Budget 2013: Tax assistance for startups conducting R&D

The Government has released its 2013 Budget today revealing amongst other things new assistance for startups towards research and development costs.

The Budget document reveals a provision for loss making startups to claim tax losses on R&D. The last time a similar initiative was in play was 2009, where the government doled out $154 million in tax credits.

"A public consultation paper will be released in June on a proposal to allow tax losses arising from R&D expenditure to be refunded up to a certain limit. It will be targeted at R&D-intensive startup firms," says Revenue Minister Peter Dunne.

Massey University School of Accountancy tax lecturer Deborah Russell says the assistance will give small and often struggling startups better faster access to cash flow.

"Currently there are two ways R&D expenses can be claimed; claim an expense to decrease the tax bill or capitalise it and write it down over a number of years," says Russell.

"What's happening now is smaller companies will be able to get a refund – actual money back as opposed to just a tax reduction."

 Russell says she expects start-ups to jump at the assistance.

"Given that there's very little tax assistance for R&D at the moment, 

The cash injection will incentivise spend on researching and developing intellectual property within the country, says Creative HQ business strategist Dave Allison. 

"If done well this is massive. It's not overstating to say cash is king when it comes to startups. Often it's the founders' own cash and money borrowed against their homes. Freeing up some money to reinvest in research or building a stable infrastructure is critical," he says.

"It will hopefully encourage companies to explore local ideas with local ownership."

As a chartered accountant, Allison says he's dealt with his fair share companies claiming R&D expenses when they were last available. The focus on startups will focus the money where it's actually needed, he adds.

"The last lot of R&D tax credits were open to anybody and my understanding is the major beneficiaries were banks doing security reasearch on their websites," says Allison.

"This will help the small companies that don't already have big tax departments."

Budget 2013:

  • $201 million towards Crown Research Institutes core funding.
  • $100.7 million towards biological industries research.
  • $31.9 million towards Advanced Technology Institute.
  • $100 million towards international business growth services.
  • $75.2 million for business R&D grants.
  • $31.3 million for repayable grants for start-up businesses.
  • $73.5 million for the National Science Challenges.
  • $20 million for the Marsden Fund.