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NZ Government’s improved R&D Tax Incentive encourages businesses to invest in new ideas

The New Zealand Government has announced improvements to its R&D Tax Incentive to guarantee financial support reaches more businesses investing in new ideas.

As reported, Minister of Research, Science and Innovation Megan Woods shared that many businesses are investing in research and development right now.

However, since 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 NZ$ 1 billion R&D scheme is limited.

R&D Tax Incentive improvements

This Government is turning the situation around with broader cash entitlements to support eligible R&D businesses in loss because some of the most effective R&D activity is delivered by start-ups and pre-profit businesses.

New Zealand innovators should have the best possible start in order for them to increase their genuine investment in R&D and get out in front of their global peers.

In an event in Christchurch’s Innovation Precinct, the Minister had announced proposed changes in order 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.

How will it work?

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 NZ$ 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.

For instance, with plans for refundability, a pre-profit start-up investing NZ$ 2 million in eligible R&D would be entitled to get back NZ$ 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. Getting behind all of the businesses is needed to meet this goal.

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.

Supporting New Zealand’s innovation system

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.

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