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Cash-flow pressures to be helped by R&D Tax Incentive improvements

Tax Alert - November 2022

By Simon Taylor, Brendan Ng & Harry Lynskey

One issue for many taxpayers engaging with the R&D Tax Incentive (RDTI) regime has been the time taken to receive the cash benefit of the credit, leaving a funding gap for R&D undertaken by the organisation.

This lag between applications being submitted and the benefit being received should soon be minimised, easing cash flow pressures for many businesses, as the Ministry of Business, Innovation and Employment (MBIE) have recently announced that they have partnered up with Tax Management NZ to deliver in-year payments for businesses performing eligible R&D activities under the RDTI regime.

The introduction of an in-year payment scheme should reduce cash flow pressures for businesses and more directly link the benefit being received with the R&D activity being undertaken, hopefully incentivising more R&D where the timing of the funding is critical to its performance. Uncertainty of the funding outcome and timing are key concerns for claimants, and in-year payments will help by allowing businesses to know when they will be receiving payments and the amounts, assisting with planning and the ability to continue funding their R&D activity.

Currently all that has been announced is that the in-year payments will be paid to businesses as an interest-free loan, repayable when the corresponding R&D tax credit is available (it is assumed there will be some sort of wash up completed at the end of each period).

While much of the detail of the in-year payment scheme is still to be announced, we do know that businesses will be eligible for in-year payments for money that they spend on eligible R&D activities if they have submitted their General Approval applications (i.e. the write ups describing their R&D activity), and their anticipated tax credit is not offset by (reduced) provisional tax payments.

Businesses are encouraged to apply now for General Approval on eligible R&D activities, so that they are in a position to qualify for in-year payments once the scheme goes live. This is particularly true for any R&D activity occurring in the 2023 income tax year that is currently being undertaken by businesses, where they would benefit from faster access to the benefit. It is also important that applications are submitted on time, as it is unlikely that the previous COVID-19 related extensions to due dates will continue.

If you have any questions about General Approval or in year payments, please reach out to us or your Deloitte advisor.

In another previously announced measure to address an R&D funding gap, some businesses will be eligible for a ‘top up’ payment, aimed at helping businesses who were recipients of the Callaghan Innovation Growth Grant to maintain investment in R&D while moving to the RDTI regime. This was covered in a previous Deloitte Tax Alert article.

The application deadlines for the Transition Support Payment have been extended and the new dates are:

  • 30 June 2023 for the 2019/20 income year
  • 30 June 2023 for the 2020/21 income year
  • 24 April 2024* for the 2021/22 income year

* This date may be extended depending on processing times.

Eligibility for the top up payment requires businesses to meet a number of criteria, including undertaking a calculation to determine whether there is a ‘gap’ in funding, by considering a business’ eligible RDTI expenditure, the business’ average Growth Grant expenditure over the last three years, and the business’ expected Growth Grant expenditure in the year being claimed.

It is important to note that when you apply for the Transition Support Payment, businesses will be asked to provide a Directors’ Attestation that:

  • you have accurately assessed your Growth Grant eligible R&D expenditure, and
  • made a good faith attempt to participate in the RDTI.

Please contact us if you require further explanation of what a “good faith RDTI attempt” means, but it generally requires you to have included on your RDTI application all R&D activities that you reasonably consider to be eligible for the RDTI.

There are a number of considerations when preparing to claim the transition support payment and if you think your business is eligible, we recommend you get in touch with us or your Deloitte advisor, to ensure that you are not leaving anything on the table.

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