Parliament

Gordon Campbell | Parliament TV | Parliament Today | Video | Questions Of the Day | Search

 

R&D Backgrounder

In response to a variety of requests here is a simplified backgrounder: What is the problem?

Businesses want to be able to claim 100% of their Research and Development (R&D) costs as a deduction in their tax returns. At the moment most businesses are claiming this 100% but the rules are very unclear and the penalties for getting it wrong are very high.

Businesses would like the government to provide more certainty. Some businesses argue that they should be able to claim over 100% deductions, that is, they could get more than $1 of deduction for every $1 spent. What are the rules?

R&D is a continuum of activity covering research, development and getting the product into market.

 Research expenditure is usually deductible for tax purposes.
 Development expenditure is usually not deductible for tax purposes. In this case, the expenditure is capitalised, that is, it is treated as an asset in the balance sheet.
 Marketing costs are deductible. In order to ensure that they have maximised their immediate deductions, businesses tend to define all (or most) of their costs as research or marketing. They put as little as possible into the development category.

What is the black hole? If a capital asset has been created it is usually possible to claim depreciation, that is , claim the expenditure as a deduction over a period of years rather than in one chunk in the year it was incurred.

If this is the case, then there is a delay in the deduction being claimed but it is a timing difference not a permanent difference. A "black hole" is a term used to describe development expenditure which is not deductible but which does not get capitalised to a depreciable asset.

Such expenditure will never be deductible because it does not qualify for an immediate deduction and there will never be a claim for depreciation. Obviously businesses try to minimise the amount of expenditure falling into black holes.

What is the Labour/Alliance government proposal? Labour/Alliance are not proposing to allow 100% deductibility. Mallard has 'pre-announced' that they are going to require businesses to use the same rules for accounting and tax purposes.

If something is deducted for their accounts then it will be able to be deducted for tax purposes. But if it has been capitalised for their accounts then this is the way it must be treated for tax purposes.

This means that the rules set out by the Institute of Chartered Accountants (ICANZ) become the rules for tax. This policy is different from Labour's pre-election promise of 100% deductibility for R&D. It is also different from the Budget announcements of Government grants for R&D.

What is wrong with this proposal?
 The proposal lacks certainty as the ICANZ rules may be very hard to apply to specific situations. This uncertainty is risky because of the high tax penalties for getting it wrong.
 Many taxpayers will be forced to reduce their deductions under this rule. Accounting standards (and the taxpayer's bank) require conservative treatment, that is, "if in doubt don't". They will not be able to claim 100% as at present because this is not what they are doing in their accounts.


Annabel Young MP
National Party Spokesperson on Revenue National Party List MP responsible for Wellington Central and Rongotai
Do you want to be added to my tax email group?
Have a look at my tax web-site http://www.tax.org.nz


© Scoop Media

 
 
 
Parliament Headlines | Politics Headlines | Regional Headlines

Gordon Campbell: On Bridges’ ‘Meth Crooks’ Leadership Failure

Back in June, Bridges publicly accepted that Housing NZ had got it wrong, and that the National government had acted upon bad advice.

Now, you’d think this admission would create a broad bi-partisan basis for compensation to those families who had been unfairly evicted, at considerable cost and emotional distress. Some people had lost their possessions in trying to meet the expense of the upheaval.

Not everyone felt so compassionate. More>>

 

Multimedia & Transcript: Acting PM's Press Conference

Winston Peters, Acting Prime Minister while Jacinda Ardern is in New York for the UN Leaders' Week, held a short press conference Monday after chairing this week's cabinet meeting. More>>

General Assembly: Ardern Rejects Trump Call For War On Drugs

New Zealand will not be signing the United States' document calling for global action on the war on drugs, Prime Minister Jacinda Ardern says. Ms Ardern is in New York for the United Nations General Assembly this week, along with about 140 other world leaders. More>>

ALSO:

Pay Equity: Cabinet Funds Deal For Oranga Tamariki Social Workers

The Minister said that an agreement in principle has been reached between Oranga Tamariki and the PSA on a settlement worth $114.6m over five years. More>>

ALSO:

Hunting v Pest Control: Tahr Control Needed To Protect Alpine Habitats

A cull of introduced Himalayan tahr browsing conservation land in Kā Tiritiri o Te Moana/ the Southern Alps is needed to protect special alpine plants and their habitats, Conservation Minister, Eugenie Sage said. More>>

ALSO:

Protest At Sea: Judge Discharges Greenpeace Activists

The judge today discharged Norman and Howell without conviction, saying the cumulative consequences of a conviction would be out of proportion to what was “low level” offending off the Wairarapa coast in April 2017. More>>

ALSO:

No Reshuffle: Meka Whaitiri Removed As A Minister

Meka Whaitiri will be removed as a Minister with immediate effect... The decision was made after receiving a report into an incident that occurred on 27 August in Gisborne, involving Meka Whaitiri and one of her staff. More>>

ALSO:

 
 
 
 
 

LATEST HEADLINES

  • PARLIAMENT
  • POLITICS
  • REGIONAL
 
 

InfoPages News Channels