NEW ZEALAND GAZETTE, No. 94

25 JULY 2013

1. Research and Development (R&D) Growth Grants

POLICY OBJECTIVE

The objective of this initiative, in addition to the overall policy objective of the business-led R&D tool, is to provide a rule-based, market-led incentive for increasing R&D investment in businesses that are experienced in investing in R&D.

ELIGIBILITY CRITERIA

In addition to the BUSINESS ELIGIBILITY CRITERIA stated earlier, to be eligible to receive funding a business must:

• have had at least $300,000.00 in eligible R&D expenditure (stated below) sourced from non-government funds in each of the two most recent years;
• have had eligible R&D expenditure of at least 1.5 per cent of revenues in each of the two most recent years;
• meet financial and management due diligence requirements sufficient to justify three years of funding; and
• provide Callaghan Innovation with an R&D plan including an estimate of R&D expenditures over the next three years.

Businesses must compile the R&D plan to a level of detail and clarity sufficient to assess progress in the businesses’ R&D programme over time.

For R&D projects that were partially funded by government grants, the funding for the project that came from non-government sources is considered eligible R&D expenditure for the purpose of determining business eligibility.

While eligibility requires that applicants submit an R&D plan, the merits of the R&D programme described in the plan will not influence eligibility.

Entities that conduct or commission R&D activities mainly for other persons or businesses are likely to be ineligible due to insufficient eligible R&D expenditures.

PARAMETERS SPECIFIC TO THIS INITIATIVE

All eligible applicants will receive a R&D Growth Grant for three years. Grant holders will receive up to 20 per cent of all eligible R&D expenditures incurred over the grant period up to a maximum of $25 million of eligible expenditures per business, per year (maximum grant funding of $5 million per business per year).

Businesses will be required to submit annual updates to their R&D plan and estimates. These plans must continue to be sufficiently detailed and clear.

Any business receiving a R&D Growth Grant that is found to be wilfully misreporting R&D expenditure at any point will be immediately removed from the initiative and will be ineligible to reapply for three years.

PARAMETERS SPECIFIC TO THIS INITIATIVE – EXTENSIONS

Two years into the grant period, grant holders will have the option of applying for a two-year extension on the grant. Grant holders will receive an extension if:

• the business’ reported expenditure over the previous two years is found to meet the definition of eligible R&D expenditure (stated below);
• the business continues to meet the eligibility criteria; and
• the business has maintained or increased non-government funded eligible R&D expenditure over the two years of the grant period as compared to the two years prior to the grant period.

If the business has reduced non-government funded eligible R&D expenditure but meets the other requirements, the Callaghan Innovation Board may still choose to grant the business an extension at its discretion. The Board should only do so in exceptional circumstances.

Businesses may continue to apply for, and receive, extensions every two years provided they continue to meet the requirements.

Businesses that fail to receive an extension will receive a final year of grant funding and subsequently exit the initiative. Businesses that exit the initiative are not eligible to apply for another R&D Growth Grant for two years.

DEFINITION OF ELIGIBLE RESEARCH AND DEVELOPMENT EXPENDITURE FOR R&D GROWTH GRANTS

Eligible R&D expenditure is defined as those meeting the New Zealand Equivalent to International Account Standard 38 (NZ IAS 38) definition of research and development and expensed under that standard.

The NZ IAS 38 definitions of R&D are:

• Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.
• Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.

Clarifying Principle

If necessary, when seeking to distinguish R&D from non-R&D, the further advice provided by the New Zealand Financial Reporting Standard 13 (NZ FRS 13) should be applied:

• R&D is distinguished from non-R&D by the presence or absence of an appreciable element of innovation. If the activity departs from routine and breaks new ground it is normally R&D; if it follows an established pattern it is normally not R&D.

General Exclusions

The following types of expenditure are not eligible for the R&D Growth Grants initiative:

• any expenditure that is capitalised as an intangible asset under NZ IAS 38;
• R&D undertaken outside of New Zealand;
• R&D funded through an enforceable levy paid by another entity;
• enforceable levies for R&D paid to another entity; and
• any R&D funded by a grant or other payment provided by an entity that is not part of the same consolidated group of entities as the applicant. However, expensed funding for R&D contracted out by the applicant to another entity is eligible.