Skip to main content
Inland Revenue

Tax Policy

PUBLISHED 21 October 2015

Tax bill proposals to support innovation

Allowing businesses to cash out losses from R&D expenditure and to deduct black hole expenditure on R&D are among proposals included in the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Bill, which passed its second reading last night. For more information see the Minister of Revenue's media statement.

Hon Todd McClay
Minister of Revenue

21 October 2015

Media statement

Innovation encouraged through tax bill

Revenue Minister Todd McClay says the Government’s aims to broaden New Zealand's economic base means ensuring that the tax system does not discourage innovation.

“Companies that invest in research and development are investing in New Zealand’s future prosperity,” says Mr McClay.

The Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Bill last night passed its second reading.

“This continues the Government’s focus on helping New Zealand businesses to flourish and contribute to a more productive and competitive economy.

“Innovative start-ups often face cash-flow problems or difficulty in accessing credit because many opportunities require significant investment. We want to help ease that cash-flow burden by giving innovative start-ups earlier access to some of their tax losses,” says Mr McClay.

The tax bill contains a proposal to allow innovative start-up firms to cash out losses that arise from eligible R&D expenditure at the company tax rate in any given year.  

“This “cash out” will be delivered in the form of a tax credit, and the losses cashed out will be capped at $500,000 for the first year, increasing by $300,000 over each of the next five years to $2 million.”

In addition, the bill deals with the problem of “black hole” expenditure, where some development expenditure is never able to be deducted for tax purposes.  

The proposal in the bill will allow capitalised development expenditure to either be deducted over time as depreciation or, if no depreciable intangible asset is created (including when an R&D project ultimately turns out to be unsuccessful), taken as a one-off deduction upon write-off for accounting purposes.

The proposed changes are intended to apply to income years beginning on or after 1 April 2015.

Mr McClay says other items in the tax bill aim to provide greater certainty by clarifying the rules - as well as proposals to maintain the tax rules to ensure they work as intended.

This includes clarifying the GST rules to confirm that services provided by bodies corporate to their unit owners are supplies for GST purposes, and gives bodies corporate the option to register for GST.  

It also includes changes to the tax pooling rules, to enable pooling funds to be used to meet outstanding interest liabilities arising from an amended tax assessment or resolution of a dispute, extending the grace period for community housing providers that are removed from the Charities Register so they are not subject to the new tax rules on net assets, and strengthening the controlled foreign company test-grouping rules to prevent unintended tax advantages.

“New companies are springing up in industries like ICT and high-tech manufacturing, and food and beverages. We want to capitalise on that by ensuring our tax settings don’t discourage businesses from investing in innovation.

“This will be good for innovative businesses and good for the New Zealand economy,” says Mr McClay.

Media contact: Lesley Hamilton 027 490 1345