Research and Development Tax Incentive Discussion Document

Proposal

The Government is proposing a system of 12.5% tax refunds on company investment in R&D for expenditures over $100,000 a year. The system would work in tandem with the R&D grants administered by Callaghan Innovation and would replace the current Callaghan Growth Grants. There are pros and cons to moving away from Growth Grants to an R & D tax credit.

It is of real importance that we look at how this can best benefit industry and move towards a higher-innovation economy. There’s no question that New Zealand has got to improve our share of R&D - currently, it’s 1.28 per cent of GDP, compared to an OECD average of 2.38 per cent.

But of course, it’s always a question of what we do and how we do it. We need to make sure whether a tax incentive system would be easier or harder to navigate than the current system of Growth Grants, especially for small to medium-sized businesses.

The feedback that ExportNZ and ManufacturingNZ have received from their Chief Technology Officers Group (CTO) is that many were happy with the current scheme and it was contributing significantly to their ability to increase investment in R & D. It is worth noting the things that the CTO collectively liked about the scheme in case some of the elements can be replicated in the R & D tax credit scheme.

• Low transaction cost to participate in the Growth Grant scheme. Once you met the criteria there was little administrative complexity to contend with.
• Essentially pre-approval of what you would be reimbursed for – along with regular payments which is good for cash-flow. So, good predictability and good cash-flow.

It could also be argued that...

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