of work involved can be between three to six times that involved in preparing a standard R&D claim.
How can we help?
At Matthews Steer we have years of experience across multiple industries preparing AF and AOF applications for clients. We can advise you on the practical aspects of an application and whether an AF or AOF application is right for your company. Contact Matthews Steer or reach out directly to our Head of Innovation & Grants, Richard Wraith at rwraith@matsteer.com.au