Start-ups pouring money into research and development will
get a cash-flow boost under a new tax measure that is seen as
a "great response" to the sector's challenges.
Under the initiative, announced with yesterday's Budget,
start-up companies who are investing in R&D can
This means the qualifying companies can get an upfront
payment rather tax losses being carried forward and applied
against future income.
The Government also announced businesses would be able to
deduct tax for "R&D black hole expenditure" and estimates
the two policies would return $58.1 million to companies over
The two policies are due to come into effect from April 2015.
Inland Revenue said the "cash-out" payment is not a grant and
that companies would eventually return it through taxes paid.
Under the policy, IRD said it can also recover the cash-out
payments if a company sells intellectual property, 90 per
cent of its shares, moves overseas for tax purposes or is
EY executive director of tax Angela Williams said the policy
would help companies investing in R&D get benefit of tax
losses "early in the piece".
"It's also just helping their cash-flow constraints. Because
there's recognition that, particularly for a lot of small and
medium enterprises, they don't have ready access to cash
funding at that early stage," Williams said.
Andy Hamilton, chief executive of business incubator The
Icehouse, praised the policy and said it showed the
Government was listening to the challenges of the sector.
"I think it's a great response," Hamilton said.
"Cash is king for start-ups, especially when you are doing
heavy R&D," he said.
"We know R&D-intensiveness is a really positive thing for
the economy. The more companies we have being R&D
intensive I think that's fantastic and it recognises it takes
those companies a long time to get to a commercial outcome.
And so a bit of cash here or there that enables that I think
Employers and Manufacturers Association chief executive Kim
Campbell applauded the Government for making the change.
"These long overdue measures on their own could well result
in a highly desirable pick up in private sector investment in
R&D and innovation," Campbell said.
University of Auckland's Physics Department Shaun Hendy said
it was interesting to see the Government "dancing around the
edges" of the R&D tax credit scheme it axed in 2008.
"Most people in this sector think R&D tax credits would
be a good idea ... they've edged a little bit closer," he
"[The change] won't be a huge boost to our private sector
R&D but it's at least pleasing to see them dancing around
the edges and perhaps that goes some way to admitting that
cutting them wasn't the best idea," said Hendy, who is the
immediate past-president of the New Zealand Association of
- By Hamish Fletcher of the NZ Herald