New R&D tax incentives widely welcomed

The Government has announced a new tax incentive scheme designed to boost spending on research and development

The Government has announced a new tax incentive scheme designed to boost spending on research and development. It has lifted its incentive from 12.5 percent to 15 percent of eligible R&D spending and dropped the R&D spending threshold to $50,000 from $100,000.

Research, Science and Innovation Minister Megan Woods said $1 billion had been allocated to the new scheme, which was the result of extensive consultation with businesses and would have a higher rate, a lower threshold lower and be more inclusive than the scheme originally proposed.

“We pride ourselves on being an innovative country, but our spending on R&D lags behind many of our international competitors, and this government is not content to languish at the bottom of the table," she said.

“Work to increase R&D spending to two pe cent of GDP over 10 years was part of the Coalition Agreement between Labour and New Zealand First. This incentive puts us on the path to achieving this goal."

Revenue minister Stuart Nash said the new scheme struck a balance between including as many businesses as possible in the scheme, and upholding the integrity of New Zealand’s tax system.

“We have learned from international best practice how to incentivise R&D expenditure and retain trust and confidence in the tax system. The new policy meets the rigour of international schemes, and will support businesses to undertake genuine R&D."

The scheme has received widespread approval from industry organisations, but the National Party's research, science and innovation spokesperson Dr Parmjeet Parmar said it left many questions unanswered.

“The policy is short on details of compliance requirements and how Inland Revenue proposes to police the scheme. Without that information, businesses can only hope they comply and are keeping the right records. The scheme has to be more than just a bonanza for tax consultants," she said.

“It is essential that businesses have certainty over the details, especially since the government is determined to roll this out in 2019 while the Treasury had recommended a start in 2020 to allow proper policy implementation."

NZTech chief executive Graeme Muller said the new scheme placed New Zealand on par with other leading tech nations such as Israel and the Netherlands that have very similar rates and would help increase growth into the tech sector.

“The most positive change is the way R&D is being defined, removing a focus on scientific research to instead look at systematic approaches to solving scientific and technical uncertainty," he said.

“This and other work the government has undertaken with tech firms to understand how they operate has resulted in a set of rules that should support the growing software sector."

He said the success of the new scheme would depend on its implementation. "Tax guidelines always take a bit of time to bed in however with the government position being one of ongoing consultation and engagement we are confident that this is the start of a new era for R&D growth in New Zealand and further acceleration of the fastest growing sector."

The Manufacturers' Network was also supportive with CEO Dr Dieter Adam saying the new scheme represented "a positive step forward to getting an effective R&D policy which can help incentivise and support even more innovation in our manufacturing businesses."

MetService chief executive Peter Lennox said inclusion of state-owned enterprises (SOEs) in the scheme would increase the level of high quality R&D currently being undertaken across the SOE portfolio.

"New Zealand will realise the benefits from the untapped potential of SOEs to invest further in R&D activity, enabling them to maximise their innovation and contribution to New Zealand, leading to an increase in human, social and physical capital," he said.

"With enhanced R&D, SOEs will be better able to address the challenges the Government has identified as facing our country and ensure the intellectual property remains in state ownership. … With the inclusion of tax incentives, a level playing field is maintained whereby SOEs can compete with other businesses eligible to claim incentives."

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