Tax Watch: Edition 2, May 2019
New Research and Development Tax Incentive is soon to be in place
The Taxation (Research and Development Tax Credits) Bill has progressed through Parliament and is awaiting Royal Assent. The Bill introduces a new R&D tax credit to incentivise private investment in R&D.
Businesses can claim a 15% tax incentive on eligible R&D expenditure from the start of their 2019/20 income year.
More businesses will benefit from R&D tax incentives than could benefit from Callaghan Innovation Growth Grants. Growth Grants will be phased out by 31 March 2021.
R&D tax incentive eligibility requirements
To claim the R&D tax incentive, an eligible business must be incurring eligible expenditure on an eligible R&D activity.
- Eligible businesses – businesses, regardless of legal structure, will be eligible if they have a fixed establishment in New Zealand. State Owned Enterprises, joint ventures, industry research cooperatives and entities which are not controlled by Crown Entities will also qualify.
- Eligible activities – qualifying R&D activities must involve a systematic approach to resolve scientific or technological uncertainty with the intent of creating new knowledge, or new or improved goods, services and processes. Uncertainties which can be resolved by using knowledge that is publicly available or could be readily deduced by a competent professional in the related field will not suffice.
- Eligible expenditure – a business will generally need to incur a minimum of $50,000 of R&D expenditure per year. Eligible R&D expenditure covers a broad range of actual R&D costs, but some expenditure exclusions apply. The tax incentive is generally capped at $120 million of R&D expenditure per year. Up to 10% of total R&D expenditure can relate to overseas activities.
Claiming the R&D tax incentive
Eligibility is only the start.
- Limited cash refunds – in 2019/20, only a limited sub-set of companies in a tax loss position will receive their R&D tax incentive as a cash refund. Policy is being worked on to expand refundability to more businesses from 2020/21.
- Administration – Inland Revenue is responsible for administering the R&D tax incentive but it will call on the scientific and technological knowledge of Callaghan Innovation. In the first year of the programme, most R&D claims will be linked to the business’ year-end tax return process. Businesses are required to keep sufficient records to substantiate all eligible activities and expenditure.
- Transition from Callaghan Innovation Growth Grant to tax incentive – most Growth Grant recipients have received an extension to their grant till 31 March 2021. While recipients continue to receive their grant they will be ineligible for the tax incentive. A business with a Growth Grant that ends on 31 March 2021 can start claiming the tax incentive from 1 April 2021 even if this date does not align with their corporate income year.
Talk to us today
The R&D tax incentive compares favourably to its Australian equivalent. Businesses conducting trans-Tasman R&D are beginning to see New Zealand as an increasingly attractive location to undertake additional R&D.
Internally developed software is one area where we could learn from Australia.
Get in touch with us today if you would like more information on how the R&D tax incentive can benefit your business and your investments in R&D and innovation.
Our continuously updated R&D tax incentive services can be found here.
Matthew Hanley, Partner, New Zealand Tax Leader, Ernst & Young Limited, New Zealand
+64 274 899 279
Tim Benbow, Partner, Government Incentives, Ernst & Young Limited, New Zealand
+64 272 071 073
David Snell, Tax Policy Leader, Ernst & Young Limited, New Zealand
+64 21 845 361