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Inland Revenue

Tax Policy

PUBLISHED 14 November 2000

Tax treatment of R&D expenditure - discussion paper

The Government today released a discussion paper on a proposal for clarifying the tax treatment of research and development expenditure. This consists of clarifying the capital/revenue boundary by aligning tax law on R&D with accounting practice, so expenditure that is immediately written off for accounting purposes is also immediately deductible for tax purposes. Submissions close on 26 January.

Hon Dr Michael Cullen
Minister of Revenue


Govt calls for submissions on R&D

"The proposal in the discussion paper the Government is releasing today would make all research expenditure and most development expenditure immediately eligible for tax deduction," Revenue Minister Michael Cullen says.

Specific issues the Government wants feedback on include:

  • appropriate definitions for 'research' and 'development'
  • the form legislation should take
  • the application date for any change.

"It is unlikely that the legislative process will be completed until the second half of next year," Dr Cullen said. "That would mean that the change would not take effect until the 2002-2003 tax year.

"To bring it forward, the Government will consider making it effective from 1 April if there is public demand to do so.

"As the move is pro-taxpayer, and as the Government plans to introduce it as a voluntary option to ensure no-one will be disadvantaged, I would not expect bringing the date forward to create any controversy," he said.

"The Government is determined to lift New Zealand into the first division of knowledge-based, sophisticated economies and therefore has a strong commitment to R&D.

"We demonstrated this in our first budget with the new $12 million R&D grants programme and the funding boost for Technology New Zealand.

"New Zealand also provides a limited tax concession through the immediate deductibility of scientific research spending. And we buy around $650 million a year in R&D directly from the Crown Research Institutes and the universities.

"We are now proposing to strengthen that support by bringing the tax laws into conformity with Generally Accepted Accounting Practice so that any R&D expenditure which is immediately written off for accounting purposes will also be immediately deductible for tax purposes.

"This will introduce more peace of mind into the system because the current uncertainty relating to the boundary between capital and revenue R&D expenditure carries for taxpayers the risk of potential disputes with, and penalties from, the Inland Revenue Department," Dr Cullen said.

Submissions close on 26 January.

They may be made in electronic form to [email protected] or addressed in writing to:

Research and development proposal
C/- General Manager
Policy Advice Division
Inland Revenue Department
P.O.Box 2198

The discussion paper is available on the website of the policy advice division of IRD at and from the Treasury at

Contact: Patricia Herbert [press secretary] 471-9412 or 025-270-9013 or David Carrigan [tax adviser, Dr Cullen's Office] 471-9728