New Zealand’s current tax legislation in relation to patents and plant variety rights contains what is referred to as a black hole for expenditure for applications that do not proceed to grant. In such cases the expenditure is neither deductable nor depreciable as no capital asset has arisen. The May 2013 budget has proposed that this will change from the 2014-2015 income year. Subsequently withdrawn patent or plant variety right applications will be eligible for a deduction in that income year for the accrued expenditure. This change to the tax system is hoped to encourage businesses to invest in research and development, particularly where the commercial usefulness of an invention is not known – which is frequently the case during prosecution.
