Date posted: 28/01/2019

R&D Tax Incentive: It's in our DNA

CAANZ recommends R&D scheme supports start-up entities & small businesses to create right conditions for businesses to experiment & thrive.

In Brief

  • Increasing the R&D Tax Credit rate to 15%
  • Reducing the minimum spend on eligible expenditure from $100,000 to $50,000
  • Updating the definition of R&D to better reflect modern activities conducted

R&D Tax Incentives Package Introduced

Earlier this year CA ANZ stressed the need for a R&D scheme to support start-up entities and small businesses and to create the right conditions for these businesses to experiment and thrive. At this morning's R&D launch event in Avondale, the Prime Minister echoed this sentiment with her observation that it's in Kiwi's DNA to be innovative and pragmatic and everyone's got to start somewhere.

Jacinda Ardern

Jacinda Ardern, Prime Minister of New Zealand.

The Ministers of Revenue, and Research, Science and Innovation announced an R&D Tax Incentive package to help businesses increase their R&D investment. There have been a number of key changes from the 0consultation earlier this year, including increasing the R&D Tax Credit rate to 15%, reducing the minimum spend on eligible expenditure from $100,000 to $50,000 and updating the definition of R&D to better reflect activities conducted in 2018.

When's it coming?

The intent is for the 15% tax credit to be available from the beginning of the 2019/20 income year. As currently proposed the R&D Tax Incentive is not in its final form. While the Callaghan Growth Grants are phased out, a transitional period between implementation and 31 March 2021 is proposed to allow those with existing Growth Grants to remain on their grant for up to two years. Companies with existing Growth Grants who don't meet the criteria for renewal have a contract extension until 31 March 2019 or the end of the businesses 2018/19 income year, whichever is the later.

Further tweaks to provisions for businesses in tax loss positions have been signalled from 1 April 2020

What counts as R&D?

To be eligible, the R&D activities must:

  • Take a systematic approach. This is a change from the initial consultation and a move away from the 'scientific method' definition to better reflect R&D activities undertaken in New Zealand
  • Be for the purpose of acquiring new knowledge of creating new or improved processes, services or goods
  • Try to resolve scientific or technological uncertainty
  • Pass the 'competent professional test'. That is, that if the information to resolve the uncertainty is publicly available or could be deduced by a competent professional in the field, the activities will be ineligible

Who's eligible?

All businesses will be eligible to claim the Tax Incentive, regardless of their legal structure, provided that:

  • The business owns the results of the R&D, or can use the results for no consideration, or another company in the group owns the results and is a resident of a country which New Zealand has a double tax agreement with.
  • They have not been a recipient of a Callaghan Innovation Grant in the same income year
  • The business is spending at least $50,000 on eligible activities

Businesses who are not meeting the minimum spend threshold will be able to contract their R&D to approved research providers.

While a cap of $120 million has been announced, businesses exceeding this figure may be able to apply for an exemption if they demonstrate the R&D will create a substantial benefit for New Zealand.

Minister of Revenue, Stuart Nash, spoke about ensuring the scheme is available for everyone and the importance of not picking 'winners and losers'. Changes made to the proposals following consultation earlier this year will make the scheme more accessible for start-up entities and those in the software industry.

Expected Timeline

  • October 2018, R&D Tax Incentive Legislation presented to Parliament
  • December 2018, Parliament Select Committee process and opportunity for public consultation
  • 2018 – mid 2019, consultation on further policy design including businesses in loss
  • 31 March 2019, Growth Grant Scheme closed to new applicants
  • 1 April 2019, R&D Incentive effective for businesses on standard balance date
  • Mid 2019, R&D Tax Incentive becomes law
  • 1 April 2020, extended refund policy in place for businesses in loss
  • 31 March 2021, all Callaghan Innovation Growth Grants end.