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Inland Revenue

Tax Policy

PUBLISHED 23 July 2013

Feedback sought on R&D tax proposals

An officials’ issues paper released today suggests a number of changes to the tax rules to help overcome problems experienced by start-up companies undertaking research and development. For more information see the media statement and the issues paper, R&D tax losses.

Hon Steven Joyce
Minister of Science & Innovation

Hon Todd McLay
Minister of Revenue

23 July 2013

Media statement

Consultation on R&D tax losses proposal begins

Science and Innovation Minister Steven Joyce and Revenue Minister Todd McClay today welcomed the release of an Inland Revenue Department tax policy paper which seeks public feedback on proposals to improve cash flow and remove tax distortions on research and development costs for start-up Kiwi businesses.

The proposals, which were first signalled in the Government’s Business Growth Agenda progress report Building Innovation in August last year and again in Budget 2013, recognise the specific difficulties faced by innovative start-up businesses when seeking access to capital and maintaining cash flows during a crucial phase of their development.

“Under the current rules, tax losses must be carried forward and deducted against future taxable income. Early-stage businesses often endure particularly long periods of tax loss meaning they cannot access the benefit of these loss deductions when they need it most,” Mr Joyce says.

The issues paper outlines a proposal to relieve current tax distortions by allowing 100 per cent of eligible tax losses arising from R&D expenditure for these businesses to be accessed up front instead of carried forward. Eligible losses will be capped at $500,000 initially (equivalent to a refund of $140,000), but rising incrementally each year to a maximum of $2 million (a $560,000 refund).

“For R&D-intensive firms, the tax rules can act as a particular impediment to future development because these businesses often have insufficient income to apply the tax loss against, or they may not be able to use their tax losses in a timely way,” Revenue Minister Todd McClay says.

“The proposals seek to address this problem by allowing innovative start-up businesses engaging in intensive research and development to use their tax losses early, provided they meet certain criteria.”

These include the requirement that applicants must be a company resident in New Zealand for tax purposes, but cannot be a look-through company, listed company, qualifying company or a special corporate entity.

“The proposals to remove this distortion in the tax system are another part of the Government’s agenda of building a more productive and competitive economy that supports innovative Kiwi businesses, investment, jobs and growth,” Mr Joyce says.

The officials’ issues paper R&D tax losses can be found at Submissions close on 30 August.

Media contacts:
Charlotte Haycock 021 359 076 (Steven Joyce)
Rob Eaddy 0274 596 200 (Todd McClay)