Frequently Asked Questions
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General Questions
- Familiarise yourself with the eligibility rules. Using the R&D eligibility tool is a good place to start.
- If you haven’t already done so, read Inland Revenue’s detailed RDTI guide or consult your tax advisor to learn more about the RDTI and the eligibility rules.
- If you think you’re eligible, you can enrol for the RDTI under the business tab in your myIR account. You aren’t obligated to submit an RDTI supplementary return if you change your mind.
- Keep records about your eligible R&D activity and the expenditure on those activities.
- You must enrol for the RDTI in your myIR account.
- You need to complete an R&D supplementary return which will ask questions about your R&D activities and expenditure.
- You can complete the R&D supplementary return yourself or have a tax agent or advisor complete it for you. The RDTI is a separate tax type so you can use a different tax agent or advisor from the one you use for other tax types.
- Your R&D supplementary return must be filed within 30 days of the due date for your income tax return.
- You will include the amount of the tax credit you are claiming in your income tax return and this return must also be filed electronically.
- The latest possible date for filing your income tax return is 1 year after your due date for filing your income tax return – but note that if you file after the due date penalties and interest will apply.
- Note that in addition to the above process, you will still be required to obtain general approval or opt into the significant performer regime in the 2020/2021 income year. See below for more details.
The R&D supplementary return will be available in the myIR account of customers who have enrolled for the RDTI. The return will be visible after the end of your income year. A guide to help you to complete the R&D supplementary return can be found on Inland Revenue’s website.
- In the 2020/2021 income year, unless you are recognised as a significant (R&D) performer, you must obtain general approval for your R&D activities.
- Businesses that expect to have more than $2 million of eligible R&D expenditure can choose to opt into the “significant performer” regime.
- Opting into the significant performer regime allows you to obtain approval for your systems and processes for identifying eligible activities and expenditure.
- If you do not opt into the significant performer regime you must seek general approval for your R&D activities.
- From 2020/2021, the general approval process will require you to set out the R&D core and supporting activities you propose to include in your RDTI claim, in advance of filing your R&D supplementary return and your income tax return. Your activities will be assessed, and you will be advised whether we accept that they meet the legislated criteria before you file your income tax return. This process will provide you with certainty about the eligibility of your activities before you take a tax position.
- If we have concerns about your R&D activities, we will not decline your request for approval without contacting you to discuss the issue.
- If your R&D activities are expected to take longer than a year, you can apply for approval for up to three years.
- The application for general approval can be made at any time during the year and must be filed by the 7th day of the 2nd month following the end of your income year. Businesses with a standard 31 March balance date must file the application for general approval by 7 May.
- For increased certainty regarding the eligibility of your activities, we recommend you file your request for general approval as soon as possible.
- In the 2020/2021 year, if your anticipated eligible R&D expenditure exceeds the $2 million threshold, you may opt into the significant performer regime by notifying Inland Revenue. This notification is due by 7 May for businesses with 31 March balance dates. If you opt into the significant performer regime you are not required to obtain general approval, but you still need to apply for general approval for R&D activities not covered by the significant performer regime.
- The significant performer regime is intended to reduce compliance costs for businesses that conduct a significant amount of R&D and which would otherwise have to seek general approval for each R&D activity.
- If you opt into the significant performer regime, you must obtain an R&D certificate from an approved R&D certifier, and supply this alongside your R&D return.
- R&D certificates can only be issued by an approved R&D certifier and are intended to provide us with confidence that you have complied with the RDTI rules.
- More details of the significant performer regime and criteria and methodology approval will be available in early 2020.
You can minimise compliance costs if you already have good record-keeping systems and processes for documenting your approach to initiating and monitoring R&D projects. In these cases, the additional record keeping requirements should be able to be integrated into the existing system.
Businesses that need 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 2020/2021 when you apply for general approval.
The guidance explains what information will be required.
The privacy and security of your information is of the utmost importance, therefore access to the information you provide about your R&D activity will be restricted.
Our How-To Switch from the Growth Grant to the RDTI guide outlines the steps you need to take. Different details apply if you choose to move from the Growth Grant to the RDTI in the 2019-2020 income year or in 2020-2021. As part of the process, you'll be advised whether you need to refund any Growth Grant payments you've already claimed for the year that you are moving across to the RDTI.
If you’re getting a Growth Grant in the 2020-21 income year, our How-To Guide details how you can go about getting approval for the RDTI while you are still on the Growth Grant, to provide you with more certainty about whether the RDTI is right for your business before making your final decision. Please note that, even if you have enrolled and have obtained approval, you will not be eligible for the RDTI unless you follow the appropriate steps to terminate your Growth Grant contract and refund any payments you’ve received.
Who is eligible to claim the tax credit?
Privately owned, New Zealand based businesses and state-owned enterprises, who are doing eligible R&D in New Zealand are generally eligible to apply. However, you should look at Inland Revenue's detailed RDTI guide if you are in one or more of the following situations:
- If you have eligible expenditure of less than $50,000 in your income year, you are not eligible for the RDTI unless your expenditure is with an approved research provider.
