Loss-making companies that invest in eligible research and development will be able to claim cash refunds in proportion to their payroll figures from the 2020/21 tax year.
The policy, hidden in an omnibus tax bill tabled in Parliament in late June, represents an important last step in the government's decision to stop relying on direct grants from Callaghan Innovation and allow individual firms to claim the cost of research against their payroll tax liability instead.
The policy answers the major flaw in the current policy: that many firms investing in R&D are at an early stage of development and plan to make losses while they pursue growth and eventual profitability. That prevents them taking advantage of tax rebates on R&D until they turn a profit at some time in the future.
That excluded many start-up and fast-growing, innovating companies from the policy, despite being one type of firm that the government wants to encourage to undertake research and development to deliver eventual profitability.
New Zealand's most prominent example is the software accounting firm Xero, which has racked up losses totalling $343.9 million since 2006, according to its 2019 annual report, as it has pursued profitability only since achieving sufficient global scale. The company is close to declaring a maiden profit and has begun reporting positive cashflow.