"All research expenditure and most development expenditure will be available for an immediate tax deduction under changes now being considered by the Government," Finance and Revenue Minister Michael Cullen announced today.

Dr Cullen told the Business - Government Forum in Auckland that the Government was preparing a discussion paper on the issue to put out to the public for wider consultation.

"I said after the 2000 Budget that my door was open to anyone who could come up with a mechanism to create a more supportive R&D regime without significant risk to the revenue.

"Since then I have been canvassing the matter with private sector tax practitioners and accountants. One of the issues accountancy firms in particular raised was that, while in most cases R&D was being deducted, there were concerns that the boundary between deductible and non-deductible was unclear and that the Inland Revenue Department was adopting an aggressive pro-revenue approach.

"The initiative the Government is announcing today arose directly out of those discussions. Essentially the proposal is that the tax laws be brought into conformity with Generally Accepted Accounting Practice in terms of what qualifies as R&D expenditure," Dr Cullen said.

"Currently the 'Eureka point' at which an idea is judged to have become an asset and to no longer automatically qualify for immediate R&D deductibility as a business expense is a grey area in tax law.

"The definition for accountancy purposes is much clearer, and tends to occur further on in the product development process. The effect, therefore, of bringing the two codes into alignment will be to introduce more certainty into the system and, in most cases, to support a more generous tax treatment.

"No-one will be disadvantaged. Those wishing to continue with the status quo will have that option. There should, however, be compliance cost savings for many taxpayers in applying the same regime across both their accounting and their tax treatments.