How the Changes in Export Market Development Grants Affect Your Business
The Export Market Development Grants (EMDG) scheme is an incentive program of the Australian government created to provide funding to businesses exporting goods and services overseas. The Federal Government announced on 10 September last year that the scheme was set to undergo certain amendments to alter how this incentive program was administered.
Before the change, the grant paid up to a 50% cash rebate on eligible expenses relevant to the export activities of Australian products and services. The funding was capped at $150,000 per year. In September 2020, Simon Birmingham, the Federal Trade Minister, disclosed that this 35-year-old government scheme would go through a major reform. The changes, when executed, would simplify the application process. The new grant was revealed to emphasize helping Australian exporters.
Key Takeaways for Business Owners
The Export Market Development Grant amendments come into effect starting 1 July 2021. The changes will:
- Provide recipients advanced funding, not arrears
- Offer a new tiered system, which aims to target funds more effectively
- Have a lower turnover threshold to $20 million (previously $50 million) per year
Needless to say, the EMDG program this 2021 is different from the past years. The previous scheme is no longer in operation, but it ran along with the new reform model. As a result, applicants were required to submit two EMDG applications if they wished to gain access to these two programs at the same time.
Over a year has passed since travel restrictions have been imposed in the country. Regardless, a raft of other costs is still available for claiming under the new model and the previous scheme. The latter looks back at costs incurred by businesses until 30 June 2021, which coincidentally was its closing date. The new model immediately takes its place.
However, applications for the old scheme will still be accepted from 1 July 2021 until 28 February 2022. This extension is granted only if the business uses an Austrade-approved EMDG consultant qualified to process and support the fiscal year 2021 application for reimbursement. Meanwhile, using a non-approved consultant or through self-lodging shortens the grant application submission to 30 November 2021.
In the new EMDG model, submissions will be open for the next 15 weeks, starting in August. There are a few significant modifications in this model, as mentioned above. However, the biggest change is in the grants funding forecasted costs over a multi-year period. It’s a prospective model compared to the previous retrospective application model.
Here is a more detailed look at the changes in the program:
1. Grants Will Be Paid in Advance, Not Arrears
Ever since the Export Market Development Grants scheme was introduced, grants were always paid out in arrears. This meant that all applicants should first incur the expense before applying for a grant. Therefore, the grant itself is paid as a reimbursement.
After the enactment of the new model, there is no longer a need to incur expenses before applying for the grant. That’s because the grant will be paid out in advance. It becomes easier for businesses, especially those that currently do not have access to the capital needed to maximise their export activities and opportunities.
2. There Are Two Programs, Each With Its Own Set of Rules
Austrade categorises the grant applicants into two streams:
- Stream 1 covers those who are new to export. In this category, the business should be established. It should be prepared to start conducting overseas business activities without prior experience. The participating enterprise will be required to undergo a test that ensures its readiness to export. If the business passes the test, the government will pay up to an $80,000 grant, which aims to cover about 50% of the eligible expenses made for export activities for the next two years.
- Stream 2 covers businesses deemed as expanding exporters. A business is classified as an expanding exporter if it has garnered revenue in one or more export markets. An expanding exporter should also have plans to augment their export activities. The expansion can either be for the same market or a different one. Businesses in this category can receive two grant payments. The first one is up to $240,000, whilst the second will depend on the enterprise’s shift in its export transactions. This second payment can be up to $450,000. These two grant payments will be given over six years.
In total, the new Export Market Development Grants scheme will pay businesses up to $770,000 throughout the eight years.
3. A New Turnover Threshold Is Introduced
The old initiative required businesses to have an annual turnover of $50 million. After the review, it was discovered that several enterprises could not access the grant, particularly smaller businesses. As a result, the turnover threshold dropped to $20 million. This gives a better opportunity for more companies, including those with lower annual turnovers that generally have bigger financial needs.
4. There Are No More Two Tranches
The program has become quite popular over the years, despite the previous annual turnover requirement mentioned above. Its popularity prompted Austrade to develop a system where the initial funding is capped at a specific amount. Remember that the initial funding was based on 50% of eligible expenses. If grant funds exceeded the limit, they would be prorated depending on the amount left in the grant each year. The excess will be paid out typically at the end of the financial year.
The system described above gave the government flexibility when it comes to the payout process. However, there was a problem. Many applicants did not know precisely how much their rebate would be. In the new model, the two-tranche payout method will no longer apply. Therefore, applicants can quickly determine the amount to which they are entitled.
5. The Amended EMDG Scheme Has More Straightforward Legislation
A key challenge for EMDG applicants was the program’s legislation, which was the Export Market Development Grants Act 1997. It’s drawn-out and complicated, easily confusing applicants, particularly regarding their compliance levels. That’s why the government has modified the legislation to remedy the difficulty. As the legislation reflects the changes, it now has simplified wording, which allows people to understand the law better.
Preparation is Key
The new EMDG has already been approved. Applicants are encouraged to prepare and lodge early. It’s not a good practice to wait until the final deadline to rush the application. There could be delays due to audits that Austrade has to perform. Generally, applications lodged from July to October are reviewed and approved before December. During this time, Austrade does not receive a ton of applications, which means it is a good time to compile the business’ information and submit documentation.
It’s worth considering lodging an application for both the old and new models. Austrade works to implement the agreements under the amended version because it is an upfront grant compared to the other one.
So, if you plan to export or your business is already exporting, it’s best to set yourself up for early application submission. It’s even more important to do so if you are a first-year applicant since the process can be quite intensive for you.