19 May 2023

In a significant move to bolster the growth and protection of New Zealand's domestic game-development sector, the Government has announced the introduction of a 20 percent rebate for video game developers in Budget 2023.

This initiative includes an allocation of $160 million, demonstrating the Government's recognition of the sector's rapid growth and its substantial contribution to New Zealand's GDP. Plans show individual studios will be able to access up to $3 million in Government rebate funding per year.

Supporting the technology sector

The introduction of this rebate aligns with the Government's commitment to enhance research and development (R&D) expenditure, with the aim of reaching 2 percent of GDP. In an ongoing effort to effectively and efficiently allocate government funds, the agencies responsible for administering R&D schemes and tax incentives have actively sought feedback from the sector. An example of this proactive approach is the recent implementation of an in-year Research and Development Tax Credit payment, distributed throughout the income year.

Acknowledging software developers' challenge

Recognising the unique challenges faced by software developers under existing R&D tax incentive schemes and other government incentives, such as project grants through Callaghan Innovation, a specific rebate for game developers has been introduced.

These existing schemes struggled to encompass software development activities within their definitions of R&D, which typically favoured more easily demonstrable technological or scientific concepts. This dedicated rebate for game developers aims to address this issue and provide targeted support to a sector that greatly contributes to the country's technological advancements.

Balancing eligibility and administration

Implementing a new government initiative targeted at a specific sector presents challenges in determining eligibility, administering the scheme, and ensuring effective evaluation. Striking a balance between broad eligibility and targeted support is crucial.

It is important to avoid burdensome compliance requirements that could undermine the value proposition for innovative businesses, particularly early-stage ventures with limited time and financial resources. To overcome these obstacles, the Government must design a rebate scheme that is easily understood, simple to administer, and minimises compliance costs. The Government's commitment to consult with the sector is an encouraging step toward achieving this balance.

Final thoughts

The introduction of the 20 percent rebate for video game developers marks a significant milestone in the government's support of New Zealand's game-development sector. With a generous allocation of $160 million, this initiative aims to foster growth, protect domestic developers, and strengthen the country's technological landscape.

The Government's intention to consult with industry experts and stakeholders underscores its commitment to achieving a well-designed, targeted rebate scheme that efficiently delivers the intended benefits while minimising administrative burdens. This initiative holds great promise for the future of New Zealand's game-development sector and we welcome the Government’s stated intention to consult with the sector and its advisers to achieve the balance between supporting access to the rebate and ensuring its use to achieve the intended outcomes.

For more information please get in touch with our tax consulting team.