Thursday, March 14, 2019
New Zealand's Inland Revenue Department has released draft guidance on The Taxation (Research and Development Tax Credits) Bill, which would introduce a new tax incentive for businesses conducting research and development.
The draft guidance is intended to explain the eligibility criteria and what businesses need to do to avail themselves of the tax relief measure.
The new Research and Development Tax Incentive will feature a credit rate of 15 percent. The tax credit is proposed to operate with a threshold and a cap. In general, to be eligible for a tax credit, the Bill stipulates that a person must spend at least NZD50,000 (USD34,400) on research and development in a given year. The maximum amount of expenditure that is eligible for a tax credit is NZD120m, unless a person has obtained the Commissioner's approval to exceed the cap.
The tax credit that a person receives will be equal to 15 percent of their eligible expenditure. Eligible expenditure is expenditure incurred on an R&D activity, and includes things like employee salaries, consumables used in the R&D process, and depreciation of assets used in the R&D.
Where expenditure is incurred on an R&D activity performed in the course of commercial production, the amount that may be claimed is limited to the additional expenditure incurred because of that R&D activity.
Primarily, the tax credit is only available for expenditure on research and development that occurs in New Zealand. Nevertheless, up to 10 percent of an R&D claim can be for expenditure incurred on a research and development activity that occurs outside New Zealand.
Starting from April 1, 2020, persons wanting to receive a tax credit will be required to seek approval that their activities meet the eligibility criteria in the year they are undertaking or contracting for those research and development activities. If granted, this approval will be binding on the Commissioner.
A person who expects to spend more than NZD2m on research and development, or is part of a group of companies that expects to spend more than NZD2m on research and development in a given year, can opt out of the general approval process.
A person who opts out of the general approval process must notify the Commissioner of their intention to opt out, and is required to submit an R&D certificate alongside their R&D supplementary return. An R&D certificate contains confirmation from an R&D certifier on a number of issues, including that a sample of the person's eligible expenditure calculation was reviewed by the R&D certifier and the sample was calculated consistently with the rules in proposed subpart LY (Research and development tax credits).
When a person's tax credits are more than their income tax liability, the tax credits are refunded up to a maximum of NZD255,000, provided the person meets certain criteria, or are carried forward.
The bill received its first reading in parliament on November 1, 2018, and is currently being considered by Parliament's Finance and Expenditure Committee. If approved, the legislation will enter into force from April 1, 2019.