A new tax break for businesses spending on R&D is due to come into affect next April.

Businesses would get a slice of their research and development spending back from April next year under a Government proposal to encourage firms to invest in innovation.

A discussion document released by Research, Science and Innovation Minister Megan Woods proposes a 12.5 per cent tax break for businesses' R&D expenditure.

That would be introduced as the first step towards the Government's goal of increasing business R&D spending to 2 per cent of New Zealand's gross domestic product (GDP) over the next 10 years.

The incentive scheme would apply to spending on business activities using "scientific methods" to acquire new knowledge or to create new or improved materials, products, processes or services.

JOSPEH JOHNSON/STUFF Research, Science and Innovation Minister Megan Woods said R&D was "a "key lever in diversifying the economy and creating new industries".

To be eligible, a business would need to be spending more than $100,000 a year on R&D, or have outsourced its R&D activities to an approved research provider, which would have to meet certain requirements. An individual business would be able to claim the tax reduction for up to $120 million of R&D per year, equivalent to a tax credit of up to $15m annually.

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Woods said New Zealand needed "new ideas, new innovations and new ways of looking at the world if we are to build a sustainable and productive economy that delivers for all New Zealanders".

New Zealand's current R&D spending was 1.3 per cent of GDP, which was "much lower" than the OECD average of 2.4 per cent, she said.

Woods said increasing R&D was a "key lever in diversifying the economy and creating new industries, businesses and highly skilled jobs". Government investment in the area was important but there was a need for private sector businesses to undertake more R&D, she said.

Revenue Minister Stuart Nash said the tax incentives would "offer a greater element of certainty to businesses" and would enable businesses of all sizes to contribute to R&D.

ROSS GIBLIN/STUFF Revenue Minister Stuart Nash said a careful approach was needed to establish the mechanisms for the tax incentive.

A careful approach was needed to establish the mechanisms for the tax incentive, he said. The Ministry of Business, Innovation and Employment has released a discussion document which provides detail on how the scheme would work and wants public feedback on specific parts of the plan.

The Government currently hands out R&D grants through Callaghan Innovation, an agency set up to support hi-tech businesses. It was formed in 2013.

Woods previously said Callaghan Innovation occupied a "really important space" in the innovation industry and more businesses undertaking research and development would be a "huge cause for celebration" for the agency.