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Credit: Ministry of Business, Innovation and Employment

Credit: Ministry of Business, Innovation and Employment

New Zealand releases R&D Tax Incentive discussion document for public consultation

On 19 April, New Zealand Government released the Research and Development (R&D) Tax Incentive Discussion Document for public consultation. The announced was jointly made by Research, Science and Innovation Minister Dr Megan Woods and Revenue Minister Stuart Nash.

Over the next six weeks, the Ministry of Business, Innovation and Employment (MBIE), with support from Inland Revenue and Callaghan Innovation, will be actively seeking feedback on specific aspects of this proposal to ensure the R&D tax incentive is fit for purpose.

Currently, New Zealand’s gross expenditure on R&D is 1.28% of GDP, lower than the OECD average of 2.3%. Business expenditure on R&D has been steadily rising, but at 0.64% of GDP it is well below the OECD average of 1.65%.

According to Minister Woods, the New Zealand Government is committed to increase business R&D expenditure to 2% of GDP over ten years.

Credit: Ministry of Business, Innovation and Employment

“Growing R&D is a key lever in diversifying the economy and creating new industries, businesses, and highly skilled jobs. Sustained increases in government investment will be important, but we will also need to see an increasing contribution from the private sector, specifically in businesses undertaking R&D,” Minister Woods said.

“This consultation document is the first step we will take together in achieving this ambitious goal,” she added.

For businesses, R&D is recognised as a key indicator of innovation, which enhances their ability to be successful in changing markets. More broadly, it provides for the diversification of the economy by encouraging new industries, and companies, new jobs and new ways of doing business.

Revenue Minister Stuart Nash says the R&D tax incentive will have broad reach across the economy, and will enable businesses of all sizes to undertake R&D.

An R&D tax incentive will offer a greater element of certainty to businesses. It will be a simpler process, and will open access to those that have either struggled to access support or have been shut out of the process in the past. The system should stand the test of time and give businesses the consistency and confidence they need to succeed.

“There needs to be a careful approach to establishing a tax incentive mechanism of this nature. The discussion document sets out the main design and technical features proposed for the R&D tax incentive,” said Minister Nash.

The proposed R&D Tax Incentive has been designed to provide easily accessible support to a broad range of businesses, and to do so in a fiscally responsible way while also maintaining trust and confidence in the tax system.

The proposed mechanism for providing the R&D Tax Incentive is a 12.5% tax credit on eligible expenditure will be available to business doing R&D in New Zealand. The credit will be available for eligible expenditure incurred from 1 April 2019. A business will need to spend a minimum of NZ$100,000 on eligible expenditure, within one year, to qualify for the Tax Incentive.

The full discussion document can be found here. The public can make submissions on the design settings and proposals for the R&D Tax Incentive on the MBIE website by 1 June.

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