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In our regular feature we answer readers’ questions on any area in the world of finance, accounting, audit, tax, and other business-related areas. Take advantage of our expertise and send your question to email@example.com and one of our specialists may answer it in a forthcoming issue of NUMBERS.
I own an IT company and have heard the government is bringing in a research and development tax incentive scheme. What could this mean for me?
Answer from Andrew Dickeson, Tax Director
Baker Tilly Staples Rodway Auckland
The government has recently introduced a bill to Parliament that, if passed, will reinstate a 15% tax credit for eligible research and development (R&D) expenditure. Our comments are based on the bill as it stands in mid-November 2018.
In order to be eligible, your business will need to:
The business will either need to own the results of the R&D activities, be able to use these results without further payment, or be in a group of companies that owns these results (subject to jurisdictional requirements).
Eligible R&D will be comprehensively defined. Fundamentally, a core R&D activity is an activity that:
It really depends what your IT services company is doing, but many activities would not be eligible R&D. If you are developing new applications that are not standard there may be scope for a claim and it would pay to speak to a tax specialist.
Eligible R&D expenditure will be comprehensively defined. It is expected to include expenditure such as employee salaries, consumables used in the R&D process, and depreciation on assets used for R&D. Up to 10% of an R&D tax credit claim would be able to be on expenditure incurred outside New Zealand.
The R&D tax credit will be available for R&D expenditure of between $50,000 and $120 million each year.
The R&D tax credit is refundable up to $255,000 per annum if the taxpayer has losses. If a business is in losses, the tax credit will instead be carried forward to be offset against future income tax liabilities.
The legislation is planned to come into effect from the start of the 2019/20 year, which for a small number of businesses has already begun! Because of the level of identification and record keeping required, any business involved in research and development should look to get ready for the new R&D tax credit.
NOTE: The above is general advice only and should not be relied upon as specific circumstances can vary. Please contact your Baker Tilly Staples Rodway advisor for specific advice.