PKF Carr & Stanton, Hastings, New Zealand
06 Dec 2018
After extensive public consultation, the Government has drafted legislation to introduce a research and development (R&D) tax credit of 15% on eligible R&D expenditure. This legislation is expected to pass early next year and will apply from the beginning of the 2020 income tax year. For early balance dates, it will apply for years beginning 1 November 2018. The new R&D tax credit will replace the Callaghan Growth Grants which will be phased out by 31 March 2021.R&D Tax Credit OverviewTo qualify, there are three eligibility tests that a taxpayer must meet:1. An eligible person;2. Undertaking eligible R&D activity; and3. Undertaking eligible R&D expenditure.New schedules will be inserted in the Income Tax Act with categories of eligible R&D core activity and supporting R&D activity and eligible R&D expenditure. Core R&D activity must be conducted: Using a systematic approach; With the purpose of creating new knowledge or new/improved processes, services or goods; With the purpose of resolving scientific or technological uncertainty; and With the day to day management of the R&D being conducted in NZ.Support R&D activity will also qualify for the tax credit provided it is in support of an eligible core R&D activity. Eligible R & D expenditure between $50,000 and $120m will qualify for the 15% R&D tax credit, although there are exceptions for expenditure less than $50,000 undertaken through an “approved research provider” and expenditure over $120m if prior approval has been obtained from IRD to exceed the expenditure cap. The R&D tax credit will be refundable up to a limit of $255,000 provided there are no other outstanding tax liabilities and other specified criteria are met. Any remaining R&D tax credits will be carried forward for utilisation in future years. The existing R&D tax loss cash-out regime will continue to apply in conjunction with the new R&D tax credit regime. Application process To apply for an R&D tax credit, a supplementary R&D return must be filed within 30 days of filing your income tax return. From the second year onwards, anyone intending to apply for an R&D tax credit must also seek IRD general approval of their core R&D activities by the 7th day of the 2nd month after balance date (for example, general approval due 7 May 2021 for a 31 March 2021 balance date). Taxpayers who have eligible R&D expenditure greater than $2m a year can elect into the significant performers regime. Instead of applying for IRD general approval of their core R&D activities every year, a R&D certificate (certified by an IRD approved R&D certifier) must be submitted alongside their R&D supplementary return.What should you do now?Documentation and processes will need to be put in place to allow your business to identify eligible R&D projects and expenditure. Documentation and records will need to be prepared and kept for 7 years, including: Project documentation; Meeting minutes and internal reports; and Receipts and contracts.
Further guidance is expected from IRD on the records that will need to be maintained regarding R&D activity.
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