The New Zealand government has enacted legislation bringing in a new tax credit regime as a means of spurring private sector investment in research and development in New Zealand. The Act is due to come into force for the 2008-2009 financial year. The new scheme, which is regarded as being one of the most generous schemes in the world, is expected to encourage innovation and investment in intellectual property.
The scheme provides for a 15 percent tax credit on research and development. Two categories of research activities are covered: core activities and supporting activities. Core activities are systematic, investigative or experimental activities designed to acquire new knowledge or create new or improved products, processes or services. They must also either seek to resolve scientific or technological uncertainty, or involve an appreciable element of novelty. Supporting activities are other activities that are commensurate with, required for and integral to, the carrying out of core activities.
While activities such as commercial or legal aspects of patenting are excluded from core activities, they may be claimed as supporting activities. To qualify, the entity claiming the credit must be New Zealand based and must own the results of the research, while the research must be carried out predominantly in New Zealand and must relate to the entity’s business. Universities and government research organisations are excluded, as is the acquisition of core technology.
The research and development regime will be administered by Inland Revenue. All claims must be filed electronically, on the same day as the business files its tax return. As self assessment of research and development activities underpins the regime, it will be important to thoroughly document the research and development process in order to confirm eligibility for the tax credit. Necessary documents to support a claim will most likely include project plans, test reports and technical data. If an entity does not assess the activities correctly, it will not receive the credit, however the research need not be successful to qualify. The regime is likely to act as an incentive for international companies to conduct research and trial work in New Zealand through locally based companies.
There are no restrictions on the type of entity that can claim the credit, which will extend to individuals, partnerships, companies and trusts. However the entity must have a minimum expenditure of $20,000 per annum on research and development, and must bear the associated financial and technical risks.