New help coming for R&D initiatives
The recent Budget delivered a surprise aimed at encouraging productivity through research and development.
R&D is an area in which the New Zealand economy is lagging behind other OECD countries. It translates into lost future opportunities for us.
The Budget recognises that "small innovative businesses" that invest heavily in R&D incur losses.
These losses will soon be able to be cashed up subject to certain limits. This new growth measure will come to the aid of small, technology intensive start-up businesses which traditionally experience long periods of losses and cashflow difficulties before they begin to make a profit.
Generally companies experiencing tax losses are able to carry them forward to offset future taxable profits. New Zealand tax rules restrict the ability of companies to carry forward these losses by requiring shareholder continuity tests to be met. This is designed to ensure that only those shareholders who bore the economic cost of the loss benefit from their use.
The R&D initiative will likely come as welcome relief for small businesses engaging in R&D activities.
As now former revenue minister Peter Dunne acknowledged, that these businesses often become cash strapped as investment in R&D can be crippling for small ventures. The Government wants to ensure they are not disadvantaged as a consequence.
The eligibility criteria for the new initiative has not yet been set but will be outlined in an issues paper which is due to be released this month. It is thought the new initiative will be a carefully bonded scheme and available only to a small number of qualifying businesses.
It is understood that the scheme will not be available to established companies or any subsidiary companies they may establish in future to take advantage of the scheme.
Interestingly the scheme is not unlike the 15 per cent tax credit for R&D introduced by the previous government albeit on a significantly smaller scale.
New Zealand has a history of low spending on R&D and any stimulation of activity could result in developments that positively impact the New Zealand economy for years to come.
Greg Harris is a specialist tax partner in the Hamilton office of Deloitte. Email email@example.com