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The research and development (R&D) loss tax credit allows business losses from eligible expenditure associated with R&D to be cashed out instead of being carried forward. Generally, tax losses are carried forward to the next income year.
Losses that are cashed out are no longer available to apply against income in future years.
For income years beginning on or after 1 April 2015, you may be able to "cash out" (have refunded) up to 28% of any tax losses associated with eligible R&D activity if your company is resident in New Zealand.
Read more information about the R&D loss tax credits in our Tax Information Bulletin Vol 28, No 3 April 2016 pages 19 to 29.
You can repay the R&D loss tax credit by paying:
New imputation credits for income tax paid by a company won't be available to a company that has cashed out R&D losses until that company has repaid the cashed out amounts.
The amount you can claim as a tax credit will be the lesser of the company's:
|Tax year||Maximum allowable value|
The maximum amount allowable will start at $500,000 x the company tax rate, ie, $500,000 x 28% = $140,000. This starting amount will be increased by $300,000 per year and will be capped at $2 million after five years.
Company A for the 2015-2016 tax year has:
Company's net loss for the year
$120,000 x 28% = $33,600
Company's total R&D expenditure for the tax year
$140,000 x 28% = $39,200
Company's total R&D labour expenditure for the year x 1.5 x 28%
$60,000 x 1.5 = $90,000
$90,000 x 28% = $25,200
The maximum claim for the 2015-2016 year
$500,000 x 28% = $140,000
For the 2015-2016 tax year, Company A can claim an R&D loss tax credit of $25,200 as it is the lesser amount.
It's important you keep accurate and complete records. Your business records should include:
For the purpose of the tax credit you should clearly record your R&D expenditure so it's easily identifiable from any other expenditure when you apply for the credit.