25th September, 2020
The Federal Government has announced the Export Market Development Grant Scheme will undergo changes set to fundamentally alter the way in which the program is administered.
The Export Market Development Grants Scheme (EMDG) is a government incentive program that offers funding to Australian businesses that are exporting their goods and services to overseas markets.
In summary, the grant pays out an up to 50 percent cash rebate on a series of eligible expenses relating to the export of Australian products and services, capped at $150,000 in grant funding per year.
Earlier this month, Federal Trade Minister Simon Birmingham revealed the 35-year-old scheme will be undergoing a major reform, with the intention of simplifying the application process and adapting it to the needs of Australian exporters.
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“Simplifying application processes and reducing the administrative burden on exporters whilst still maintaining integrity in the scheme will allow recipients to focus on boosting export activities and ensure maximum return on taxpayer’s investment,” Birmingham said in a media release.
These changes have been unveiled on the back of a review of financial assistance to SME exporters, which culminated in ten recommendations which have all been accepted by the Government in principle and make up the basis of the proposed reform. You can see the official review here.
There are five main ways in which the program is set to change, each of which coming into effect as of 1 July 2021, detailed below.
Since its inception, the EMDG has always been paid out in arrears, which has meant that applicants needed to incur the expense and apply for the grant as a reimbursement.
But once these changes are enacted, grants will be paid out in advance, which will make it easier for businesses that don’t have access to the required capital to maximise export opportunities.
Austrade will begin categorising EMDG applicants into two different streams, with varied rules for each.
This category will be for businesses that are established and ready to conduct business activities overseas for the first time. They’ll need to go through an ‘export readiness’ test, and assuming they pass this test, a grant of up to $80,000 will be payable to them to cover 50 percent of their eligible export expenses over a two-year period.
To be classified as an Expanding Exporter, a business will need to have established revenue in at least one export market and be looking to further expand their export activities (either within the same export market or others).
If a business meets these criteria, it will be eligible for two grant payments, each of which will be paid out over the course of a three year period.
The first payment will be up to $240,000, and the second, which will be contingent on the SME making a strategic shift in its export efforts, will be up to $450,000.
In total, the maximum amount of grant funds payable to a business throughout the eight-year period will be $770,000.
Historically, businesses with up to a $50 million annual turnover were eligible to access EMDG funds. Since the review found the support was far more effective for smaller businesses, the turnover threshold will drop to $20 million in annual revenue to better target businesses in need.
Due to the program’s popularity, Austrade developed a system where it would pay out an initial amount of funding, which was 50 percent of eligible expenses, capped at a certain amount. Any grant funds beyond that cap would then be prorated based on the amount left in the EMDG kitty each year and paid out toward the end of financial year.
This system gave Austrade flexibility in its payout process, but also left many applicants in the lurch – not knowing how much of a rebate they would ultimately receive.
As part of this reform, the two-tranche payout system will be discontinued, and applicants will be given clarity on the exact amount they will be entitled to.
One of the key challenges in applying for the EMDG is that the legislation (the Export Market Development Grants Act 1997) is complex and lengthy, making it very difficult for applicants to be comfortable with their compliance levels.
To remedy this challenge, the government will be amending the legislation to reflect the above changes, and while doing so, it will work to simplify and streamline the wording of the law.
As the Government works towards finalising these changes, it has confirmed that the current legislation and program rules will remain in place for the 2021 financial year.
So for those incurring eligible export expenditure throughout the 2021 financial year (meaning, until 30 June 2021) they will be able to claim the standard reimbursement under the under the current legislation during the 2021 claiming period.
As of 1 July 2021, all export businesses will be subject to the rules of the newly revamped system.