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Find out answers to the most frequently asked questions about the R&D Tax Incentive.
Go to, and download, the Research and Development Tax Incentive: Guidance or consult your tax advisor for detailed information.
It will be available to customers, who have enrolled for the R&D Tax Incentive, in their myIR account from November 2019.
Businesses that expect to have more than $2 million of eligible R&D expenditure can apply to be recognised as a significant performer which would exempt them from the requirement to obtain general approval.
Businesses recognised as significant performers will need to get an R&D certificate from an R&D certifier. They are able to apply for criteria and methodology approval. Find out more on Changes in year 2 (2020/21 income year) - General approval and significant performer regime in the Research and Development Tax Incentive: Guidance
Compliance costs will be minimised if you already have good record keeping systems and document approach to initiating and monitoring R&D projects, you should be able to integrate additional record keeping requirements into your existing system.
Businesses which have to create record keeping systems from scratch will face higher costs.
You will need to provide details of your R&D activity when you complete the R&D supplementary return, and from 2020/21 when you apply for general approval.
The Research and development (R&D) supplementary return section in the Research and Development Tax Incentive: Guidance explains what information will be required. From November 2019 the supplementary return questions will be visible in myIR to businesses that are enrolled for the R&D Tax Incentive.
The supplementary return focuses on the questions you are trying to answer and the activities you are undertaking, rather than the IP you have generated.
We recognise the privacy and security of R&D information is of the utmost importance. Access to the information you provide about your R&D activity will be restricted to the Inland Revenue and Callaghan Innovation core team directly working on the R&D Tax Incentive.
A Bill before Parliament proposes changes that, if passed, will apply from the beginning of the 2020/21 income year. The main changes would make:
The Bill also proposes to broaden the definition of internal software development expenditure subject to the $25 million cap. It would then include all software development expenditure that is not external software development or software development undertaken for the purposes of internal administration.
If this amendment is passed it will apply retrospectively to the 2020/21 income year.
Privately owned New Zealand-based businesses and state owned enterprises doing eligible R&D in New Zealand are generally eligible to apply.
Businesses in the following situations are not eligible. FInd more details about eligible entities in the Research and Development Tax Incentive: Guidance
To claim the R&D Tax Incentive, an organisation must carry on business through a fixed establishment in New Zealand. A foreign-owned company which meets this requirement may be eligible to claim the R&D Tax Incentive.
For the purposes of the R&D Tax Incentive, eligible R&D activities require a core R&D activity and can include supporting R&D activities. To be a core R&D activity all of the following needs to apply - a core R&D activity must:
Scientific or technological uncertainty exists if the required knowledge is not publicly available and a competent professional in that field cannot deduce (work out) the answer without undertaking a systematic approach designed to evaluate possible solutions.
Put simply you must have a hard problem that experts in the field are not sure can be done or how to do it. Refer to the Resolution of scientific or technological uncertainty information in the Research and Development Tax Incentive: Guidance
The test of new is on a worldwide basis, it is not enough that it is new to your business or new to New Zealand.
If what you are doing has already been done somewhere else, but it involves resolving scientific and technological uncertainty and there is no publicly available information about how to resolve the undertainty, your activity may still be eligible for the R&D Tax Incentive.
The full list of Activities excluded from being research and development (R&D) activity is in the Research and Development Tax Incentive: Guidance
Activities excluded from being core R&D include, but are not limited to:
If you have a core R&D activity there may be related activities which are directly related to a core R&D activity and are required to conduct the R&D, but do not meet the definition of a core R&D activity. These activities may qualify for the tax incentive if:
Put simply, to qualify there must be a very close connection between something claimed as a supporting R&D activity and the core R&D activity it supports. For example, it is unlikely that an activity which is already undertaken for non-R&D purposes will have a main purpose of supporting R&D.
Yes, unsuccessful R&D that meets the eligibility criteria can qualify for the R&D Tax Incentive.
To be eligible, expenditure must be on eligible R&D activities and it must be on 1 or more of the following:
In addition, the expenditure cannot be on an ineligible expenditure type.
The full list of Ineligible expenditure is in the Research and Development Tax Incentive: Guidance
Excluded expenditure includes, but is not limited to:
There are specific rules which limit eligible expenditure when the R&D:
If R&D is carried out overseas, eligible overseas expenditure can be no more than 10% of your total expenditure in that year.
More detail is provided in the Research and Development Tax Incentive: Guidance
Overheads are eligible to the extent they are incurred on core or supporting R&D activities. Sometimes it will not be practical or possible to examine each expenditure item to determine if it was used in eligible R&D.
In these cases, you can use apportionment to allocate the costs to the R&D but the method of apportionment must be:
Note, if your R&D is being carried out in the course of commercial production (at the same time and same place as commercial production) you can only claim overheads if you can demonstrate that the costs are additional to the costs that would normally be incurred and arise because of eligible R&D activity.
No, the threshold relates to the business's total eligible expenditure in that year and can be on more than 1 R&D project.
If the businesses are in loss or have more R&D tax credits than they have tax to pay, they may be able to have the tax credits paid out (refunded).
In the 2019/20 income year the maximum refund is limited to $255,000 and the requirements include that the business is structured as a company and that at least 20% of its employee costs are on eligible R&D activity. Find out more about Refunding R&D tax credits in the Research and Development Tax Incentive: Guidance
The Government intends to have a broader refundability policy in place for the 2020/21 year and legislation is currently in the house which, if passed, will make refundability available to more businesses.
Yes, tax credits can generally be carried forward to the next income year. For companies, the tax credits can be carried forward provided the standard shareholder continuity requirements are met.
To become an approved research provider, an organisation must:
You might use an R&D contractor when you do not have the skills or capacity to conduct your R&D in-house.
The advantage of using a contractor who is also an approved research provider is that the minimum expenditure threshold does not apply.
If your total R&D expenditure in a year is less than $50,000, this expenditure is eligible for the R&D Tax Incentive if it is done with an approved research provider and meets the other eligibility requirements.