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 Rapid Antigen Testing


National Party leader Christopher Luxon is being allowed to get away with murder. Luxon is not being challenged over his repeated assertions that the rest of the world has enjoyed ready access to rapid antigen tests (aka RATS) for a year, so why aren’t we? In fact, the reality across the Tasman for the past month has seen a colossal shambles unfold over (a) the availability and (b) the affordability of these tests. RATS have become a case of panic buying on steroids. Amid reports of price gouging, stock-piling, socially inequitable access and empty shelves...
More>>



 
 


Government: Announces Three Phase Public Health Response To Omicron
The Government has announced a three phase Omicron plan that aims to slow down and limit the spread of an outbreak, Associate Minister of Health, Dr Ayesha Verrall announced today. “Through the course of managing Omicron, we will be taking a phased approach. As case numbers grow both testing and isolation approaches will change in response... More>>


Save The Children: Thousands Join Call To Retain New Zealand’s Children’s Commissioner

More than 6000 Kiwis have joined Save the Children New Zealand’s call to retain the vital role of Children’s Commissioner, as the Government considers a new bill proposing major changes to the office, including the removal of a named Children’s Commissioner... More>>


Science Media Centre: Omicron Outbreak Would Move The Country To Red - Expert Reaction

The Prime Minister has announced if Omicron cases spread into the community, the country will move to the traffic light system's Red setting within 48 hours. Jacinda Ardern also mentioned there will be changes to the country's testing regime, with more use of Rapid Antigen Tests... More>>

Transparency International: New Zealand Retains Top Ranking In Annual Corruption Perceptions Index
New Zealand is once again ranked least corrupt in the world by Transparency International’s annual Corruption Perceptions Index. This year New Zealand’s score of 88 out of 100 is unchanged resulting in it being first equal with Denmark and Finland... More>>


TradeMe: Property Prices Increase By A Record 25% In One Year
In December, the national average asking price jumped by a quarter year on year, to reach a new high of $956,150, according to the latest Trade Me Property Price Index. Trade Me Property Sales Director Gavin Lloyd said last month’s national average asking price increase was the largest on record... More>>


Statistics: Departures Lift Border Crossing Numbers

The number of people crossing New Zealand’s border went up in November 2021, mostly due to an increase in departures, Stats NZ said today. There were 28,700 border crossings in November 2021, made up of 12,300 arrivals and 16,400 departures... More>>


 
 
 
 
 
 

LATEST HEADLINES

  • PARLIAMENT
  • POLITICS
  • REGIONAL
 
 

InfoPages News Channels