Dr Megan Woods: Tax incentives for research and development

Opinion 09/04/2019

Dr Megan Woods, is the Labour Party Minister of Research, Science and Innovation.

New Zealand is a nation founded on innovation. To be successful on the global stage New Zealand has always relied on its unique competitive advantage – small businesses with new ideas.

A huge part of what will make our economy grow is innovation. We need to find out new things, and develop new, better ways of doing old things. That’s why we need more research and development.

As a country at the bottom of the Pacific we can’t always compete on cost, but we know we have world-leading new technologies. But for too long, innovation became an expectation of business, rather than a priority for Government.

As Minister for Research, Science and Innovation, the challenge I have set myself is simple: We have to increase the amount of Research & Development done in New Zealand. If we are to build a productive and sustainable economy fit for the 21st century, we all need to take responsibility for supporting innovators.

At the moment, New Zealand lags behind the rest of the world in R&D spending.

In 2018, we increased spending to $3.9 billion, or 1.37 percent of GDP. But that’s still not enough to keep pace with other innovating nations.

If we can raise the level of R&D spending to 2 percent of GDP over the next 10 years we’ll be in a position to diversify our economy, supporting companies to move further up the value chain and in turn deliver higher wages for Kiwis. 

I’ve been working closely with business to figure out how we can spend more money on innovation. This week, the Government’s R&D Tax Incentive began. This is a massive boost for business investing in R&D.

The key features of the proposed R&D tax credit include: 15% tax credit; minimum R&D expenditure threshold of $50,000 per year; $120 million cap on eligible expenditure; definition of R&D intended to ensure accessibility across all sectors; limited form of refunds in the first year.

This will allow some businesses with a tax loss to receive a refund from the tax incentive. This is a fit-for-purpose solution to encourage Kiwi businesses to invest in innovation.

Our plan will ensure all sectors can access the tax credit. That’s why we included a definition of research and development that can apply to all sectors, including the digital and technology sector, along with a broad set of eligibility criteria.

The Incentive is also accessible to State-Owned Enterprises, industry research cooperatives (including levy bodies) and minority-owned subsidiaries of select Crown entities – because we want to encourage them to continue to prioritise R&D too. 

If you own a business, you should start recording your R&D expenditure now to ensure your records are ready to file at the end of the tax year.

I encourage businesses to look into whether they might be eligible for the Tax Incentive. It’s a great, fit-for-purpose scheme that can benefit both your business, and the future of the New Zealand economy.

More information about eligibility and record keeping obligations can be found in Inland Revenue’s draft guidance material.

Dr Megan Woods, is the Labour Party Minister of Research, Science and Innovation.