What are the steps involved to claim?
The R&D Tax Incentive (RDTI) is a tax credit, so it must be claimed through Inland Revenue in your income tax return. Read our guides here to find out more.
You’ll need to set up some processes and parameters around the R&D activity you plan to do. You’ll outline what your objective is, and then by logging the R&D journey, including the costs as you progress, you'll create some of the evidence needed to satisfy Inland Revenue's record-keeping requirements. The RDTI is filed in myIR on Inland Revenue's website.
The RDTI operates on a self-assessment basis. You’re responsible for determining whether your activities and expenditure meet the legislation’s requirements, and for maintaining records to support your claim.
Your business records must be sufficient to verify:
Relevant records include those normally kept by businesses to support income tax and GST claims. Additional records will be required to cover the planning and processes of your R&D, and to isolate eligible expenditure. These records will vary depending on the nature of your business and R&D activities.
Your records should establish that you meet all the eligible activity requirements. Ideally you should maintain a project summary document for each core R&D activity that summarises:
You already keep records of your income and expenditure (eg. contracts, invoices, wage records) in your accounting systems and financial statements. However, your existing expense classifications won’t necessarily match up with the definitions of eligible and ineligible expenditure. You’ll need to develop additional systems that make it clear which is eligible.
Expenditure is only eligible for the R&D tax credit to the extent it is directly related to, required for, and integral to core or supporting R&D activities. This means if your employees, business assets and other resources are used in both R&D and other activities, you will need to apportion the expenditure between those activities.
There are many ways of doing this, and you must use a method or methods that can be substantiated. This could include the use of time records for employees, floor space for rent, and hours of use for plant and equipment.
Whichever method you use, you should be able to show why it is appropriate.
If you perform your R&D activity in conjunction with a commercial production activity (producing products or services for sale), you can only claim the RDTI on:
This means you have to keep records to substantiate the time and costs for employees working on the R&D activity, and any additional costs incurred.
Where any goods produced as a result of the R&D activities are sold, you must deduct the sale price or market value of the goods from your eligible expenditure. You will need to keep records of the production costs, volume and value of goods produced and sold, and the volume on hand at the end of the year.
If you engage a contractor to carry out your R&D activity, any contracts, reports and invoices should enable you to:
For detailed information on record-keeping to support your RDTI claim, download our Keep Good R&D records How-To Guide.