RSM New Zealand

Could your R&D tax losses translate to a cash refund?

Turn hard work into a cash advantage - could your company’s R&D tax losses translate into a cash refund?

The new Research and Development “R&D” loss tax credit initiative has received Royal assent. The aim of the legislation is to allow  loss-making research and development start-up companies to “cash out” their tax losses arising from qualifying research and development expenditure. For income years beginning on or after 1 April 2015, a company may be able to cash out up to 28% of any tax losses associated with eligible R&D activity if the company:

  • is a tax resident of New Zealand
  • is in a tax loss position
  • has eligible R&D expenditure, and
  • has expenditure on R&D salary and wages of 20% or more of the company's total salary and wages.

The amount of losses that can be claimed as a tax credit will be restricted to the lesser of the company's:

  • net loss for the year x 28%, or
  • total R&D expenditure for the tax year x 28%, or
  • total R&D labour expenditure for the year x 1.5 x 28%.

The maximum R&D loss tax credit for  the 2015/2016 income year is $500,000 i.e. a value of $140,000 ($500,000 x 28%). This threshold cap is expected to increase over the following years. The above provides a high level overview of the rules and if you think this may be relevant to your company, specific tax advice should be sought. Similar regimes in Australia and Europe have proved popular with start-up enterprises who can often find themselves cash starved at the beginning of a project. Given the potential cash advantage, onus will be on the taxpayer to maintain adequate documentation and supporting reports to support any R&D loss tax credit claimed.

Sound interesting? For more information, to see if your company is eligible or for advice on how to register or support a claim, contact us.

Acknowledgement to Niamh Dunne, Senior Tax Aviser on secondment from Ireland, for contribution to research and preparation of the above.

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Authors

Galina Bell
Tax Principal - Auckland