From the 2019/20 tax year, Research and Development (R&D) tax credits are available to New Zealand businesses undertaking eligible R&D activities.
The tax credit incentives:
- are 15c in the dollar for eligible R&D expenditure
- are available where there has been a minimum R&D spend of $50,000 in an income year (unless R&D is conducted through an approved research provider)
- are capped at $25 million per year for R&D on internal software development
(software development for an organisation’s internal administration is not eligible)
- are capped at $120 million of R&D per year for the total amount of eligible expenditure
- can be used to reduce tax liability in the current year and refunded up to the amount of employment taxes (pay-as-you-earn, fringe benefit tax and employer superannuation contribution tax)
- can be carried forward if they are non-refundable (subject to shareholder continuity requirements)
- replaces the Callaghan Innovation growth grants system (Callaghan Innovation project grants remain available in parallel with the R&D tax credit incentive).
R&D contractors who are paid to perform an R&D activity on behalf of another person are generally ineligible for R&D tax credits.
What is R&D?
There must be a ‘core R&D activity’ for any credit claim.
- Are you solving matters that involve a scientific or technological uncertainty?
- Are you creating new knowledge or improved products or processes as the result?
- Are you using a systematic approach in your work?
Where there is a core activity, expenditure on supporting activities may qualify for the R&D tax credit.
What can be claimed?
Eligible R&D expenditure includes items such as employee salaries, goods and services used in an R&D process, and depreciation loss for assets used in R&D. Overheads (rent, rates, insurance etc) may be eligible expenditure to the extent they relate to qualifying R&D activity.
Primarily, R&D tax credits are only available for expenditure on R&D that occurs in New Zealand.
Existing R&D loss refund regime
The existing R&D tax loss refund regime which allows to claim refunds of tax losses from the R&D expenses remains in place and can be applied in parallel with the new R&D tax credit incentive.
As part of making an R&D tax credit claim, our tax specialists can assist you with:
To be eligible to claim R&D tax credits, your entity must meet various eligibility requirements relating to ownership structure.
Core activities are those which drive the relevant R&D activity and supporting activities are those which have the main purpose of supporting a core activity.
Various types of R&D expenditure are specifically excluded for the purposes of claiming R&D tax credits.
Contemporaneous records of R&D activities are required to be maintained to claim tax credits.
To improve certainty of eligibility, a pre-approval scheme has been implemented by Inland Revenue.
We can help you determine the quantum of eligible expenditure and the tax credit.
Within 30 days after the due date of your income tax return, a supplementary R&D return must be filed with Inland Revenue.