Refundability supports R&D out of the gate

The Coalition Government has set the ambitious target of raising New Zealand’s R&D expenditure to 2% of GDP over 10 years. Photo: The Manufacturers' Network
The Coalition Government has set the ambitious target of raising New Zealand’s R&D expenditure to 2% of GDP over 10 years. Photo: The Manufacturers’ Network

The Government has announced improvements to its R&D Tax Incentive to ensure financial support reaches more businesses investing in new ideas, Minister of Research, Science and Innovation Megan Woods says.

“Right now, many businesses are investing in research and development but because they’re yet to turn a profit – which is typical for the first few years of a new business – their access to tax credits under the Government’s $1 billion R&D scheme is limited,” Woods says.

“We’re turning that around, with broader cash entitlements to support eligible R&D for businesses in loss, because we know some of our most effective R&D activity is delivered by start-ups and pre-profit businesses.

“I want New Zealand innovators to have the best possible start so they can increase their genuine investment in R&D and get out in front of their global peers.”

The Minister’s comments follow an event at Orbica HQ in Christchurch’s Innovation Precinct this morning where she announced proposed changes to give better access to the R&D Tax Incentive for loss-making and pre-profit businesses.

The Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill, introduced to Parliament in late June, means more businesses claiming the R&D Tax Incentive will be eligible for refunds of their R&D tax credits from the 2020/2021 tax year onwards.

A Tax Incentive in the form of a tax credit benefits businesses in profit, but without refundability it is of limited use for pre-profit businesses or businesses in loss, she says.

Under the Government’s plan, refundable tax credits would generally be available up to the amount of payroll tax paid by the business in the same year. At the moment a pre-profit firm in year one of the scheme would only be able to receive a maximum pay-out of $255,000 under the measures for limited refundability.

“The proposed changes aim to simplify this to ensure a pre-profit firm is able to get the financial support it needs to innovate and succeed,” Woods says.

For example, with plans for refundability, a pre-profit start-up investing $2 million in eligible R&D would be entitled to get back $300,000 of its investment in cash – provided it met the broader conditions.

The Coalition Government has set the ambitious target of raising New Zealand’s R&D expenditure to 2 per cent of GDP over 10 years.

“To meet this goal, we need to get behind all of our businesses,” says Woods.