Money your business spends on research and development (R&D) may be eligible for a 15 per cent tax credit up to $120 million.
The R&D tax incentive provides a tax credit at a rate of 15 per cent of eligible R&D spend - up to $120 million.
If you’re currently doing R&D, you must apply and get approval for your R&D activities to be eligible to claim the credit.
If you’re considering how you might do future R&D, understanding the eligibility criteria might help you decide.
Generally you must spend at least $50,000 a year on eligible R&D to access the tax incentive, though spend under $50,000 a year may still be eligible if an approved research provider is used to do R&D on your behalf.
Approved research provider list(external link) — Inland Revenue
Any business that has applied for the RDTI can apply for in-year payments to get support closer to when R&D costs are incurred, rather than waiting for your RDTI tax credit to be issued.
Eligible R&D activities must:
For your R&D to be eligible, you must seek to resolve a scientific or technological uncertainty. In other words, it’s not enough to be applying existing knowledge in a new situation. You must be trying to solve a hard problem or do something that professionals in that field don’t know how to do without going through an investigative process to try to find an answer.
Eligible R&D activities must be done in New Zealand, but up to 10 per cent of total eligible spend can relate to R&D done overseas.
Use the Inland Revenue tool to help you better understand if your organisation and activities are eligible for the R&D tax incentive.
Elibility for research and development tax incentive(external link) — Inland Revenue
Mike and Fulia design and build houses. In response to market demand, they are improving their designs to achieve passive house energy efficient standards. Their designs are new and require them to do a considerable amount of background research. Mike and Fulia are unsure if they will be commercially successful or not.
Mike and Fulia use a systematic approach and check each stage of their first house design to ensure it complies with the passive house standards.
The principles for passive house design are well understood by competent professionals in that specialist field and there is no scientific or technological uncertainty in what Mike and Fulia are doing.
Because of the absence of scientific or technological uncertainty, this type of adaption or development does not qualify as an eligible R&D activity.
If you spend $50,000 or more a year on eligible R&D activity you may qualify for the tax incentive, although you should note there are some rules around what types of expenditure are eligible.
If you spend less than $50,000 a year, then your claim can only include eligible expenditure on approved research providers doing R&D on your behalf.
Karen’s R&D spend is $35,000 with an approved research provider. Her approved research provider ensures that none of the R&D spend relates to ineligible activities or expenditure.
Karen also spends $20,000 on eligible R&D performed in-house.
Her total eligible R&D spend equals $55,000, which meets the minimum threshold of $50,000. Karen’s total R&D spend of $55,000 may be eligible for the tax incentive.
Record your R&D spend over the course of the year so that your records are ready to file at the end of the tax year.
You’ll need to keep records that:
Whether you do your R&D activity in-house or with a contractor, including an approved research provider, you are ultimately responsible for making sure you can access the records required to support your claim.
It is also your responsibility to make sure your claim only includes eligible expenditure, even if you use an approved research provider.
Inland Revenue has guidance about how to keep records and more information about the R&D tax incentive.
Research and development tax credit guidance(external link) — Inland Revenue
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