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New tax breaks for tech start-ups

AAP/Techworld Australia | May 16, 2013
A new scheme announced in the budget is intended to allow "small, R&D-intensive start-ups" to claim tax losses on research and development spending

Loss-making start-up companies which invest heavily in research and development will be targeted for tax breaks.

A new scheme announced in the budget is intended to allow "small, R&D-intensive start-ups" to claim tax losses on research and development spending.

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.

Other new tax measures in the budget include extensions to the thin capitalisation rules, which try to stop foreign investors loading New Zealand companies with debt to reduce their taxable income, and a $6.65 million boost in funding for the Inland Revenue Department to target property investors.

The property tax move is expected to raise around $45 million in additional revenue annually, with efforts already undertaken under new funding arrangements since July 2010 already yielding an extra $110 million.

An IRD issues paper released on Thursday proposes "to clarify the date of acquisition of land as it affects people who acquire land specifically to resell it and who are generally taxed".

The thin cap rules will be extended to cover a wider range of foreign investors, instead of applying only to those where one non-resident owns 50 per cent or more of a New Zealand company, but the changes are expected to raise only an extra $20 million a year.

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," Mr Pippos said.

 

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