RSM New Zealand

Make the most of the new Research & Development (R&D) Tax Incentive program

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New Zealand’s recently introduced R&D Tax Incentive program offers some of the most generous R&D funding benefits available across Asia Pacific.

This tax incentive program will play a major role over the next 10 years in lifting New Zealand business R&D spend to an ambitious 2% of GDP (up from 0.63%) by the year 2030. It will also assist in countering the phasing out of the existing Callaghan Innovation Growth Grants due to end on 31 March 2021.

Overview of key points includes:

  • 15% tax credit rate per year (should certain criteria be met)
  • A minimum R&D spend of $50,000 per year
  • $120 million cap on eligible expenditure
  • Applies from 1 April 2019 for businesses undertaking eligible R&D activities

Refund parameters:

  • In the first year there is a refund cap of up to a maximum of $255,000 – reflective of an R&D spend of $1.7 million (refundable provided certain criteria are met)
  • R&D tax credits not refunded are carried forward (subject to shareholder continuity rules applying to losses as per the Income Tax Act 2007)
  • Tax credits applied as refunds can be coupled with the R&D Tax Loss cash-out regime which can result in up to 43% refunds on R&D spend
  • In the first year the maximum amount of R&D tax refund available is $255k + $476k R&D tax loss refund cap
  • Special rules apply to the management of tax loss cash-outs in future tax years

Defining R&D eligible activities:

To meet R&D tax incentive criteria, R&D projects must contain at least one ‘core’ R&D activity. Factors determining eligibility will include whether a business can confirm if:

  • Proposed activity is included/excluded under schedule 21 of the Income Tax Act 2007
  • Eligible R&D activity is undertaken in/out of New Zealand (although eligibility is limited for work outside of New Zealand)
  • Material purpose of the activity will create new/improved knowledge, processes, services or goods, or resolve scientific or technological uncertainty
  • Work is undertaken in an organised and planned manner and is able to formulate and test possible outcomes

Note: R&D activity will not be ‘core’ if the knowledge required to resolve scientific or technological uncertainty is:

  • Publicly available, or
  • Deducible by a competent professional in that relevant field

Support in claiming Tax Incentives

Claiming R&D tax incentives is easy with the right advice and documentation. RSM is able to provide support in determining eligibility of opportunities to maximize additional tax credits and refunds enabling greater investment into your ongoing R&D program. The Government has committed $1 billion over the next four years, for this program. Speak to us now about establishing a correct governance and documentation process to take full advantage of this program.

Co-authored by Senior Accountant Brendan Rhodes. You can email Brendan brendan.rhodes@rsmnz.co.nz

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Authors

Lisa Murphy
Tax Partner - Auckland