Waikato Business News June/July 2018

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42 WAIKATO BUSINESS NEWS June/July 2018 PROFESSIONAL SERVICES Company-X up for more awards Fast-growing Hamilton software specialist Company-X is a finalist in the New Zealand Excellence in IT Awards. Company-X director Jeremy Hughes and his team of business analysts, support analysts and software developers are finalists in the Excellence in Govtech category in the national awards held every two years. This award is for a team or individual who has achieved outstanding results through technology innovation in any aspect of central or local government IT. This could include anything related to Government, including open data and open government projects. We’re finalists in these awards because of our hard working and dedicated team. The One Network Road Classification Performance Measures Reporting Tool, built by Company-X for New Zealand roading authorities, has caught the attention of the IT Excellence Awards judges. It’s the second time Jeremy, who founded Company-X in 2012 with David Hallett, has been up for a New Zealand Excellence in IT Award. Jer- emy was nominated in the Excellence in Public Sector IT category in the 2016 New Zealand Excellence in IT Awards. The winner will be announced at a gala dinner at ITx, New Zealand’s Conference of IT, on July 12. Company-X was also recently named a finalist in the 2018 Air New Zealand Cargo ExportNZ Awards. The software specialist is a finalist in the BDO Best Medium Business for Services category. Company-X clients include large, multi-national, businesses headquartered overseas, for whom Company-X has designed and developed bespoke software solutions. Company-X won the Services Exporter of the Year award at the Air New Zealand Cargo ExportNZ Awards last year for businesses with export revenue of up to $10 million. “Our awards showcase a cross-section of some of our most ingenious and innovative businesses in the export sector,” ExportNZ Waikato manager Sharon Robertson says. This year, the category winners from the respective ExportNZ regional awards programmes automatically qualify for entry into the New Zealand International Business Awards (NZIBA), run by New Zealand Trade and Enterprise (NZTE). Company-X director Jeremy Hughes, gesticulating, with the One Network Road Classification Performance Measures Reporting Tool team. ExportNZ Auckland and ExportNZ Waikato are divisions of the Employers and Manufacturers Association. The 2018 awards will be presented at a black-tie gala dinner on Thursday, June 28 in Auckland. David and Jeremy thanked the Company-X team after becoming finalists. “We’re finalists in these Your teeth are in good hands Mark Ewing & Andrew Quick 07 839 5870 / 17 Pembroke St / hamiltonorthodontics.co.nz awards because of our hard working and dedicated team,” David says. “We only hire the best and the brightest, that is why we do so well,” Jeremy says. Company-X entered the Deloitte Technology Fast 500 at number 330 in December, having achieved revenue growth of 138 percent over three years. The number of Company-X jobs has almost doubled since November, 2016, from around 30 to nearly 60. Homecoming as PR firm expands into Waikato When BlacklandPR set up its Waikato office, Greta Shirley seized the chance to come home. One of five staff in the boutique PR firm, she is back in her hometown of Hamilton after a stint in London. Waikato is a sensible move for the Wellington-based firm, which already has agribusiness and science clients on its books and is conscious of the region’s growth. Greta says the company sees steady GDP and job growth, and a 120 percent rise in commercial consents in one year, as signals of a sophisticated Waikato business sector She has been busy meeting and greeting people since April, when she started as Waikato director. As a former marketing and communications manager at Niwa in Hamilton before her London stint, Greta has connections to build on, and the firm already does some work with DairyNZ and Niwa. “It’s really nice to be home. It’s really evident how sophisticated Waikato is becoming and the incredible growth that’s gone on,” she says. “Growth can be a double-edged sword because you come under the national spotlight, and that means you’re open to criticism or being talked about. That’s where we come in to provide some advice and support. “We believe in doing the hard work, and we really enjoy getting to do difficult stuff and be hands-on with it.” BlacklandPR has a strong government relations focus, with all three directors having worked in Parliament, and Waikato firms can expect Greta to help them make those connections. She says Waikato is grappling with some topical issues, particularly in the agribusiness, energy and science sectors – such as the Zero Carbon Bill, renewable energy, the m.bovis outbreak, regional development and water quality. “We are helping Waikato businesses to engage with Wellington on issues like these, bridging the provincial and urban divide.” She says her job is helping organisations meet their business objectives. “If they have a business objective we will come up with an innovative strategy to influence and persuade the right people. “We really believe it’s most persuasive when people talk and act like real people.” That’s something she sees in heartland Waikato. “The robust, plain speaking, pioneering Waikato style can be as much a secret to PR success as it is to our social and economic success,” she says. “Big city organisations and businesses lose public and political battles because they do not advocate their case with sufficient passion, purpose and clear evidence – to the people that matter most to them. That’s the Waikato advantage, still untainted by big city over-thinking.” The firm has a further connection with Waikato through director Mark Blackham, who was raised in Hamilton. He says the company, founded in 2012, has long wanted to provide its services Greta Shirley to Waikato. “In our sector, everyone wants to serve the big end of town in Wellington or Auckland. Our heart is in the suburbs and the regions, where New Zealanders live and work.” A former journalist and producer, Greta has worked in TVNZ newsrooms and the parliamentary press gallery before moving into communications. Since 2006, she has worked both as a consultant, and in in-house leadership roles, for clients in the science, environmental, energy, pharmaceutical and public sectors. In London, she was head of communications and marketing for pharmaceutical specialist Walgreens Boots Alliance. She’s now enjoying meeting people in Waikato. “There is a huge amount going on here and I’m really fascinated by the way organisations are joining up and connecting with each other in order to showcase the capabilities in Waikato.”
