Research and Development (R&D) tax credits are in the pipeline. This is good news for businesses who are investing in R&D activities.
How will the tax credit work?
The regime involves a refundable tax credit of 15% of the amount spent on eligible R&D activities, but it is intended that the R&D tax credit will be used to pay the person’s income tax liability, so the maximum cash payout is limited to $255,000 per year.
There is a minimum spend of NZD $50,000 to be eligible to apply, and a maximum expenditure cap of $120 million. Expenditure on internal software development will be capped at $3 million.
The R&D tax credit will initially run alongside existing Callaghan Growth Grants. However, it is designed to replace these grants, and while these grants are being phased out, a person will only be eligible for either a grant or an R&D tax credit.
There are some tests which will need to be satisfied to be eligible for the tax credits, this centre around:
- who is eligible
- the type of activity that qualifies as eligible R&D, and
- the type of expenditure that is eligible.
Nexia New Zealand has written a detailed commentary on who is eligible, the type of activity and expenditure that qualifies, click here to read more.
How do I apply?
In the first year, businesses will apply for the tax credit via their ordinary tax return and also completing an electronic supplementary return detailing the additional required information. From the second year, businesses will be required to seek in-year activity approval.
The rules impose obligations on businesses to keep sufficient records in support of their R&D tax credit claim. For more guidance on Inland Revenue requirements, click here.
How can Nexia New Zealand help?
We have specialist taxation experts on hand who can assist you in understanding the proposed new rules and in making your first year R&D tax credit claim. We would be happy to meet with you to discuss your requirements in further detail.