Budget 2013: Loss-making start-ups to get R&D tax deduction boost
By Pattrick Smellie
May 16 (BusinessDesk) - Loss-making start-up companies which invest heavily in research and development will be targeted for tax breaks under a scheme announcing a range of small concessions and new initiatives to more effectively tax foreign-owned companies and property investors.
The scheme is intended to allow "small, R&D-intensive start-ups" to claim tax losses on research and development spending, which is currently not available. Eligibility criteria don't yet exist and will be defined in an issues paper next month, followed by public consultation.
The move accompanies a raft of more minor tax benefits for businesses, to allow deductibility against income of so-called "black hole" expenses such as the costs of annual meetings, stock exchange listing, resource consent applications, and patent applications that don't create a depreciable asset.
Other new tax measures announced in the budget include extensions to the thin capitalisation rules, which try to stop foreign investors loading New Zealand companies with debt to reduce their taxable income, and $6.65 million boost in funding for the Inland Revenue Department to target property investors.
The property tax move is expected to raise around $45 million in additional revenue annually, with efforts already undertaken under new funding arrangements since July 2010 already yielding an extra $110 million. An IRD issues paper released today proposes "to clarify the date of acquisition of land as it affects people who acquire land specifically to resell it and who are generally taxed."
The thin cap rules will be extended to cover a wider range of foreign investors, instead of applying only to those where one non-resident owns 50 percent or more of a New Zealand company, but the changes are only expected to raise an extra $20 million a year.
Revenue Minister Peter Dunne said small technology-intensive start-ups "tend to endure long periods in tax loss as a result of high-risk, up-front investment. The hit they take on R&D can be a real disincentive to undertaking it."
However, Thomas Pippos, chief executive at accounting firm Deloitte, warned to expect a carefully bounded scheme that would apply only to very small companies.
"It's a grant by another name," Pippos said.