Budget 2017 reduces tax burden on innovation

Proposals released to allow tax deductions for black hole feasibility expenditure
Tax changes of one form or another can usually be expected to coincide with the release of the Budget each year. This year, we have seen the release of a Government discussion document Black hole and feasibility expenditure proposing changes to claw back the negative consequences for business from the Supreme Court decision in Trustpower[1] last year.

The discussion document puts out proposals for consultation which are designed to reduce the extent of black hole expenditure (business expenditure which results in an economic cost to a taxpayer for which a deduction is not available either immediately or over time).

Deloitte Tax Partner Patrick McCalman notes “While the discussion document is light on some of the specifics, there is a sense of a real commitment by the Government to address the issue. Once new laws are in place they should will go a long way to removing both the uncertainty and distortions that theTrustpower decision has resulted in. In addition to resolving the issue of feasibility, there will be a new rule allowing deductions to be taken for costs associated with depreciable projects that had been committed to but have subsequently been abandoned.”

“Overall, the proposals have to be viewed as positive for business and remove the economic distortions that the decision in Trustpower has created.” However there is still some uncertainty for businesses as the discussion document does not provide any commitment to an application date for the new rules” says Mr McCalman. “Positively, however, the Government has signalled it is open to discussion on this point”.

Public submissions can be made on the discussion document until 6 July 2017.

[1] Trustpower Ltd v Commissioner of Inland Revenue [2016] NZSC 91

For more commentary and analysis from Deloitte on today’s Budget announcement go towww.deloitte.com/nz/2017budget.

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