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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 "cash-out" tax-losses.
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 four years.
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 liquidated.
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 is fantastic."
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 said.
"[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 Scientists.
- By Hamish Fletcher of the NZ Herald