Jane Glover Barrister – Mediator – Adjudicator

The government wants to give money away: r&d tax incentives

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I just went to a talk on tax, and it was uplifting.  I mean, it was still a seminar, but in terms of fun factor I would rate it somewhere between listening to Mike Hosking (pretty bad) and Australian Lego Masters (oddly quite fun to watch with the kids).

The speaker was Dr Tim Benbow, who is a partner at EY and is part of its R&D tax incentive team.  And he did actually open his talk by saying that the government wants to give money away, which is a great way to engage an audience if you can swing it. 

Even better, he said that this new tax incentive scheme came into force in May this year, but it is backdated to the start of the 2019/2020 income year, so companies might already be clocking up tax benefits unaware.  Unlike grant schemes, there is no need to apply in advance (companies have 30 days to submit a supplementary form after filing their ordinary tax returns), so some organisations might well discover some big tax dollars hiding down the back of the IRD’s sofa. 

Under the scheme, eligible business are entitled to a 15% credit for qualifying R&D expenditure.  By global standards, 15% is generous, and the government has also signalled that it will be taking a fairly lenient view as to the type of R&D expenses that can be claimed.  Apparently, the budget for this is around $1.4 billion over four years. 

According to Dr Benbow, in Australia the incentives range from 8% to 16%, and in the UK it is around 11-12%.  Getting back $150,000 of a million dollar R&D spend seems much more attractive than getting back $80,000.  The plan, of course, is to entice both New Zealand and global companies to carry out more of their R&D work within New Zealand.

In order for the work to qualify as R&D, an applicant must be attempting to resolve a matter of scientific or technological uncertainty.  In some cases – especially in the IT sector – it might be difficult to show that the work qualifies.  If an applicant’s operations involve true experiments, tests, trials, and failures as well as successes, there is a greater likelihood that it will be eligible.  Commercial uncertainty, in the sense that consumers might not like a product or app and it might flop, is not enough.

I won’t go too much further into the details of the scheme here.  You don’t want tax advice from an IP litigator.  Plus, as a friend commented afterwards, Dr Benbow nailed the brief in terms of convincing us that it was sufficiently complex that you really need expert advice. 

In big picture terms though, is the scheme sustainable? Dr Benbow noted that New Zealand has had an R&D tax incentive scheme before, in 2008/2009, which promptly disappeared with a change in government. But it was still quite a novel concept back then.  It is much more mainstream now, with more than 50 countries offering incentives of this kind.  And encouragingly, there is some indication of cross-party support for the scheme in New Zealand, at least in principle.

I think it is really promising in terms of the benefits to the country, as well as to individual scientists and to the companies themselves.  It might just be the nudge that companies need to bring a slightly more adventurous project off the backburner and see if it can be turned into exciting reality.

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Jane Glover

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Jane Glover Barrister – Mediator – Adjudicator

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