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R&D Incentive is ‘light on detail.’

Commentary from Praveen Mistry, Director of Tax Services at William Buck Chartered Accountants and Advisors New Zealand.

New Zealand government must release clear guidelines for the Research & Development tax regime to give more certainty to innovative companies.

The government announced in the national budget a reintroduction of the regime, with the aim of increasing R&D spending from 1.3 percent of GDP to 2 per cent of GDP, effective 1 April 2019.

Praveen Mistry Director of Tax Services at William Buck Chartered Accountants and Advisors says he welcomes the proposed regime, although it is light on details.

“We welcome this announcement in an effort to kick-start more innovation in New Zealand, where eligible R&D spending over $100,000 per annum and up to a maximum of $120 million will receive a 12.5% non-refundable tax credit,” he said.

“However, more guidance is necessary to give clarity to companies so they can start planning now to be globally competitive,” Mistry said.

Mistry says to increase certainty, work needs to be done on how the proposed rules will operate. “The most obvious area of uncertainty is how the rules will apply to software development expenditure and how it will be treated,” he said.

“With software development being a major part of R & D spending in the modern world, this should be a major part of the government’s plan,” Mistry says.

“Major reform has occurred in countries such as Australia, where ineligible activities – particularly in software- are considered ‘business as usual,” he says.

Mistry says the Government must also consider current issues and contexts. “The government must consider how existing companies with R&D spend will be treated, as well as if those companies who have received innovation grants from the Government will be eligible,” Mistry says.

“Furthermore, will overseas companies with local operations with R&D spend in New Zealand be able to access the incentive?” he says.

Mistry says the administrative function also raise questions. “In the past, the Inland Revenue Department administered the incentive. It is uncertain what the needs around this are,” Mistry said.

“The government’s announcement is a good start, particularly for many of our clients and companies that rely a lot on innovation and new technology development as part of their business,” he says.

“However, without clear guidance, the government runs the risk of missing an opportunity to increase innovation in a rapidly changing global market place,” he says.


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