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MX 6: Deduction if increase in basic tax rate for company
or “Deduction available when company tax rate increases for those with R&D loss tax credits”
You could also call this:

“Repaying R&D tax credits when company circumstances change”

This section explains when a company might have to pay back some of the money they got from research and development (R&D) tax credits. This can happen if:

You sell or give away special company knowledge or property, unless it’s part of joining with another company or if you get paid the right amount for it.

You stop being the right kind of company to get these credits.

Your company goes out of business.

The people who own your company change too much.

If any of these things happen, you might have to pay back some or all of the R&D tax credits you got. How much you pay back depends on which of these things happened and how much your company has already paid in taxes.

If you sell or give away special company knowledge, you’ll pay back the smaller amount between what you still owe on your R&D credits and the value of what you sold or gave away.

If the people who own your company change too much, you’ll pay back based on how much the company’s shares are worth.

If your company stops being eligible or goes out of business, you’ll have to pay back all the R&D credits you got, minus the taxes you’ve already paid.

You can claim the amount you pay back as a deduction on your taxes. There are special rules in the Tax Administration Act 1994 about how to pay this money back.

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Part M Tax credits paid in cash
Tax credits for R&D tax losses

MX 7Reinstatement of R&D tax losses and R&D repayment tax

  1. This section applies when a person (the company) has an R&D loss tax credit for a tax year (the credit year), and in an income year (the reinstatement year) corresponding to the credit year or a later tax year,—

  2. the company—
    1. disposes of or transfers intangible property, core technology, intellectual property, or know-how, other than to the amalgamated company as part of an amalgamation and other than for consideration that is assessable income of the company and has a value no less than the market value of the property transferred:
      1. fails to meet a corporate eligibility requirement in section MX 2(a) or (b):
        1. has a liquidator appointed:
        2. there is no group of persons that has, for the period (the ownership period) starting on the first day of the income year corresponding to the credit year and ending on the last day of the reinstatement year,—
          1. lowest voting interests in the company of each person for the ownership period that add up to 10% or more; and
            1. when a market value circumstance exists for the company in the ownership period, lowest market value interests in the company of each person for the ownership period that add up to 10% or more.

            2. If subsection (1)(a)(i) applies, and subsection (1)(a)(ii) and (iii) does not apply, for the reinstatement year, the company is liable for an amount of R&D repayment tax equal to the lesser of—

            3. the total of the company’s R&D loss tax credits, for the tax years in the period that begins with the earliest credit year and ends with the tax year corresponding to the reinstatement year, minus the total amount of—
              1. the company’s terminal tax, plus tax credits giving rise to imputation credits, minus refundable tax credits giving rise to imputation debits, for the tax years in the period:
                1. earlier payments of R&D repayment tax relating to R&D loss tax credits for the tax years in the period:
                2. the amount calculated for the reinstatement year using the formula—
                    1. intangibles’ market value × basic tax rate for a company.

                    Where:

                    • In the formula, intangibles’ market value is the market value of the company’s intangible property, core technology, intellectual property, or know-how disposed of or transferred in the income year other than for consideration that is assessable income of the company and that has a value no less than the market value of the property transferred for that consideration.

                    • If subsection (1)(b) applies, and subsection (1)(a)(ii) and (iii) does not apply, for the reinstatement year, the company is liable for an amount of R&D repayment tax, calculated for the tax years in the period that begins with the earliest credit year and ends with the tax year corresponding to the reinstatement year, equal to the lesser of—

                    • the total of the company’s R&D loss tax credits for the tax years in the period minus the total amount of—
                      1. the company’s terminal tax, plus tax credits giving rise to imputation credits, minus refundable tax credits giving rise to imputation debits, for the tax years in the period:
                        1. earlier payments of R&D repayment tax relating to R&D loss tax credits for the tax years in the period:
                        2. the total of the amounts calculated for each tax year in the period using the formula—

                          1. In the formula, shares’ market value is the market value of the company’s voting interests or market value interests disposed of or transferred in the income year.

                          2. If subsection (1)(a)(ii) or (iii) applies, the company is liable for an amount of R&D repayment tax equal to the total of the company’s R&D loss tax credits, for the tax years in the period that begins with the earliest credit year and ends with the tax year corresponding to the reinstatement year, minus the total amount of—

                          3. the company’s terminal tax, plus tax credits giving rise to imputation credits, minus refundable tax credits giving rise to imputation debits, for the tax years in the period:
                            1. earlier payments of R&D repayment tax relating to R&D loss tax credits for the tax years in the period.

                              1. The company is allowed a deduction under section DV 26 (Deduction for reinstatement of R&D tax losses) of an amount equal to the R&D repayment tax divided by the basic tax rate for a company.

                              2. Sections 70C and 97C of the Tax Administration Act 1994 apply for R&D repayment tax.

                              Notes
                              • Section MX 7: inserted (with effect on 1 April 2015 and applying for income years beginning on or after that date), on , by section 213(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
                              • Section MX 7(2): replaced (with effect on 1 April 2016 and applying for the 2016–17 and later income years), on , by section 175(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                              • Section MX 7(4): replaced (with effect on 1 April 2016 and applying for the 2016–17 and later income years), on , by section 175(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                              • Section MX 7(6): replaced (with effect on 1 April 2016 and applying for the 2016–17 and later income years), on , by section 175(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                              • Section MX 7 list of defined terms tax year: inserted (with effect on 1 April 2016), on , by section 175(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).