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 Last Night’s Leaders Debate

Do political debates change voter intentions, and cause voters to switch sides? According to a 2019 Harvard Business School study conducted across 61 elections in nine countries involving 172,000 respondents, the answer would seem to be a resounding “No.” Political debates have little effect on voter behaviour, let alone on election outcomes. Crucially, the limited effect they do have does not involve a change in voters’ policy preferences... More>>

 

Government: More Border Exceptions For Critical Roles

The Government has established class exceptions for border entry for a limited number of veterinarians, deep sea fishing crew, as well as agricultural and horticultural machinery operators. “Tight border restrictions remain the backbone of the Government’s ... More>>

ALSO:

PM: Auckland At Bolstered Level 2, Rest Of Country Provisionally At Level 1

Pandemic alert levels for the whole country have been reviewed by Cabinet and Prime Minister Jacinda Ardern is announcing whether restrictions will be eased. More>>

ALSO:

Labour: Supporting Workers And Valuing Their Contribution

Making sure working New Zealanders are safe, healthy and that their contribution to the economy is valued is at the heart of Labour’s Workplace Relations Policy.
“This is Labour demonstrating its commitment to helping working New Zealanders by increasing sick leave, raising wages, protecting them while they are at work, growing jobs and investing in the economy,”... More>>

ALSO:

PREFU: Economy Doing Better Than Forecast

The Pre-election Economic and Fiscal Update released today shows that the near-term economic recovery has been stronger than the Treasury and many economists predicted at the May Budget, as the economy bounced back strongly out of lockdown... More>>

ALSO:


Electoral Commission: Candidate And Party Lists Released

17 registered political parties and 677 candidates will be contesting the 2020 General Election Nominations have now closed and the Electoral Commission has released the electorate and party list candidates for 2020 online at vote.nz . Advance voting ... More>>

National: Plan To Restore NZ’s Prosperity

National’s Economic and Fiscal Plan carefully balances the need to invest in infrastructure and core public services while also reducing tax pressure on Kiwi families and businesses. National Leader Judith Collins and Finance spokesperson Paul Goldsmith unveiled National’s ... More>>

ALSO:

NZ First: Party List

New Zealand First has a proven twenty-seven-year history of bringing balance and common sense to our government. Amid the continued setbacks of COVID-19 restrictions, New Zealand First has once again sustained its profile by selecting a strong team ... More>>

Election: Arriving Travellers In Isolation To Be Able To Vote By Telephone

Up to 5,000 people in managed isolation or quarantine will be able to vote by telephone in the general election and referendums after an amendment to electoral regulations last week. Chief Electoral Officer Alicia Wright says the Electoral Commission sought ... More>>

National: Investing In Our Children’s Future

A National Government will prioritise lifting achievement for all New Zealand children, no matter their background or ability, National Party Leader Judith Collins and National’s Education spokesperson Nicola Willis say. “Parents just want what’s best for ... More>>

 
 
 
 
 
 

LATEST HEADLINES

  • PARLIAMENT
  • POLITICS
  • REGIONAL
 


 

InfoPages News Channels