The Labour Government in New Zealand has released updated details on the new Research and Development (R&D) tax incentive scheme, which will be available from the 2019/20 tax year (in New Zealand the tax year is from April – March).
The proposed changes will greatly benefit both larger and smaller businesses that are performing research and development activities in New Zealand.
Key features of the scheme are: (all amounts noted are in NZD)
- The main requirement for eligibility is whether the R&D activity has been conducted using a "systematic approach". The purpose of the R&D must be to acquire new knowledge, creating new or improved processes, services or goods which seek to resolve "scientific or technological uncertainty". If the scientific or technological uncertainty can be resolved with publicly available information or be deduced by a component professional in that field, then the expenditure is not eligible.
- Eligible spending includes R&D spent on salary and wages, depreciation, cost of consumables and overhead.
- All businesses, regardless of legal structure, are eligible.
- Recipients of the Callaghan Innovation Growth Grants (for the same income year) are ineligible.
- The minimum spend on eligible expenditure is $50,000.
- A 15% tax credit will be available regardless of legal structure.
- The cap on eligible spending is $120M per year. An extension may be able to be applied on a case by case basis if the IRD will derive substantial net benefit to New Zealand.
- The cash out (based on the existing system) still applies where a payment of $225,000 (on expenditure of up to $1.7M) will be paid out in each tax year. Any losses incurred above this amount are available to offset income in future years (i.e. any cash out amounts are not available to offset against income in future years). The IRD may look at reviewing the cash out mechanism in the future.
- To be eligible for a cash out, the entity must be a New Zealand resident company (not listed) and not a tax resident in another country. In addition, the "wage intensity test" must be met where 20% of the company's wages and salary cost must be on R&D (including 66% contracted R&D).
Ownership of R&D
- The business which conducts the R&D must own the R&D, however another company within the same group can own the R&D, as long as there is a double tax agreement with New Zealand.
- R&D costs which are capitalised and create a intangible asset will be ineligible, therefore to claim the credit, costs would need to be expensed until the asset was created.
Whether you are an established business or a start-up it is key that you appropriately document your R&D activities and spend to take advantage of this scheme.
How TMF Group can help
TMF New Zealand provides a full range of corporate services to help clients reduce risks, achieve compliance, control costs and simplify operations. For more information on the New Zealand Tax Credit Incentive scheme or doing business in New Zealand, talk to us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.