Proposed R&D tax credits – back to the future?

In pursuit of its policy to encourage businesses to invest more in research and development (R&D), the Government has released a public discussion document on proposals for implementing tax incentives for R&D. The discussion document proposes the introduction of a tax credit for eligible R&D. The last Labour Government introduced what proved to be a short-lived R&D tax credit scheme, which was repealed by the following National Government when it came to power.

The document seeks feedback from the public on the following:

  • Which types of businesses should be eligible for R&D activities and expenditure;
  • What the minimum R&D expenditure threshold should be;
  • What the maximum cap on R&D should be; and
  • Accountability measures

It is proposed that the R&D tax incentive will be provided by way of a tax credit at 12.5% on eligible R&D expenditure from 1 April 2019. The credit will be non-refundable and will be able to be carried forward to credit against future tax liabilities. To be eligible, expenditure must be incurred in New Zealand, although some portion may be able to be incurred outside New Zealand if it relates to a research and development programme being predominantly undertaken in New Zealand. It is also proposed that the business’ imputation credit account would be credited with these tax credits, thus providing shareholders with the benefit of the R&D tax credits when a dividend is distributed.

For more information on how this proposal may affect your clients, talk to a member of your local tax team.