The New Zealand Government has announced proposed legislative changes to its new research and development tax incentive to ease the requirements for not yet profitable businesses to access immediate tax relief.
The new Research and Development Tax Incentive, available for the 2019/20 tax year, features a credit rate of 15%. In general, to be eligible for a tax credit, a person must spend at least NZD50,000 (USD34,400) on research and development in a given year. The maximum amount of expenditure that is eligible for a tax credit is NZD120m, unless a person has obtained the Commissioner's approval to exceed the cap.
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The Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill, introduced to Parliament in late June, would mean more businesses claiming the Tax Incentive will be eligible for refunds of their research and development tax credits from the 2020/2021 tax year onwards. Specifically, the Bill proposes changes to extend the refundability of research and development tax credits.
It is proposed that the research and development tax credits be more broadly refundable, with a cap based on the payroll taxes paid by a firm in each year.
The proposed cap would not apply to tax credits resulting from eligible expenditure on activities performed by approved research providers and would not apply to research and development tax credits refunded to levy bodies.
Announcing the changes on 12 July 2019, Minister of Research, Science, and Innovation, Megan Woods, said:
"Right now, many businesses are investing in research and development but because they're 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 NZD1bn R&D scheme is limited.”
“We're turning that around, with broader cash entitlements to support eligible research and development for businesses in loss, because we know some of our most effective research and development activity is delivered by start-ups and pre-profit businesses."
"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."
She said, for example, a pre-profit start-up investing NZD2m in eligible research and development would be entitled to get back NZD300,000 of its investment in cash, provided it meets the broader conditions.
Inland Revenue has 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 Tax Incentive.
Enrolment for the Incentive opened in July, with businesses able to register their intent to claim tax credits and request further information.
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