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Research and Development Tax Incentive Scheme

The Government has announced details of the new R&D tax incentive scheme that will be available from the 2019/20 income year. The scheme aims to incentivise increased R&D expenditure by providing taxpayers with a 15% tax credit on eligible expenditure between $50,000 and $120 million per year to offset against their tax liability for the income year. Where businesses use an approved research provider to carry out the R&D, the minimum spend does not apply, which will ensure that the R&D tax credit is available to even the smallest of businesses. For the 2019/20 income year certain businesses in a tax loss position will also benefit from the tax credit scheme and may receive up to a maximum value of $225,000 refundable R&D tax credits. Any excess un-refunded credits may be carried forward to offset tax in future years.

To qualify for the tax credit businesses must carry on a core R&D activity with the purpose of acquiring new knowledge or creating new processes, services or goods and resolving scientific or technological uncertainty. For example, a food production company working on a new type of jelly that is resistant to extreme temperatures, or a rice producer which has engaged an R&D contractor to product rice that tastes like chocolate. The definition of R&D in this scheme is broader than the definition from the 2008 regime and although still restrictive, this definition will ensure the tax credit can be accessed more easily across all sectors.

EXPENDITURE THAT IS ELIGIBLE FOR THE TAX CREDIT (TO THE EXTENT THAT IS INCURRED ON R&D) INCLUDES:

  • Amounts paid to employees
  • Depreciation loss for assets used in R&D and
  • Expenditure on goods and services used in R&D


EXPENDITURE RELATING TO CERTAIN ACTIVITIES IS SPECIFICALLY EXCLUDED FROM THE DEFINITION INCLUDING:

  • Minor improvements to existing software
  • Minor adaptation or improvement of existing processes, services or goods
  • Costs associated with patenting, licensing or similar activities.

Expenditure on software development is subject to additional restrictions. Expenditure on internal software developed is capped at $3 million but is excluded altogether if it relates to ordinary internal administrative functions of a business such as payroll or invoicing.

TO CLAIM R&D TAX CREDIT, BUSINESSES NEED TO:

  • File an R&D supplementary return within 30 days of filing their tax return for the relevant income year
  • Keep sufficient records to support their claim including receipts, contracts, project plans, test results and internal reports created at the time of the R&D activities
  • From the 2020/21 income year onwards businesses wanting to receive an R&D tax credit will be required to seek approval from IRD at the beginning of the year they are undertaking the R&D activities.


Please contact your usual Staples Rodway advisor if you would like to discuss any of the above.

Tags Taranaki Tax