Cullen signals earlier arrival of R&D rules

By BRIAN FALLOW

Finance Minister Michael Cullen says the Government will consider making its proposed changes to the tax treatment of research and development effective from April 1 next year.

That would be a year earlier than previously indicated and would involve an element of retrospectivity, because the legislation was not expected to be passed until the second half of next year.

"As the move is pro-taxpayer and as the Government plans to introduce it as a voluntary option to ensure no one will be disadvantaged, I would not expect bringing the date forward to create any controversy," Dr Cullen said.

The Government released yesterday a discussion paper elaborating on the policy announced at the business-to-Government summit in Auckland last month.

It acknowledges that although the tax treatment of R&D spending is uncertain, in practice taxpayers are already immediately deducting almost all their R&D costs.

"However, this carries the risk of potential disputes with Inland Revenue, and the penalties and use-of-money interest that apply when tax is underpaid," the paper said.

All R&D will be tax deductible as soon as it occurs unless, and until, it gives rise to an identifiable and valuable asset under the accounting rules for financial reporting.