Loss-making start-ups to get R&D tax deduction boost

The following article was published in The National Business Review at http://www.nbr.co.nz/article/budget-2013-loss-making-start-ups-get-rd-tax-deduction-boost-wb-140206. It was written by Patrick Smellie

Loss-making start-up companies which invest heavily in research and development will be targeted for tax breaks under a scheme announcing a range of small concessions and new initiatives to more effectively tax foreign-owned companies and property investors.

The scheme is intended to allow “small, R&D-intensive start-ups” to claim tax losses on research and development spending, which is currently not available. Eligibility criteria don’t yet exist and will be defined in an issues paper next month, followed by public consultation.

The move accompanies a raft of more minor tax benefits for businesses, to allow deductibility against income of so-called “black hole” expenses such as the costs of annual meetings, stock exchange listing, resource consent applications, and patent applications that don’t create a depreciable asset.

Revenue Minister Peter Dunne said small technology-intensive start-ups “tend to endure long periods in tax loss as a result of high-risk, up-front investment. The hit they take on R&D can be a real disincentive to undertaking it.”

However, Thomas Pippos, chief executive at accounting firm Deloitte, warned to expect a carefully bounded scheme that would apply only to very small companies.

“It’s a grant by another name,” Pippos said.