R&D tax credits - a great opportunity

The decision to introduce the tax credit is a welcome endorsement by government of the important contribution research and development can make to New Zealand businesses. R&D can make a significant impact on a company’s bottom line as well as their productivity and their environmental impact.

The scheme is a relatively straightforward one. As long as they meet certain criteria, companies do not have to go through a pile of bureaucratic red tape to get the 15% credit on their research spending. All they need to do is record the spending in their tax return.

There are, however, eligibility criteria to protect the integrity of the system. Any R&D project, to qualify for the tax credit, needs to meet three key tests – the control test, the financial risk test, and the effective ownership test. In these cases, the control, the financial risk and the effective ownership of the results all need to reside with the company commissioning the R&D.

One other important criterion you should be aware of is that companies spending less than $20,000 will have to use an approved research provider. As you would expect, IRL is in that “approved research provider” category and we can work with companies wishing to take up the tax credit option to ensure that the contract for the work is in line with the criteria.

It’s important to bear in mind that the tax credit is just one option for funding R&D and the scheme will not replace programmes under the Technology New Zealand* programme that have been effective in helping New Zealand companies undertake R&D.

These include:

• Technology for Business Growth (TBG) – which partially funds the costs of technically
  challenging research and development projects that will lead to significant business growth,
• Technology Expert (TIF Expert) scheme – which partially funds the costs for an expert to work on a technically challenging research and development project by providing either specialist technical expertise or experience in commercialising the results of research to better define or target a future research and development project, and
• TechNet programmes that make it easy for businesses to meet, and engage with, the country’s leading Crown Research Institutes, universities and research organisations.

The tax credit scheme, along with Technology New Zealand programmes, makes R&D a realistic option for New Zealand businesses who, in the past, may have felt this part of the business was just “too hard”. In fact we now have the tools that allow R&D to be part of every company’s business plan and, in the current uncertain times, use the expertise of researchers to increase productivity and come up with new products that can fill niches on global markets.

Shaun Coffey