R&D an election issue? (7 Apr, 2017)

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R&D an election issue? (7 Apr, 2017)

Postby aardvark_admin » Fri Apr 07, 2017 9:07 am

This column is archived at: http://aardvark.co.nz/daily/2017/0407.shtml

Are grants a poor way to incentivise R&D activity in New Zealand.

Has this method of "picking winners" really delivered acceptable results for the average Kiwi taxpayer -- or is it just a great way to give money to those companies who least need it, while staving the startups of the nation?

Does my tax-credit system have flaws?

Do you have a better idea?

Should we be lobbying the various parties for a review of the way this nation promotes R&D spending, given that it's election year?
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Re: R&D an election issue? (7 Apr, 2017)

Postby ✯Ново-Зеландия✯ » Fri Apr 07, 2017 9:22 am

You spend billions on training foreign students at your education institutions, who then leave the country, or apply for residency.

The media, and your government tell you that international students pay fees. some do, the vast majority do not.

Every post graduate student, on a scholarship, costs you $55k per year, for 4 years, not 3. You can't study post graduate, usually, unless you get a scholarship.

You have spent billions, yet no one asks any questions.

Now you can't even pay what you owe to Interpol to stay as a member.
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Re: R&D an election issue? (7 Apr, 2017)

Postby joeseph » Fri Apr 07, 2017 11:21 am

as you say, the current hand-out system is cr@p.
The tax-credit system sounds like a good one, although systems would need to be in place so that people couldn't simply fold a company and continue with another start-up purely for the purpose of getting a tax break. (similar to what happens when dodgy companies fold one day, and magicly re-appear the next, trading under a slightly different name to avoid debt etc.)
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Re: R&D an election issue? (7 Apr, 2017)

Postby ✯Ново-Зеландия✯ » Fri Apr 07, 2017 11:33 am

Define "research"?

Tidy up your company register.
Tidy up your land theft and onselling register.
Implement capital gains tax on foreigners buying land - or ban foreigners.

How do NZ business people access serious research? Through a university or Clown Research enterprise.

These people, take 60% + of your intellectual property rights.
They will line you up with greedy mafia businessmen - to steal your schit.
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Re: R&D an election issue? (7 Apr, 2017)

Postby roygbiv » Fri Apr 07, 2017 11:34 am

I agree, what you describe has got a great deal of merit - a well structured argument. It would be worth looking at past 'hand-outs' to see who benefited the most, I suspect they are well hidden behind all the accountancy involved.
Another potential problem would be the govt's own rottweiler dept - the IRD, old dog new tricks etc - a bit of a challenge for them to cater for this.
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Re: R&D an election issue? (7 Apr, 2017)

Postby Logan Savage » Fri Apr 07, 2017 11:48 am

joeseph wrote:The tax-credit system sounds like a good one, although systems would need to be in place so that people couldn't simply fold a company and continue with another start-up purely for the purpose of getting a tax break.
Now that is a very good point. Yes our R&D spend is embarrassing, and the grant system has no discernible merits. I think we all should be lobbying every party to get this onto their agenda. But why penalise established companies with a successful track record? Thats the bit I don't quite understand. Care to elaborate on that point Bruce?
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Re: R&D an election issue? (7 Apr, 2017)

Postby aardvark_admin » Fri Apr 07, 2017 11:51 am

It doesn't penalise existing companies, they can start a separate company for each new project and thus qualify for the tax credits. In fact this is the whole idea. By effectively having to create a new company, it compartmentalises the tax credits so we don't get big corporations simply claiming huge R&D spends in order to offset their tax liabilities in already-profitable companies.
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Re: R&D an election issue? (7 Apr, 2017)

Postby Logan Savage » Fri Apr 07, 2017 12:13 pm

aardvark_admin wrote:It doesn't penalise existing companies
They don't get the tax break if they have been in existence for 5 years. That sounds like a penalty to me. Won't that lead to a rebranding every 5 years? Although as the engineer turned novelist Nevil Shute observed, there are "starters" and "runners". He was a natural "starter" and started many small businesses, but once they got big and successful he lost interest and sold them to some "runners" so he could focus on his next brainwave. I suspect such a system would suit you very well Bruce. Start a company to commercialise pulse jets, after 5 years flick it off and start again with sense&avoid technology, then after 5 years flick it off and start again with another idea from your notebook...
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Re: R&D an election issue? (7 Apr, 2017)

Postby aardvark_admin » Fri Apr 07, 2017 12:17 pm

Yes, the idea is to incentivise people to create new startups and develop ideas. If an existing company wants the R&D tax credit to develop an new product then they simply spend $440 and create a new company which holds the IP for that product. They then fund that company (declaring how much of that funding is going to R&D) and the tax credit is applied to that company. If they're not making a profit within 4 years then one could argue that in today's world of rapid tech development, they're far less likely to make a profit -ever. Just look at the MJP for an example of that.

My proposal means that *every* entity, big or large, has equal entitlement to the credits -- be they F&P (who start "F&P Project 1", "F&P Project 2", etc, etc -- or the one-man band who starts a company to develop his own clever idea.
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Re: R&D an election issue? (7 Apr, 2017)

Postby dingram17 » Fri Apr 07, 2017 9:43 pm

That's pretty much how Australia used to do it, but it changed in 2011:
Before 1 July 2011, the R&D tax concession allowed companies to claim a tax deduction in their income tax return of up to 125% (and in some cases up to 175%) of eligible expenditure on R&D activities.


Current system uses tax offsets: https://www.ato.gov.au/Business/Research-and-development-tax-incentive/
How to calculate it all: https://www.ato.gov.au/business/research-and-development-tax-incentive/claiming-the-tax-offset/steps-to-claiming-the-tax-offset/step-5---calculate-your-tax-offset/

A company tax rate of 30% and an R&D offset of 43.5% means that you're getting more tax offset than a straight deduction, and that has to help. Small (<$20M turnover) business might be able to get 'surplus' offsets paid to them (this is what makes it a refundable tax offset). Large companies have a non-refundable offset of 38.5%

Having more help for the small companies is a good idea, and I think that encouraging some R&D in the big end of town is still worthwhile.
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