Updates to the R&D Tax Incentive
Updates for the R&D tax incentive scheme for 2019 have been released by the New Zealand Labour Government.
A summary of the eligibility criteria is below:
- The R&D activity must be conducted using a “systematic approach”. The purpose of the R&D must be to acquire new knowledge and create new or improved processes, services or goods.
- The R&D must attempt to resolve “scientific or technological uncertainty”. If the scientific or technological uncertainty can be resolved with publicly available information or be deduced by a component professional in that field, then the expenditure is not eligible.
- Eligible spending includes R&D spent on salary and wages, depreciation, cost of consumables and overhead.
- All businesses, regardless of legal structure, are eligible.
- Recipients of the Callaghan Innovation Growth Grants (for the same income year) are ineligible.
- The minimum spend on eligible expenditure is $50,000.
- A 15% tax credit will be available regardless of legal structure.
- The cap on eligible spending is $120M per year. An extension may be able to be applied on a case by case basis if the IRD will derive substantial net benefit to New Zealand.
- The cash out (based on the existing system) still applies where a payment of $225,000 (on expenditure of up to $1.7M) will be paid out in each tax year. Any losses incurred above this amount are available to offset income in future years (i.e. any cash out amounts are not available to offset against income in future years). The IRD may look at reviewing the cash out mechanism in the future.
- To be eligible for a cash out, the entity must be a New Zealand resident company (not listed) and not a tax resident in another country. In addition, the “wage intensity test” must be met where 20% of the company’s wages and salary cost must be on R&D (including 66% contracted R&D)
Ownership of the R&D:
- The business conducting the R&D must also own the R&D. However, another company within the same group can own the R&D, as long as there is a double tax agreement with New Zealand.
- R&D costs that are capitalised and create an intangible asset will be ineligible. Therefore, to claim the credit, costs would need to be expensed until the asset was created.