- If you, or an associated business, received a Callaghan Innovation Growth Grant in the same income year, you are not eligible (there is a limited exception for businesses with a late balance date in the 2020/2021 income year). You are also ineligible if you are effectively controlled by a Callaghan Innovation Growth Grant recipient. If you decide to switch to the RDTI but have already received Growth Grant payments, please get in touch with Callaghan Innovation to organise a refund of your Growth Grant payments. You may be able to switch to the RDTI provided you arrange with Callaghan Innovation to refund your Growth Grant payments during the relevant income year.
- If you are majority owned by, controlled by or associated with a Crown Research Institute, district health board or tertiary education organisation, you are not eligible.
- To be eligible, you must own the results of your R&D activities (or a member of your corporate group, resident in New Zealand or a jurisdiction New Zealand has a double tax agreement with, must own the results), or be able to use the results for no extra cost.
- If you are doing the R&D on contract for someone else and fit the definition of an R&D contractor, you are likely ineligible.
- If the results of the R&D are owned by an overseas business but you can use the results for no extra cost, you may be eligible for the tax incentive.
To claim the RDTI, an organisation must carry on business through a fixed establishment in New Zealand. A foreign owned company that meets this requirement is eligible to claim the RDTI.
A fixed establishment is a fixed place of business in which you carry on substantial business (like a shop, factory or workshop). You are likely to have a fixed establishment in New Zealand if you're doing core R&D yourself in New Zealand (rather than through a contractor).
What counts as R&D activity?
For the purposes of the RDTI, eligible R&D activities require ‘core R&D activity’ and can include supporting R&D activity. Core R&D activity must:
- seek to create new knowledge or new or improved processes, services or goods, and
- use a systematic approach to attempt to resolve scientific or technological uncertainty, and
- not be on the schedule of excluded R&D activities.
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.
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 uncertainty, your activity may still be eligible for the RDTI.
The guidance has a full list of activities excluded from being core and/or supporting R&D activity. Excluded activities include, but are not limited, to the following:
- research in social sciences, arts, humanities, organisational design and management studies
- prospecting for or drilling for, minerals, petroleum, natural gas, or geothermal energy
- market research, market testing, market development or sales promotion including consumer surveys
- ineligible internal software development
- making cosmetic or stylistic changes to processes, services or goods
- supporting or making minor improvements to existing computer software, using known methods.
If you have core R&D activity, there may be related activities which, although they do not meet the definition of a core R&D activity, are directly related to it and required to conduct the R&D. These activities may qualify for the RDTI if:
- supporting the core R&D activity is their only or main purpose and
- they are required for, and integral to the core R&D activity.
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’ which 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 RDTI.
Eligible expenditure
To be eligible, expenditure must be used on eligible R&D activities and must be on one or more of the following:
- depreciation for items used in R&D activities
- employees performing R&D activities
- goods and services used in the R&D (this includes contracts for others to perform the R&D for you). In addition, the expenditure cannot be on an ineligible expenditure type.
There is a full list of excluded expenditure types in the guidance. Excluded expenditure includes but is not limited to:
- expenditure under the $50,000 minimum threshold unless it is with an approved research provider
- expenditure for which a GST input credit is claimed
- expenditure in acquiring depreciable property (depreciation may be claimed while it is used in eligible R&D)
- expenditure contributing to the cost of depreciable tangible property unless that property is only to be used in R&D
- expenditure on the cost of land
- expenditure on interest and other financing costs and on professional fees to determine eligibility or calculate the value of a claim
- expenditure to acquire technology on which your R&D activity will be based
- above market value expenditure
- expenditure funded by or related to a government or local authority grant and any required ‘co-funding’.
There are specific rules which limit eligible expenditure when:
- the R&D processes or transforms things which are subsequently sold (the feedstock rule)
- the R&D is carried out in the course of commercial production
- If the expenditure is on R&D carried out overseas or on non-residents performing R&D in New Zealand, eligible expenditure in these cases can be no more than 10% of your total R&D expenditure in that year.
More detail is provided in the guidance.
Overheads are eligible to the extent they are incurred on core or supporting R&D activities. Sometimes it will not be practical to examine each expenditure item and calculate the extent to which it was used to support eligible R&D activity. In these cases, you can use apportionment to allocate the costs to the R&D but the method of apportionment must be:
- on a reasonable basis
- supported by an audit trail of source documents
- capable of being substantiated.
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 one R&D project.
If businesses are in loss or have more R&D tax credits than they have income tax to pay, they may be able to have the tax credits paid out (refunded). With the enactment of the COVID-19 Response Bill, broader refundability rules are now in place from the 2019/2020 year, making tax credit refunds accessible for more businesses. For further details, refer to our How-To Guide: Understanding the RDTI refundability rules
Yes, tax credits can be carried forward to the next income year provided you satisfy the RDTI shareholder continuity requirements. These are similar to the rules for carrying tax losses forward.
Approved research providers
To become an approved research provider, an organisation must be capable of performing R&D activities for other people and they must charge market rates. Further, the applicant must have facilities to perform the R&D in New Zealand.
You might contract an R&D Approved research provider, or other contractor, whenever you don’t have the skills or capacity to conduct your R&D in house. Eligible expenditure with an Approved research provider for R&D with a value of less than $50,000 is eligible for the RDTI.