The Government has committed to raising New Zealand’s research and development (R&D) expenditure to 2% of GDP by 2027.
To reach this target more businesses will need to increase their expenditure on R&D. This will be supported through an R&D tax incentive, available from the 2019/2020 tax year for businesses conducting eligible R&D.
The main features of the R&D tax incentive include:
- a credit rate of 15%
- a $120 million cap on eligible expenditure
- a minimum R&D expenditure threshold of $50,000 per year
- a limited form of refunds for the first year of the scheme that will mirror the R&D tax-loss cash-out scheme run by Inland Revenue. A more comprehensive policy will be in place for the second year of the scheme
- a definition of R&D that ensures the credit can be accessed more easily across all sectors, including the technology sector
- the inclusion of state-owned enterprises, industry research cooperatives, levy bodies, and minority-owned subsidiaries of select Crown entities.
The Taxation (Research and Development Tax Credits) Bill was passed into law on 7 May. The R&D tax incentive will apply to eligible R&D activities conducted by a business during the 2019/2020 tax year.
For most businesses this means expenditure on eligible R&D undertaken from 1 April 2019 will qualify for the R&D tax incentive, and they should record their R&D expenditure now to ensure their records are ready to file at the end of the tax year.
Businesses can look into whether they might be eligible for the tax incentive by referring to draft guidance issued by Inland Revenue. This guidance will be finalised in the weeks following the Bill’s third reading.
For year one of the R&D tax incentive there is limited refundability available for smaller businesses with cashflow challenges.
There is work underway on a more developed refundability process to support R&D businesses with limited tax liability and the Government is committed to having a decision in place for year two of the scheme.