Frequently asked questions

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General questions Who is eligible to claim the tax credit?What counts as R&D activity?Eligible expenditure Approved research providers (ARPs)

Answers to commonly-asked questions about the RDTI.

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General questions

Where can I get more information about the RDTI?

Test your RDTI eligibility using our online tool
For further written information – see our guidance or join our online forum
For further information about R&D activities ask Callaghan Innovation rdti@callaghaninnovation.govt.nz
If you need more detailed information around applying for the RDTI, or eligible expenditure or entities, ask IR rdtiteam@ird.govt.nz or consult your tax advisor

What should I do first if I want to apply for the RDTI in 2020?

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.

How do I claim the RDTI in the 2019/2020 year?

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.

Where will I find the R&D supplementary return?

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. More details about the R&D supplementary return can be found in "What steps are involved to claim?"

What is different in the 2020/2021 year if I'm making an RDTI claim?

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.

What does seeking general approval involve?

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.

What is involved in being recognised as a significant performer?

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 can be found on IR's website.

Are compliance costs going to be high?

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.

We are concerned about protecting our IP, how much detail about our R&D do we need to provide?

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.

Who is eligible to claim the tax credit?

Who can apply for the RDTI?

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 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.

Can international companies apply for the RDTI?

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?

What R&D is eligible?

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 occur in New Zealand and it must also:

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. For further information, read What R&D activities are eligible for the RDTI?

What is the test for scientific and technological uncertainty?

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. For further information, read What R&D activities are eligible for the RDTI?

What is the test for a new process, service or good?

New or improved processes, services or goods are created when something is changed or adapted to the point where it is "better" than the original. 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. For further information, read What R&D activities are eligible for the RDTI?

What activities are excluded from being core R&D activities?

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.

What are supporting R&D activities?

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.

Is unsuccessful R&D eligible?

Yes, unsuccessful R&D that meets the eligibility criteria can qualify for the RDTI.

Eligible expenditure

What expenditure is eligible?

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.

What types of expenditure are ineligible?

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’

What other expenditure rules apply?

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.

Can I claim for overheads such as rent, power and other facilities costs even if they are not exclusively used to support R&D activities?

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.

Does the $50k minimum expenditure all have to be spent on one project?

No, the threshold relates to the business’s total eligible expenditure in that year and can be on more than one R&D project.

Can tax credits be refunded?

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.

Can tax credits be carried forward?

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 (ARPs)

What kind of organisations can become 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.

Why would I use an Approved research provider?