R&D tax incentive changes are aimed at encouraging more businesses to invest in innovation

The Government has announced changes to its R&D Tax Incentive aimed at ensuring financial support reaches more businesses investing in new ideas.

Many businesses were investing in research and development but because they have yet to turn a profit – which is typical for the first few years of a new business – their access to tax credits under the Government’s $1 billion R&D scheme is limited, Research, Science and Innovation Minister Megan Woods says.

“We’re turning that around, with broader cash entitlements to support eligible R&D for businesses in loss, because we know some of our most effective R&D activity is delivered by start-ups and pre-profit businesses,” Dr Woods says.

“I want New Zealand innovators to have the best possible start so they can increase their genuine investment in R&D and get out in front of their global peers.” 

The Minister’s comments followed an event at Orbica HQ in Christchurch’s Innovation Precinct where she announced proposed changes to give better access to the R&D Tax Incentive for loss-making and pre-profit businesses.

The Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill, introduced to Parliament in late June, means more businesses claiming the R&D Tax Incentive will be eligible for refunds of their R&D tax credits from the 2020/2021 tax year onwards.

A Tax Incentive in the form of a tax credit benefits businesses in profit, but without refundability it is of limited use for pre-profit businesses or businesses in loss.

Under the Government’s plan, refundable tax credits would generally be available up to the amount of payroll tax paid by the business in the same year. At the moment a pre-profit firm in year one of the scheme would only be able to receive a maximum pay-out of $255,000 under the measures for limited refundability.

“The proposed changes aim to simplify this to ensure a pre-profit firm is able to get the financial support it needs to innovate and succeed,” Megan Woods says.

For example, with plans for refundability, a pre-profit start-up investing $2 million in eligible R&D would be entitled to get back $300,000 of its investment in cash – provided it met the broader conditions.

The Coalition Government has set the ambitious target of raising New Zealand’s R&D expenditure to 2% of GDP over 10 years.

“To meet this goal, we need to get behind all of our businesses,” Megan Woods says.

The R&D Tax Incentive is one part of a wider package of government support for New Zealand’s innovation system.

Other initiatives include Callaghan Innovation administered Project Grants and the Technology Incubator Programme as well as the R&D Tax Loss Cash-Out scheme and the New Zealand Venture Capital Fund.

Inland Revenue have recently released Guidance on the Taxation (Research and Development Tax Credits) Act 2019 and an online tool that will assist businesses in assessing their eligibility for the R&D Tax Incentive.

Enrolment for the Incentive will open in July, through which businesses can register their intent to claim R&D tax credits and request further information.

More information about the research and development tax incentive can be seen here.

Source:  Minister of Research, Science and Development

Author: Bob Edlin

Editor of AgScience Magazine and Editor of the AgScience Blog

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