Back in Budget 2007 the then Labour Government introduced a short-lived Research and Development (R&D) tax credit scheme that only lasted for the 2008/09 income year before it was abolished by the in-coming National Government in favour of R&D grants.
Fast forward to 2019 and the now Labour Government has
reintroduced a R&D tax credit scheme as a step towards
achieving the Government's goal of increasing New Zealand's total
R&D spending to 2% of GDP by 2028. By providing a tax
incentive in the form of a tax credit, the Government aims to lower
the cost to businesses of performing R&D which will in turn
create an incentive for more R&D to be undertaken.
The scheme, not to be confused with the existing R&D tax
loss 'cash-out' scheme put in place by the National Government in
2015, will provide businesses with a 15 per cent tax credit to
offset the business' income tax payable. At this stage there
is also limited refundability (up to $255,000) available to some
businesses who are in a tax loss position, or who have insufficient
tax payable to offset all their tax credits. There is an
ability to carry forward excess R&D credits in certain
situations.
The tax credit is available from the beginning of the 2020
income year, so if your clients have a standard 31 March balance
date, this means they need to start recording their R&D
expenditure now in order that they will be able to complete and
file their R&D claim on time.
To qualify for the tax credit a business must:
- Have incurred a minimum of $50k eligible expenditure on
eligible R&D activities;
- Perform a core R&D activity in New Zealand, or have a
contractor perform one on their behalf;
- Carry on business through a fixed establishment in New Zealand
(unless the person is a tax charity or levy body);
- Have controlling rights in relation to the core R&D
activity (or ensure these rights are held by a member of the
person's corporate group); and
- Own the results of their R&D activities or have the right
to use the results of the activities for no further
consideration.
A core R&D activity is an activity performed and managed in
New Zealand that is conducted using a systematic approach, has a
material purpose of creating new knowledge, or new or improved
processes, services, or goods, and resolving scientific or
technological uncertainty.
Most types of expenditure incurred on R&D activities are
eligible, including expenditure on wages and salaries, consumables,
depreciation, and the costs of creating intangible property.
Some expenditure is capped, such as R&D contractors,
internal software development and R&D performed overseas.
Some expenditure is specifically excluded, such as interest,
up-front cost of acquiring assets or creating tangible depreciable
assets, expenditure that relates to Government grants, and some
employee-related expenditure.
Eligible expenditure will be capped at $120m unless approval is
obtained to exceed this threshold.
To claim the credit for the 2020 income year your clients must
file their income tax return on time (within one year after the due
date for filing) and must lodge their R&D return via myIR
within 30 days of filing the income tax return. For the 2021
and future years, an in-year approval process will be
introduced.
Businesses that receive a Callaghan Innovation Growth Grant
during the year will not be eligible for the R&D tax credit,
nor are businesses which are, or are controlled by or associated
with, a Crown Research Institute, DHB or tertiary education
organisation.
If your clients are currently undertaking R&D in their
business, or thinking of doing so in the near future, we encourage
you to find out now if your client is eligible for the R&D tax
credit and start collating the necessary records to support the
claim. The
Knowledge Shop team can assist you with determining if your
clients are eligible.