Insight

Research and Development tax credits

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. This is an activity that has:

  • a systematic approach
  • a material purpose of creating new knowledge, or new or improved processes, services or goods
  • a material purpose of resolving scientific or technological uncertainty.

Where there is a core activity, expenditure on supporting activities may also 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.