Govt looks to soften tax treatment of so-called black hole R&D spending

Current tax treatments on capitalised expenditure for research and development are creating a tax deductibility "black hole" which is likely to be discouraging firms from investing and innovating.

To combat that and to answer critics who believe R&D tax incentives would improve the country's poor record of investment in new knowledge and processes, Science and Innovation Minister Steven Joyce and Revenue Minister Todd McClay are seeking feedback on ways to fix the problem.

Fixes in three main recommendations are proposed, all of them dealing with the way capitalised expenditure is treated for depreciation.

The first to ensure capitalised development expenditure that "relates to certain depreciable assets is able to be depreciated over the legal life of the asset to which it relates."

The second would clarify that "capitalised expenditure incurred by a taxpayer in the successful development of software for use in their own business is depreciable."

The third initiative would allow capitalised development expenditure on an unsuccessful R&D project be immediately tax deductible, providing criteria that gives rise to an unsuccessful asset - providing certain criteria are met.

"The current tax rules can discourage businesses from investing in vital research and development because they may not be able to claim a deduction for all their expenditure," said Joyce.

"Black hole expenditure refers to costs a business incurs for which no tax deduction is available. This can result in investors putting their money into less productive areas of the economy because of a perceived tax disadvantage with some research and development ventures."

The Labour Party is proposing to reintroduce a broader R&D tax incentives regime.


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