R&D Tax Incentive Prepayment service

presented by Gerry FrittmannTCF Services Pty Ltd

Background of TCF SERVICES PTY LIMITED

TCF Services celebrates its 21st year of assisting clients in maximising their returns from various Commonwealth

Government industry assistance programs.

Since 1991, TCF Services has delivered over $2 billion in government assistance to clients across a variety of industry sectors. Government programs are often based upon a maze of legislation that requires an experienced professional to navigate. TCF Services provides a hands-on approach to deliver the legislative knowledge and program experience you require to leverage the best funding opportunities for your business.

RESEARCH AND DEVELOPMENT TAX INCENTIVE SCHEME - is a self assessment entitlement scheme that allows taxable entities from all industry sectors to receive annual tax offsets against eligible expenditure incurred through their R&D activities. TCF provides the expertise required to evaluate a company's project eligibility, prepare and lodge applications as well as handle any reviews or audits. TCF's key focus is the compliance of project activities, expenditure and record keeping as required by the scheme.

The R&D Tax Incentive scheme provides 2 differing benefits, these are:

1/ a refundable tax offset of 45% against eligible R&D expenditure when the company has a annual aggregated R&D turnover of less than $20 million or:

2/ a 40% non-refundable tax offset to entities a annual turnover of $20 million or more

This program is ideal for companies of any size or sector engaged in eligible R&D activities, from start-ups to industry giants but the prepayment offering only applies to entities under $20m as they are the entitled to a refundable cash offset of up to 45% dependent upon their tax position.

R&D entities who do not have any sales (R&D start ups) or R&D entities with an equal amount of tax losses to their annual R&D expenditure will receive the full 45% refund whilst R&D entities trading in profit will receive 15%, this is because the R&D expenditure is treated as a notional deduction.

R&D entities with tax losses that are less than their annual R&D expenses receive 45% up to the value of those tax losses and 15% for the balance, the ATO will however net off any unpaid taxes that are owed by the entity at the time of lodgement of their annual tax return before any refund is paid.

Value Proposition – There are several companies in Australia like TCF providing such services to Corporates, assisting them in taking advantage of the Australian Government's Tax incentives, that is set up to encourage R&D in all sectors. To differentiate themselves and to offer Corporates a 'one stop shop', TCF is not only assisting their clients in assessing and applying for the Govt Tax offsets, but after passing stringent internal qualifying processes, they will provide their clients with advance funding (up to 80%) based off the calculated potential tax rebate. Success rates in obtaining a rebate from the Australian Tax Office to date is circa 99%. As a prudent company, TCF is exploring Trade Credit insurance to enhance their credit standing with financiers. It should be highlighted that financiers have not placed such a requirement on TCF when offering them a funding line. This is purely a strategic decision taken by TCF for the purpose of internal compliance and good corporate governance. In addition, securities (PPSR) and guarantees are also taken from the Corporates utilising TCF's services.

TCF Services R&D prepayment service – Offering A

Australian Tax Office

(ATO)

TCF Services

Company A

Company B

Company C

1. Prepare and lodge a Advance finding with AusIndustry seeking a positive 2 year finding which is legally binding

2. Prepare AusIndustry R&D registration and ATO R&D Tax schedule for clients A, B and C

3. Undertake due diligence and establish prepayment/ security agreement

4. Prepay –advance funds (80% of benefit)

5. Lodgement of company tax return

with attached R&D tax schedule

Companies active in R&D activities in various

sectors6. ATO refund

credited into clients TCF controlled

clearing account

7. – Refund of excess funds to Company A, B and C, after deduction of claim service fees, prepayment amount and interest charges.

TCF Services R&D prepayment service– Offering B

Australian Tax Office

(ATO)

TCF Services

Company A

Company B

Company C

1. After a client has successfully repaid and completed a prepayment under Offering A they are also eligible to take up offering B which is may advance up to 80% of the current years R&D benefit against their monthly or quarterly R&D expenses upon receipt of evidence of expenses incurred.

2. All of the R&D expenses are then claimed after the year is over in the normal fashion as per offering A by preparing and lodging the AusIndustry R&D registration and ATO R&D Tax schedule for clients A, B and C

3. Lodgement of company tax return

with attached R&D tax schedule

Companies active in R&D activities in various

sectors4. ATO refund

credited into clients TCF controlled

account

5. – Refund of excess funds to Company A, B and C, after deduction of Service Fees, prepayment amount and interest charges.

1.TCF signs up a new Client who would like to use our R&D tax services to prepare and lodge their R&D registration and R&D tax schedule and to receive a 80% prepayment against the value of the expected ATO refund. Upon reviewing the Client's R&D expenditures, TCF prepare and lodge a Advance finding application with AusIndustry for the purposes of receiving a legally binding positive advance finding determination that qualifies the project for a 2 year period. As the advance finding application is being processed TCF also verify that the client meets all other due diligence requirements pertaining to the financial position of the business and its Director/shareholders for the purpose of signing up a facility agreement and security deed to provide for the perpetual advancement of funds (up to 80% of calculated rebates) to the Client on a ongoing basis. A security interest is registered under the new Personal Property Security register over the refundable tax offset and any guarantees (if required) are taken from the company and its stakeholders.

2.TCF proceeds to file, on behalf of the client, an application to the AusIndustry called the R&D registration – this is done for the purpose of receiving a registration number which is required for the ATO to process a refund.

3.Once the AusIndustry registration number is received we provide the completed R&D Tax schedule to the client and his external accountant who inputs the calculations into the client tax return and attaches the R&D Tax schedule as part of that lodgement. The external accountant receives a irrevocable direction to use the Bank account details we provide to him that the refund is to be paid into which TCF controls and sweeps out the owed amounts including interest and service fees.

4.Once approved, the ATO will remit the Tax rebate to an account controlled by TCF. The time taken for the rebate from the ATO for offering A may range from 30 days to 90 days and in terms of offering B the repayment will not occur until the following year whereby the timeline for repayment may be up to 18 months.

5.Upon receipt of the funds from the ATO, TCF will refund the excess monies to the Client, after deducting their service fees (as a percentage of the tax rebate value or an upfront agreed fee), the advance funded value and the interest charges associated with the advancement.

6.If a Client goes into insolvency after advance funding is provided by TCF, TCF will mitigate their losses in the following ways:-

a. ATO is still obliged to rebate the Tax Offset related to an approved and qualified R&D expenditure incurred by the insolvent client

b. TCF will enforce their rights over the securities and guarantees held on the Client

Transactional process