R+D Tax credits – any value in them anyway?

I’ve been intrigued by the way that the press have picked up on the Nats plans to remove the R+D tax credits.  Obviously its a bad look to be dropping these – when our focus as a country should be on growth, innovation and jobs.  What i’d like to see, though, is some analysis of what value the tax credits were expected to generate and for whom.  I’ve read aspects of the policy and attended a couple of briefings and the strong message i came away with is that the tax credits would:

  • offer little to nothing to the IT / Software industry;
  • offer nothing to the start-up sector;
  • be extremely difficult to claim.

I outlined why in an earlier post.  The basic issues appears to be that you can only claim the direct costs associated with producing something that is demonstrably novel applying a structed research process.  Most software would fail the novelty test and i’m also informed that our BioEngineering oriented work would also fail the test.  The credits are therefore targeted at “research” in almost the purest definition of the term and most of the innovation (in my experience) in New Zealand simply wont pass the test.  Interestingly, one of the main beneficiaries of R+D tax credits in Australia have been the banks???  For our early stage companies, $100k in research, might qualify for a $15k rebate a year later.  Is it worth the effort and distraction of focus?

My advice to the start-up companies we work in, is don’t bother with the R+D tax credit.  If you’re a large, established company undertaking research, then there might be something in it for you.  But if that’s the case then you probably should have been doing it anyway.

If others have a different understanding of the R+D Tax Credit regime then i love to here it.

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