New Research And Development Tax Credit Coming!

Brad Phillips
Principal
03 211 3782
021 317 151
bradp(at)mdp.co.nz

Craig McCallum
Associate
03 928 5158
027 698 9511
craigm(at)mdp.co.nz

Kathryn Ball
Consultant
03 211 3774
027 454 8414
mailto:kathrynb(at)mdp.co.nz

On 25 October 2018 the Government introduced the Taxation (Research and Development Tax Credits Bill) to Parliament.
This Bill proposes to introduce a tax credit to incentivise business to invest in research & development (R&D).
The Bill outlines who is eligible for an R&D tax credit. The key requirements are that a person:

  • performs a core research and development activity (“core activity”) in New Zealand, or a contractor performs a core activity on their behalf; and
  • carries on a business through a fixed establishment in New Zealand, and
  • has R&D controlling rights over their research and development activities (“R&D activities”).
  • It is also proposed that the person must satisfy one of the following to be eligible:
  • the person owns the results of their R&D activities
  • the person is able to use the results of their R&D activities for no further consideration, or
  • a company in the person’s corporate group owns the results of the person’s R&D activities, and the company is resident in a jurisdiction with which New Zealand has a double tax agreement.

There must be a core activity for an R&D activity to be eligible. A core activity is an activity that:

  • is conducted using a systematic approach
  • has the purpose of creating something new, and
  • has the purpose of resolving scientific or technological uncertainty.

An activity that is not a core activity will only be eligible if it is in support of a core activity. Some activities are explicitly excluded from being core or supporting activities.

To be eligible a person who qualifies must spend at least $50,000 on R&D in a given year. The maximum amount of expenditure that is eligible for a tax credit is $120 million, unless the person has been given approval from Inland Revenue to exceed the cap. The amount of the tax credit is equal to 15% of the R&D expenditure.

R&D expenditure includes employee salaries, consumables used in the R&D process and depreciation of assets used in the R&D process.

The tax credit will apply from the 2019/2020 income year.

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