Businesses that heavily invest in R&D commonly experience cash flow problems. This is because it can take years of sustained R&D before they come up with a marketable product or service that derives a profit. To help overcome this problem and encourage innovation in NZ, the government offers a few support mechanisms.
The R&D loss tax credit regime is one such mechanism, introduced in 2016 as part of the government’s Business Growth Agenda. Before the regime was introduced, R&D intensive companies that made a tax loss could only carry the loss forward to future income years to offset against future years’ income. Under the new regime, tax losses arising from eligible R&D expenditure can be refunded in cash to the company each year. There are eligibility criteria that must be satisfied, for example at least 20% of the entities wage bill needs to relate to R&D functions. The regime provides R&D intensive companies with much needed cash during the initial investment stage of projects. The regime has been in place for over a year now, with a number of companies receiving significant cash refunds from Inland Revenue as a direct consequence of their R&D spend.
In addition to this, the Ministry of Business, Innovation and Employment is responsible for encouraging innovation in New Zealand businesses and has a number of grants and funds available.
The Endeavour fund invests in research aimed towards sustainability and integrity of the environment, transforming New Zealand’s economic performance, and strengthening society. Funding is available across a variety of areas, with up to $1 million per applicant available.
For businesses undertaking research in conjunction with other overseas parties, the Catalyst fund (previously known as the International Relationships Fund) is available to support activities that are aimed towards creating multilateral partnerships between New Zealand and other countries, to improve the quality of New Zealand’s science and innovation.
The Government agency, Callaghan Innovation, also offers a range of R&D grants aimed at hi-tech businesses. For example ‘Getting Started Grants’ are aimed at New Zealand businesses who are in the early stages of, or new to R&D, and ‘Project Grants’ are available for businesses who need support in developing specific R&D projects.
The R&D loss tax credit regime together with the funding and grants available provide much needed assistance to the businesses that will drive New Zealand’s future growth and prosperity. Businesses should be taking advantage of these, and any other leg-ups they can get. More information on each of the funds and grants can be found on the MBIE and Callaghan Innovation websites.