Government initiative will not significantly boost investment, says industry specialist

Anew research and development policy allowing startups to cash in tax losses is not enough to significantly boost investment, says a taxation services specialist.

Under the proposed new policy, start-up companies would be able to cash in tax owed on research and development (R&D) in the form of a tax credit, until they became profitable or sold the business, when the tax would be repaid.

Economic Development Minister Steven Joyce said the policy was expected to equate to around $15 million of cashed out losses each year across 250 to 350 start-ups.

Joyce said the move was aimed at trying to encourage R&D spending, particularly for smaller businesses that often struggled with early losses.

However, Andrew Dickeson, director of taxation services at Staples Rodway, said the new law was not enough to make significant changes in business investment.

“I think people will be slow to change their approach to R&D based on this,” Dickeson said.

“It’s more a case of people seeing it as a bit of interest-free money they can tap into but it won’t cause a wholesale change in people thinking, ‘Right, let’s put a whole lot of money into R&D now’,” he said.

“We’ve lost so many good companies over the years going offshore because if they go off to Singapore or even to Australia they get much better incentives.”

Under the proposal, a company could claim up to 28 per cent of its tax losses from R&D back in any year as long as it met the requirements; including being a loss making New Zealand company with a sufficient proportion of R&D investment.

Joyce said the new policy had to be taken in context with other R&D tax measures which would collectively lift spending in the area.

“You can’t just say we don’t like this one policy because it doesn’t go far enough without looking at the R&D growth grants, for example, and what’s being done in the incubation accelerator area,” Joyce said.

“You have to take those things as a group and then say OK as a whole is it going to lift the R&D investment by firms, and what we’ve done is

I think people will be slow to change

their approach to R&D based

on this. Andrew Dickeson, director of taxation

services at Staples Rodway

target different measures to different firms and I think that’s appropriate.”

Dickeson said the programme was a step in the right direction but insufficient overall, particularly given the exclusion of expenses incurred outside New Zealand.

“R&D companies can’t count activities outside of New Zealand and the argument was, which was quite valid, that New Zealand is so small often you had to go overseas to obtain specialised skills and knowledge,” Dickeson said. “It seems unfair particularly for start-ups, when a lot of their costs are in the airfares and travel and meeting with these overseas consultants.”

Joyce said he was confident the new measures would make a difference to start-ups and encourage further R&D spending as evidenced by recent Statistics New Zealand figures that showed it was up $53 million since the last survey in 2012 to $1.2 billion in 2014.

“This is very much about research and development and that’s what we’ve framed it around,” Joyce said. “There are other ways of assisting companies in terms of their offshore marketing.”

The proposed changes would apply to any income received from the start of the 2015 financial year.