This morning the government has announced it’s revised Research & Development Tax incentive policy, NZRise submitted extensive feedback on the proposed system and are pleased to see many positive changes as a result of consultation.
You can read the new policy detail here.
The key features include:
- A credit rate of 15 per cent, a $120 million cap on eligible expenditure, and a minimum R&D expenditure threshold of $50,000 per year.
- A broad set of eligibility criteria and the inclusion of State-Owned Enterprises, industry research cooperatives (including levy bodies) and minority-owned subsidiaries of Crown Research Institutes, Tertiary Education Organisations and District Health Boards.
- A definition of R&D that ensures the credit can be accessed more easily across all sectors, including the technology sector
- A limited form of refunds for the first year of the tax incentive, which will mirror the R&D tax-loss cash-out scheme run by IRD.
Yesterday I attended an embargoed briefing to stakeholders who participated in the consultation process. Wearing both my NZRise and DEDIMAG hats (Digital Economy and Digital Inclusion Ministerial Advisory Group) I took the following notes from the talk by MBIE and Inland Revenue officials:
The government is committed to raising NZ’s R&D expenditure to 2% of GDP over 10 years. They see this system as more accessible and wide reaching than the Callaghan grant system, last year Callaghan awarded ~300 Growth grants and ~300 Project grants (no information on whether these were 600 distinctly different companies was given) whereas the new R&D tax incentive is designed to reach 2000+ businesses (1800 businesses reported they do R&D in the latest Business Operations Survey).
They consider the 15% rate as generous and in line with other nations eg: Australia offers 16% for SME’s and 8.5% for large companies (there are calculations behind these numbers which take the headline tax rate and apply the rebate landing on these equivalent rates in Australia). They also provided us with evidence the 15% will move New Zealand to a stronger position on the OECD’s B-Index.
Very importantly the new system is designed to be self assessed and will be bundled with the annual tax return as supplementary pages – the officials were very clear they want the R&D incentives to flow directly to businesses undertaking R&D not to tax advisors via compliance costs.
They listened to us with regards Definition of Research and Development, there were two key changes – replacing the phrase “scientific methods” with “systematic approach”; and adding technological to the key tests ie: scientific or technological uncertainty.
Core R&D activities must be performed for the purpose of acquiring new knowledge or creating new or improved processes, services or goods and must seek to resolve scientific or technological uncertainty.
A few tiny concerns did creep into the discussion – potential conflict between the definition for tax loss cashout qualifying companies and application of the new policy. Clarification of R&D terminology across government was noted as more work to be done.
On balance I felt the consultation process had listened to the Digital Technology industry and these changes do sit in support of the Government’s goal of ICT as the 2nd largest contributor to GDP by 2025 (as one small piece of the puzzle). All acknowledged there is still more work to be done but this is a good start. The meeting was somewhat hijacked by others with their own businesses scenario / agenda to push which was unfortunate.
These two images are photos of the handout we were given with key facts on them. Victoria