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.