Have Your Say: Research and development tax incentive

You may be aware of the upcoming changes proposed by the Government in respect of a Research and Development Incentive Scheme, effective from 1 April 2019. Here is the link to the relevant documents released by the Government, including the original discussion document and documents on the transition from Callaghan Innovation Growth Grants. The key changes proposed are outlined at the bottom of this email.

The changes will have an impact on the cash flows of New Zealand start up and growth businesses and it is important that we provide feedback to ensure any changes are designed to achieve the objective of growing the R&D spend in New Zealand. We also envisage that any ambiguity and uncertainty will impact the ability of New Zealand entities to raise capital and have valuation implications.

EY has been working to ensure that the start-up and growth sector is adequately represented in the submission phase of the project. EY’s objective is demonstrate to the government that there is strong interest in the legislation changes from the sector by providing a strong response to their discussion documents. The deadline for submissions is 1 June 2018.

Canterbury Tech members may also with to prepare their own individual submission. EY has prepared a template submission that can easily be adapted by entities that covers what EY believes to be the main issues. The template is designed to be tailored by individual entities to fit their circumstances.

EY are running a couple of workshops that run through the changes in more detail and provides an opportunity to discuss any questions that you may have. These are held at EY offices in Auckland, but there will be an opportunity to dial in remotely.

These are proposed for:

–          Wednesday 23 May at 1pm

–          Tuesday 29 May at 10am

In addition EY is creating a database for future correspondence on R&D matters as they arise.

Our ask of you is: 

  1. Complete a submission. Feel free to use the attached template
  2. Circulate this email encouraging the entities you are associated with to also make a submission
  3. Respond to andrew.moorby@nz.ey.com if you would like to attend one of the sessions (and whether you will attend in person or remotely)
  4. Email andrew.moorby@nz.ey.com with contact details of any parties that would like to receive ongoing communications in respect of the R&D tax incentive scheme

Key aspects of the proposed changes:

–          Replacement of the Callaghan Growth grants with a tax credit of 12.5% based on eligible expenditure for entities doing R&D in New Zealand

–          To be eligible entities must:

o   Be located in New Zealand and be carrying out R&D in New Zealand

o   Satisfy the test of being in business

o   Claim R&D that relates to your business or intended business

o   Have control over R&D activities

o   Bear the financial risks of the R&D activities

o   Effectively own the results of the R&D

–          Minimum eligible R&D expenditure proposed at $100,000

–          R&D would be defined as:

o   Core activities: those conducted using scientific methods that are performed for the purposes of acquiring new knowledge or creating new or improved materials, products, devices, processes and services; and that intended to advance science or technology through the resolution of scientific or technological uncertainty

o   Support activities; those that are wholly or mainly for the purpose of, required for, and integral to, the performing of the activities defined as core activities

–          Provisions for some overseas R&D work

–          Specific defined expenditure is ineligible

–          Current proposals are that the tax credit will be not refundable; i.e. loss making companies will not receive a refund. The current R&D credit tax back for loss making entities will continue in the short term but may be reviewed as part of future policy work

David Winter | Senior Manager | Tax

Ernst & Young Limited