What R&D activities are eligible for the RDTI?
What R&D qualifies for the RDTI?
R&D is a fundamental part of growing your business through new innovations. Here are some key definitions to help you understand what qualifies as eligible R&D for the purposes of claiming the RDTI.
At a glance
A core R&D activity must:
R&D Tax Incentive
R&D Loan Scheme
Getting Started Grants
R&D loss tax credit
Scientific and technological uncertainty
R&D is about exploring the unknown. Scientific or technological uncertainty is a gap in the available scientific or technological knowledge. That means when a competent professional, with access to publicly available information, doesn’t know if something is achievable.
If your team would have to use a systematic approach to discover that knowledge and bridge the gap (for example through testing, experimentation or prototyping) your activity could qualify for the RDTI. Your R&D doesn't have to be successful - even if you fail, you could be eligible for the RDTI.
A systematic approach is a methodical process to find possible solutions to an uncertainty. The solution is the idea, proposal or hypothesis that is being investigated using the systematic approach. This is intended to disqualify accidental discoveries. The test for a systematic approach in research contexts is whether the methodology is sufficiently structured and documented that it can be reproduced.
New or improved knowledge or things
If your R&D is seeking to create new knowledge, or new or improved products, processes or services, it could be eligible for the RDTI. The test of new is on a worldwide basis - it must be new to the world, not merely new to your business or to New Zealand.
It is not a requirement that the R&D is successful. Unsuccessful R&D also increases knowledge and activities that are unsuccessful can qualify.
You can also include activities performed in support of your core activities in your claim. To be eligible, a supporting activity must:
- support the core R&D activity as its only or main purpose, and
- be required for, and integral to, the core R&D activity.
Supporting activities can be performed before, during, or after a core activity. However, if you perform a supporting activity before you start a core activity, and don't end up doing the core activity, you can't claim the credit for your supporting activity.
A number of activities are excluded as core R&D, but may be eligible as supporting activities:
- Research in social science, arts, or humanities
- Quality control, routine testing, routine collection of information and routine operations on data
- Reverse engineering a commercial product or process from an existing product or system or from plans, blueprints, detailed specifications, or publicly available information
- Data mapping and data migration testing
- Bug testing, beta testing, system requirement testing, user acceptance testing, and data integrity testing
- Minor adaptions, cosmetic or stylistic changes or improvements, including to software
- Testing or comparing the efficiency of algorithms already known to work
- Testing security protocols or arrangements
- Converting existing systems to, or integrating existing systems with, new software platforms.
The following are excluded as both core and supporting activities:
- Pre-production activities, including demonstration of commercial viability and tooling up
- Routine de-bugging of existing computer software
- Supporting or making minor improvements to existing computer software, using known methods
- Routine software and computer maintenance
- Prospecting for, exploring for, or drilling for minerals, petroleum, natural gas, or geothermal energy
- Market research, market testing, market development, or sales promotion, including consumer surveys
- Commercial, legal, or administrative aspects of patenting, licensing, or similar activities
- Activities involved in complying with statutory requirements or standards for pre-existing processes, services, or goods
- Management studies
- Activities relating to organisational design
- Ineligible internal software development.
Activities are excluded for several reasons, including:
- to clarify that the activity does not amount to R&D because the knowledge required is publicly available or can be deduced by a competent professional,
- to clarify that it does not amount to R&D because it occurs before any scientific or technological uncertainty is identified or after it has been resolved, or because there are inadequate spill-over benefits from the activity.
Refer to the detailed RDTI guide (page 51) for more information on excluded activities.