WAIKATO BUSINESS NEWS June/July 2018 43 Proposed Research and Development Tax Credits The Labour-led Government recently released the Research and Development Tax Incentive Discussion Document – “Fuelling Innovation to Transform our Economy”. The discussion document proposes a 12.5 percent research and development (R&D) tax credit on eligible expenditure for all businesses carrying out R&D activity in New Zealand from April 1, 2019. The Government believes R&D is key in their vision of building a better New Zealand through creating a diverse, sustainable and productive economy. R&D expenditure by businesses in New Zealand is currently 0.64 percent of GPD – compared with the OECD average of 1.65 percent. The Government has affirmed its commitment to encouraging R&D expenditure (with the goal being 2 percent of GDP over the next 10 years) by indicating that this proposed tax credit is likely part of a wider incentive package for R&D focussed start-ups and innovative firms to be developed over the coming years. The purpose of the amendment is to deliver a “clear, robust and practical definition of R&D for New Zealand tax purposes”. The proposed tax credit is a welcome addition to the New Zealand R&D landscape, however as with most significant changes in Government policy and subsequent amendment to legislation there will be winners and losers… The tax credit will not initially be refundable. The exact mechanics of the tax incentive will be confirmed through consultation and legislative drafting however, this means the value of the tax credit would not crystallise until a business is in a tax paying posi- tion (which may be years for an early stage R&D intensive business). This is a clear divergence from our current R&D regime which allows loss-making companies to cash-out a portion of tax losses from eligible expenditure, providing valuable cash flow to start-up companies who generally incur significant losses in the early years of business. The Discussion Document indicates the existing regime will also be reviewed and any amendments would apply after the 2019/2020 income tax year (ie, the schemes will run in parallel for the first year). Further, the Growth Grants administered by Callaghan Innovation will be phased out over the next two years. This is on the basis that the new tax incentive is funding “a similar type of activity and have a similar purpose”. It is proposed that new Growth Grant applications and extension to existing grants will close on March 31, 2019 and all remaining grants will cease on March 31, 2020 (even if originally agreed they would extend past this date). The combination of the above could have a detrimental impact on the cash flow of R&D start-ups who may not have access to bank funding or may not want to dilute equity through equity investment. However, the Government has indicated that it will introduce changes to support R&D businesses in tax loss positions from April 2020. The proposed tax credit applies to eligible R&D expenditure over $100,000 but not exceeding $120 million which equates to a possible $15 million tax credit. All businesses, regardless of legal structure will be eligible for the credit. A new definition of “R&D” is proposed by the new rules. This may result in additional compliance costs and administration for potentially cash poor businesses. The current definition (for Growth Grants and the loss-cash out rules) is based on the financial reporting definition and is not considered suitable. The proposed definition necessitates the use of “scientific methods” and requires expenditure on R&D activities which resolve “scientific or technological uncertainty”. The purpose of the amendment is to deliver a “clear, robust and practical definition of R&D for New Zealand tax purposes”. Although the regime is intended to have a broad reach, the proposed definition is arguably too narrow which could limit the scope of eligible R&D activities. For example, the proposed definition may not suit software/ app development because it does not involve traditional scientific methods, does not necessarily solve uncertainty (ie. they are more targeted at a specific creation or result) or address a material problem. The definition needs to be clear and comprehensive so businesses are easily able to understand whether they can apply it or not. Two approaches for determining eligible expenditure are being considered: 1. The direct R&D labour cost approach where the claim is limited to the labour cost of staff performing R&D activities, or 2. A broader approach capturing both direct and indirect R&D costs (including salary/wages, depreciation on tangible property used in conducting R&D, materials, and other costs incurred indirectly as a result of R&D activities). Additionally, some expenditure will be specifically excluded, for example, interest, donations, and depreciation during the period on an asset that is not being used to carry out R&D activities. Arguably, the new regime shifts Government support from start-ups to profit making medium to large businesses (with potentially the largest impact on GDP?). Profit making, medium size businesses will benefit from the change as Growth Grant Funding is limited to $5m compared with a $15m maximum tax credit. However, it is likely that the most significant benefit is for New Zealand’s large corporations as there have been suggestions that the cap could be extended with Ministerial discretion or pre-registration of large claims. Ultimately, the tax credit should stimulate investment in innovation – especially given the Government have indicated that the incentive will not stand alone and the Tax Working Group will continue to examine the New Zealand tax system to ensure structure, balance and fairness of our tax system. Profit making medium and TAXATION AND THE LAW > BY HAYDEN FARROW large businesses are likely to be better off, but our emerging innovative businesses will have to wait for further announcements to see how they will be effected. The comments in this article of a general nature and should not be relied on for specific cases. Taxpayers should seek specific advice. Hayden Farrow is a PwC Executive Director based in the Waikato office. Email: hayden.d.farrow@nz.pwc.com If your brand is not reflecting who you really are, let’s talk. A common-sense approach to building your brand and telling your story. Since forever. vicki@dugmorejones.co.nz
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Waikato Business News June/July 2018

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