2007 media releases
Draft guidelines released for new R&D tax credit
20 December 2007
Inland Revenue has released draft guidelines for businesses wishing to apply for the new 15 per cent research and development (R&D) tax credit.
Interested parties are invited to give feedback to Inland Revenue by 8 February 2008 on the draft guidelines, which are on the Inland Revenue website at http://www.ird.govt.nz/public-consultation/
Legislation introducing the new 15 per cent business R&D tax credit was passed by Parliament last week.
The tax credit will take effect from the start of the 2008/09 income tax year and will give eligible businesses back 15 cents in every dollar they spend on R&D that meets certain criteria.
Commissioner of Inland Revenue Bob Russell said that the department had talked to many interested people about how the organisation could provide guidance and support. "Their feedback has shaped development of a draft R&D tax credit guide that will provide comprehensive information and examples to help people through the record-keeping and filing requirements of the regime."
"We're designing it so people can quickly determine whether they are eligible or not. It will include an executive summary with a decision tree to help them determine their eligibility without having to dig too deep."
The R&D tax credit will be filed online. ''We are building a system that will allow businesses to go online, self-assess their eligibility and file a detailed statement,'' said Mr Russell.
To get the tax credit, a business will need to file its income tax return, along with a supporting detailed statement about its R&D, by its normal filing date.
"This means businesses will need to maintain robust records showing they have followed accepted research practice that includes formulating an hypothesis, testing it, and observing and evaluating the results,'' said Mr Russell. ''They will also need to record any supporting expenditure such as staff salaries, depreciation and overheads."
The definition of R&D for the tax credit is narrower than R&D as it is commonly understood, he said. It differs from the rules governing tax-deductible R&D, and the criteria used by agencies that give R&D grants.
To be eligible, the R&D must meet three key tests relating to the business itself, the activity and the amount spent on R&D. The business must operate in New Zealand, and R&D activities must be related to business activities. The business must also control the R&D, bear the financial risk, and own the results. It generally must also spend more than $20,000.
"We're looking forward to ongoing dialogue with tax professionals and the business community around all aspects of the tax credit,'' Mr Russell said. ''We encourage interested parties to have their say."
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Date published: 20 Dec 2007