Government boosts R&D tax credit
New incentives for businesses to invest in research and development (R&D) spending have been finalised by the Government and are more generous than it had originally proposed.
But loss-making startups will still have to await details of the long-term assistance they may receive for R&D.
From April, businesses that spend more than $50,000 a year on R&D will be entitled to a tax credit equal to 15 per cent of their spending, Research, Science and Innovation Minister Megan Woods announced.
That is up from a previously proposed 12.5 per cent tax break.
The amount of money firms need to spend on R&D to qualify has been halved from the proposed $100,000 – meaning more firms will qualify for tax credits.
The maximum amount that can be claimed by any organisation per year has been increased to $18 million and the definition of R&D has been broadened.
‘‘It is a rules-based system; there are clear criteria for eligibility,’’ Woods said.
Graeme Muller, the chief executive of technology industry body NZTech, said the Government had listened to its concerns.
‘‘New Zealand’s new R&D incentive scheme places us competitively with other leading tech nations such as Israel and the Netherlands, which have very similar rates. The most positive change is the way R&D is being defined, removing a focus on scientific research to instead look at systematic approaches to solving scientific and technical uncertainty,’’ Muller said.
EY tax leader David Snell agreed the incentive package was generous and ‘‘should keep everyone happy’’.
‘‘Businesses expressed four big concerns on Woods’ preliminary paper . . . The Government has acted on all the major concerns,’’ he said.
The tax credits will replace growth grants administered by grants agency Callaghan Innovation that will be phased out by the end of the 2020-21 tax year.
Woods said the Government’s goal was to increase R&D spending to 2 per cent of the country’s gross domestic product (GDP) within a decade, up from the current rate of close to 1.3 per cent.
Officials estimate the average for R&D spending across Organisation for Economic Co-operation and Development countries is just under 2.4 per cent of GDP.
Callaghan Innovation would play a ‘‘support role’’ in helping the Inland Revenue Department work out whether the rules for the tax credits had been met, and Woods did not expect the agency would shrink as a result of the changes.
‘‘We are going to go from 300 businesses receiving a growth grant to 2000 being eligible for tax incentives, so its role as an innovation agency in making sure those businesses are connected is only going to grow.’’
The Government earmarked $1 billion over four years in the May Budget to pay for the tax credits and Woods said that was on top of the baseline funding for growth grants, which would also be available to fund the scheme.
NZTech had previously questioned how the tax credits would help loss-making start-ups that had no profits against which to offset tax but which can benefit from growth grants administered by Callaghan Innovation.
In an attempt to address that concern, Woods said the Government would allow a ‘‘limited form of refundable tax credits’’ until the start of the 2020-21 tax year, while it worked on a longer-term package.
That system of cash payments would operate alongside the existing ‘‘R&D tax-loss cash-out scheme’’ run by Inland Revenue, which would continue, she said.
The existing Inland Revenuemanaged refunds will be capped at $476,000 next year.
The new temporary system of refundable tax credits would allow loss-making businesses to claim a cash payment of up to $255,000 on R&D expenditure of up to $1.7m. But businesses would need to be spending at least 20 per of their labour costs on R&D to qualify, Woods said.
Revenue Minister Stuart Nash said the refundable tax credits would be superseded by a ‘‘more comprehensive form of refunds’’ that would be put in place from April 2020.
National Party science and innovation spokeswoman Parmjeet Parmar said it was good the Government had taken on board ‘‘some’’ of the feedback it had received.
But she said it was disappointing that loss-making businesses such as startups still faced uncertainty about the support they could expect after 2020.
Woods had forecast 3000 businesses might benefit from the tax credits and there was ‘‘no explanation’’ why that was now being put at 2000, Parmar said.
‘‘New Zealand’s new R&D incentive scheme places us competitively with other leading tech nations.’’ NZTech CEO Graeme Muller