Susan Tremlett, senior manager of taxation services at BDO Spicers Auckland, answers questions about the Government's new research and development tax credit regime.
What does the research and development (R&D) tax credit regime do for businesses? Do I need to make major changes to the way I do business to qualify?
It enables eligible businesses to claim a tax credit of 15 per cent of eligible R&D expenditure - a potential pot of gold.
The regime began from the start of the 2008/09 income year, which for many was April 1.
You can use information systems to identify relevant activities and expenditure, but you will need to focus more closely on relevant activities.
So who and what's eligible for this?
Eligible businesses will be those performing R&D predominantly in New Zealand, either on their own behalf or commissioning others to carry it out.
Businesses must bear the financial risk associated with the project, have control of the work and effective ownership of the results - not necessarily the intellectual property. At least $20,000 must be spent on eligible R&D, unless outsourced to a listed service provider.
The R&D credit is not available to Crown Research Institutes, tertiary institutions, district health boards or any associate or entity under their control. Only amounts spent on eligible activities qualify.
These comprise "core" activities (systematic, investigative and experimental) "performed to acquire new knowledge or create new or improved materials, products, devices, processes, or services".
So, what's the Government trying to achieve with the tax credit?
It is trying to foster creativity and expansion, and have growing companies provide more employment opportunities. Potentially, the scope is wide.
What is a business required to do to get it? Is there an easy way to know if you're eligible?
To claim, businesses must show they have followed a planned, logical progression of R&D work. The credit can also be claimed for some activities that support the R&D being undertaken. These may include market research, quality control, testing and analysis of information.
On eligibility, the IRD's R&D programme manager, Ron Grindle, says: "The question is, is there a competent professional in the field who can tell you how to achieve something? If the answer is yes you are probably not eligible for the credit. If the answer is no, potentially you are eligible."
So, will we see more innovation in New Zealand thanks to this new credit?
That's the desired outcome. In our experience, there is a gap between the perception of what's allowable R&D compared to the specific requirements of the new regime. That said, many businesses will still benefit.