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Inland Revenue

Tax Policy

PUBLISHED 21 March 2001

Government announces R&D policy

The Government is to clarify the tax treatment of research and development expenditure by aligning tax law more closely with accounting practice. Revenue Minister Michael Cullen announced today that the tax law on R&D would be "brought into conformity with" Generally Accepted Accounting Practice under Financial Reporting Standard 13. Broadly, this will mean that R&D expenditure that is correctly written off for accounting purposes will be immediately tax deductible. Once legislated for, the change will apply from the 2001-02 income year. For details of the announcement see Minister's media statement.

For related announcements see:

For more information on Financial Reporting Standard 13 see:

Hon Dr Michael Cullen
Minister of Revenue


Government to create a clearer, better R&D regime

"All research and development spending expensed under generally accepted accounting practice will qualify for an immediate tax deduction from 1 April, this year," Revenue Minister Michael Cullen announced today.

"We will bring the tax laws into conformity with Financial Reporting Standard13 so that expenditure which business categorises as R&D and which is immediately written off for accounting purposes will also be immediately tax deductible," he said.

"The Government believes FRS 13 is comparable to other international scientific and accounting definitions of R&D.

"The advantages of bringing the two tax and accountancy regimes into alignment are threefold. It will:

  • create significant savings in compliance costs
  • introduce greater certainty as the FRS 13 definition is much clearer and tends to cut in further along the product development process
  • provide a firmer guide to the Inland Revenue Department. While in most cases R&D is being fully deducted already, the lack of clarity in the deductibility/non-deductibility boundary creates scope for unnecessary disputes about interpretation between taxpayers and the IRD."

The package also includes moves to clarify that R&D deductions incurred in developing software are not clawed back in the event of sale or deferred in the case of devising an invention for patent.

Dr Cullen said the decision was made after extensive consultation and represented the Government's response to a discussion paper circulated in November under the Generic Tax Policy Process.

Among the issues the Government called for submissions on was the application date for any change. The move would require legislation which, given the size of the Government's legislative programme, would be unlikely to pass until the second half of the year.

"There was strong demand that we bring the effective date forward to 1 April so that it will apply to the 2001-2002 tax year.

"The Government is happy to do this - especially as the change is pro-taxpayer and will be offered on a voluntary basis. Those wishing to remain with the status quo will have that option although I would expect most to move as I think the new regime is superior and offers a better deal to the great majority of taxpayers," Dr Cullen said.

"Our advice was that the course we have opted for is the best way to deliver the Government's policy intention at lowest compliance cost.

"But to ensure that it achieves what we believe it will, I have undertaken to monitor the outcome in conjunction with a group of experts and stakeholders from the private sector," Dr Cullen said.

The group would first meet early next year and would comprise tax practitioners and representatives from the Science and Innovation Advisory Council.

"Today's announcement provides further evidence of the Government's strong commitment to the knowledge society and to the role of R&D in the transformation of the economy.

"It complements the $12 million R&D grants scheme delivered in our first budget and the Government's intention to establish a new seed capital fund for innovation," Dr Cullen said.

The Ministerial Review into the Tax System would provide a further opportunity to discuss the treatment of R&D. The review would produce a preliminary issues paper in June and would deliver its final report to the Government in October this year.

Contact: Patricia Herbert [press secretary] 471-9412 or 021-270-9013: email [email protected] or, for technical inquiries, Michelle Davie [tax advisor in Dr Cullen's office] 471-9728.

Hon Pete Hodgson
Minister of Research, Science and Technology


Tax change good news for innovation

Private sector research and development in New Zealand is getting a significant boost with the Government's decision to allow an immediate tax deduction for R&D spending from 1 April this year, says Research, Science and Technology Minister Pete Hodgson.

Revenue Minister Michael Cullen announced today that tax law was being brought into conformity with Financial Reporting Standard 13, so that expenditure which business categorises as R&D and which is immediately written off for accounting purposes will also be immediately tax deductible.

"Private sector R&D is comparatively low in New Zealand and this is another significant step that will help increase it," Mr Hodgson said.

"We have established or expanded a series of successful grants programmes for private sector R&D, increased funding for technology support and announced our intention to establish a Crown Seed Capital Fund. These initiatives are now complemented by improved tax treatment for R&D. The approach chosen has the added benefit of keeping compliance costs down by using existing accounting tools.

"This is a significant change that will involve Inland Revenue taking quite a different approach with firms over their R&D expenditure. The establishment of an industry reference group to monitor the implementation of this new policy should help ensure a smooth transition to the new tax regime.

"I am particularly pleased that we are able to implement the new approach immediately, for the 2001/02 tax year. We have had many requests to do this and I agree that there is no time to waste in accelerating the development of New Zealand's innovation system."

Graeme Speden, press secretary, 04 471 9707 / 025 270 9055

David Butler
Commissioner of Inland Revenue


IRD Commissioner takes interest in R&D law

The Commissioner of Inland Revenue will be taking a personal interest in how his department applies the new Research and Development law once it is enacted.

"The new Inland Revenue Charter, launched earlier this month, emphasises the importance I place on the department applying the law as it is enacted," said Commissioner David Butler.

"Under the new bill what is properly expensed under accounting rules will be deductible under tax rules.

"Consultation with the private sector during the development of the R&D proposals indicated that some people are concerned that Inland Revenue might take a restrictive interpretation of the new law. In particular, they wonder if what is clearly R&D expenditure at the time it is incurred might later be challenged by Inland Revenue on the basis that the research has been a success and has led to commercial production.

"That concern is unfounded. What will happen in practice is that Inland Revenue auditors will take into account the information available to the decision-maker at the time, and will challenge the original decision to expense only when it is clearly not sustainable.

"To reassure the business community I am going to take an active role in liaising with business on the application of the new R&D legislation. Should there be problems with its application, I'm available to the private sector to discuss and correct them.

"Once the legislation is enacted, Inland Revenue will provide information to the community on the new provisions. We will publish a detailed Tax Information Bulletin on the new legislation, and I will be consulting with tax professionals and other interested parties on other kinds of information they would find useful," Mr Butler said.

For further information contact:
David Balham
Inland Revenue Corporate Communications
Tel: 04 498 5819 or 021 1129 103