The Budget allocates $1 billion over four years to finance tax incentives for more research and development (R&D) by Kiwi businesses. R & D has had something of a Stop Go course over the last decade with a range of measures deployed. These have included grants to off-set costs at the front end and tax credits to give some relief at tax time.
The Government will reintroduce a non-refundable R&D tax credit at 12.5%. It applies to businesses with eligible R&D spend of over $100,000 per annum (up to a maximum of $120 million) and will apply to expenditure incurred from 1 April 2019.
This is intended to supplement the existing (R&D) loss tax credit which lets innovative companies access their tax losses sooner so they have cash on hand to help grow their business. Eligible companies can cash out R&D loss tax credits for a given tax year. And the tax credit approach is balanced with R&D tax incentives in the form of innovation grants designed by MBIE and Callaghan Innovation.
Where this leaves the majority of Kiwi businesses is a bit of an unknown. $100,000 is a significant capital threshold for dedication to R&D in a given year. And R&D investments are long-term investments. Businesses need to be able to commit funds or attract investment for programmes that run over a number of years. Incentives for innovation need to be sustainable over time, with a long-term commitment from the Government. The proposals are still being worked over, and it remains to be seen how the rules will apply to software and what benefits can be obtained by businesses in a tax loss position.
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