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New Zealand To Enhance R & D Tax Perks

The Government of New Zealand announced on October 21, 2015, that a tax Bill intended to encourage innovation has passed its second reading.

The Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Bill "continues the Government's focus on helping New Zealand businesses to flourish and contribute to a more productive and competitive economy," the Minister said.

"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," he said.

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 NZD500,000 (USD336,800) for the first year, increasing by NZD300,000 over each of the next five years to NZD2m," McClay said.

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 capitalized 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 April 1, 2015.

"New companies are springing up in industries like ICT and high-tech manufacturing, and food and beverages. We want to capitalize 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," McClay said.

The Bill includes provisions that confirm that services provided by bodies corporate to their unit owners are supplies for goods and services tax purposes. They will also enable bodies corporate to register for GST.

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