Government consulting on R&D tax incentives

May 10, 2018

The government has released a discussion document seeking feedback on proposals to implement a R&D tax credit regime with effect from 1 April 2019.  The proposed R&D incentive will be in the form of a 12.5% refundable tax credit on eligible expenditure available to businesses doing R&D in New Zealand.

Board proposals

The proposals are very much a work in progress, with feedback being sought on various aspects of the regime.  However, in broad terms the R&D credit regime proposes:

  • That businesses located in NZ who are carrying out R&D activities in NZ will be eligible to claim the credit.  Key here is the ability to show that the person claiming the credit is the person who bears the risk and owns the results.  It is intended to apply to all types of entity structures (including industry research cooperatives), however this may be limited for Government entities.  Some overseas expenditure may be eligible.

  • The scheme is intended to provide incentives for activities that resolve scientific or technological uncertainty.  Eligible activities include “core activities” and “support activities”.  Feedback is being sought on whether eligible expenditure should be limited to labour only, or labour plus overheads.

  • Certain activities are excluded – for example, items such as market research, routine collection of information, compliance with statutory requirements and quality control.

  • Certain costs are excluded – for example, items such as interest, loss on sale of assets, cost of acquiring intangibles and professional fees to determine whether activities are eligible.

  • There will be a minimum spend threshold of $100,000 on eligible activities per year to qualify for the tax credit.  Feedback is being sought on a maximum, but $120M eligible expenditure per year is indicated.

Proposed rules not available to loss making entities and will eventually replace Callaghan Innovation Growth Grants.

The tax credit will not be available to entities in a tax loss position so current R&D rules allowing a cash in of losses will continue to apply for the first year, however the Government will be looking at alternatives to this regime going forward.  The proposed R&D tax credit is intended to gradually replace the Callaghan Innovation Growth Grants, however the two regimes will run side by side until final decisions are made by Government.

Submissions on the discussion document close on 1 June 2018.

Contact us if you would like to make a submission or discuss in further detail.

We appreciate that R&D tax incentives will not apply to every business, however for some clients its potential introduction will have a significant impact.  If you would like further information on the proposals, or would like to make a submission to the Government on the proposed changes, please contact us for further assistance.

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