COVID-19: R&D tax credit broader refundability
The recently enacted COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 allows for broader refundability of R&D tax credits for loss making businesses conducting R&D.
Under the new rules, from the 2019/20 income year, claimants in a loss position or with an insufficient income tax liability to use the credit will be able to receive a refund of their R&D tax credit, subject to a labour-related taxes cap explained further below.
Previously the R&D tax credit regime provided only limited refundability for the 2019/20 income year. Refundability was restricted to certain corporate entity criteria, with a 20% R&D wage intensity cap and a maximum pay-out of $255,000.
It was originally proposed that broader refundability would apply from the 2020/21 income year. The COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 has amended the R&D tax credit rules contained in the Income Tax Act 2007 to bring forward the application of the broader refundability to the 2019/20 income year. The key features of the broader refundability are:
- No R&D wage intensity cap
- Removal of the $255,000 maximum cap
- Introduction of a labour-related taxes cap (payroll cap). This means that R&D tax credit refunds are only limited by the amount of PAYE, Employer Superannuation Contribution Tax (ESCT) and Fringe Benefit Tax (FBT) paid within the year by the claimant and companies the business is controlled by or sit within the same wholly owned group.
The payroll cap does not apply to R&D tax credits claimed by levy body researchers, or credits derived from eligible expenditure on approved research providers.
What does this mean for you?
Broader refundability means more businesses with eligible R&D activities will have access to refundable R&D tax credits and will provide some businesses with larger refunds than they would have obtained under the limited refundability rules.
The broader refundability rules are now the default position to calculate refunded R&D tax credits. However, claimants have the option of using the $255,000 refundability capped scheme if they prefer in 2019/20 only (if for example they would have trouble satisfying the payroll cap).
Why has this been introduced?
Following the significant disruption that COVID-19 has caused businesses in New Zealand, this measure is designed to support and encourage businesses to undertake R&D. R&D is seen as a key to economic recovery, and this change provides accelerated cash-flow on R&D undertaken in the 2019/20 income year.
What do I have to do?
In order to access the R&D tax credit refund, a business must file their R&D supplementary return and income tax return for the 2019/20 tax year. It is therefore recommended that the tax credit claim process (and associated income tax return preparation) is completed as soon as possible.
The content of this article is accurate as at 6 April 2020, the time of publication. This article does not constitute advice; if you wish to understand the potential implications of current events for your business or organisation, please get in touch. Alternatively, our COVID-19 webpages provide information about our services and provide contacts for relevant experts who can help you navigate this quickly evolving situation.
Simon Taylor's focus is to help businesses access the R&D tax incentive through understanding where qualifying R&D sits within their business and assisting them with the capability to capture it. He has worked in R&D tax incentives under the previous regime in New Zealand and practiced it in both the UK and Australia across a wide range of industries.