For many businesses, R&D activities are likely to be scaled back or reduced when funds are tight which means less innovation. This, in turn, hinders our economy’s ability to recover once the global situation stabilises. That’s why the Government has decided to act quickly and provide extra support to R&D performers now.
Refundability of the R&D tax credit has been brought forward to the 2019/20 tax year
The application date of broader refundability for the R&D tax credit has been brought forward by one year, to the 2019–20 income year, to help businesses retain their R&D capability during the COVID-19 outbreak.
The R&D tax credit regime currently has limited refundability rules, which may not provide sufficient support to loss-making businesses or businesses who do not pay enough income tax to fully utilise their R&D tax credits. Broader refundability rules have been developed and will apply from year 2 of the regime (the 2020–21 income year). However, these rules will not apply in time to benefit R&D performers struggling with the effects of COVID-19.
Bringing the application date of the year 2 refundability rules forward to year 1 (2019– 20 income year) should provide more businesses with access to R&D tax credit refunds sooner. This will provide businesses performing R&D with cash now, when they need it the most, and will encourage R&D activity and innovation at a difficult economic time.
We’re expecting this measure to provide up to $70 million of additional cash support to R&D performing businesses. By making the broader refundability rules available early, we’re helping to ensure businesses have the funds they need to keep New Zealanders in their jobs and to continue undertaking R&D activities. These businesses would have had access to this cash in year 2 of this scheme, but making this amendment provides them with this vital support a year earlier.
Option to use the old rules
Businesses can still access the old limited refundability rules in year 1 if they prefer. The broader refundability rules will apply by default, but any business who would prefer to apply the old year 1 limited refundability rules will be able to do so. Businesses can signal this preference when they file their R&D claims with Inland Revenue.