Budget 2018 – Innovation opportunities for Kiwi business

Kirsten Hawke

When it was announced in 2018 budget that a research and development (R and D) tax incentive, in the form of a tax credit, will replace the current grant system, BUSINESS buddy decided to take a closer look.

Budget 2018 – Innovation opportunities for Kiwi business

After all, we love anything to do with innovation and like to keep on top of any new techie opportunities that supports doing great business.

The Government stated they want to build a diverse, sustainable and productive New Zealand, and R and D is a key factor in future proofing our economy.

They have committed $1 billion over the next four years for R and D, allowing businesses to claim 12.5 cents back for every dollar spent on R and D.

The change will be implemented by April 1, 2019.

However, even with this new investment New Zealand still seriously lags behind it’s Organisation for Economic Co-operation and Development (OECD) counterparts and other countries of the Western world with its contribution to R and D.

The overall goal is to lift R and D spending from the current 1.3 per cent of gross domestic product (GDP) to 2 per cent GDP by 2027.

Present grant system verses proposed tax credits

At present, Callaghan Innovation (lead by Xero’s former New Zealand general manager, Victoria Crone) holds the purse strings to the Government’s Business R and D Grants.

The grants target towards smaller businesses or those new to R & D and the current value of individual grants normally ranges between $20,000 and $250,000.

Callaghan’s Growth Grants will be phased out as the tax credit comes in, from next April.

The benefit of the existing system is that the amount is known in advance and can be counted on as a steady cash flow to help encourage R and D.

The disadvantage is that once received, recipient companies do not have to remain on the shores of Aotearoa.

Meaning much of that juicy knowledge and emerging science and technology generated is potentially lost, defeating the object of the grant entirely.

In comparison, the proposed tax credit structure could restrict what qualifies and businesses currently receiving the grants may be ineligible to receive anywhere near the same level of benefits.

The new incentive will be available for all businesses spending more than $100,000 on R and D.

However most start up or small businesses don’t have a spare $100,000 in their bank account to spend on this.

At present, it appears that the $1 billion from the government is targeted towards big business.

Public consultation

Recently, the Government invited the public to express their opinion on the impending changes.

The views of the public will develop policy options for the final design of the R and D tax incentive.

It is now too late to have your say as submissions closed on June 1, 2018.

Now businesses are in limbo while we wait for the powers that be – Ministry of Business Innovation and Employment, Inland Revenue, Treasury and Callaghan Innovation – to provide Government with policy options.

BUSINESS buddy feels consideration needs to be given to how to support start-up and smaller companies. 

These businesses might currently be making a loss and therefore not paying tax.

How will they be encouraged to invest in R and D?

Hopefully these issues are ironed out before the legislation is introduced in September 2018.

BUSINESS buddy will update you as soon as the details are finalised.

Kirsten Hawke