What is the RDTI and is it right for me?
For the purposes of the RDTI, there is a specific statutory definition of ‘R&D’ which is not the same as the commercial, engineering or accounting definitions. The tax credit is not just for scientific research but also for development activity that meets the eligibility criteria.
There are clear criteria around what does and doesn’t qualify as eligible R&D for claiming the RDTI and these should be considered in detail before launching a project.
Is the RDTI right for me?
If your business is using a systematic approach with an aim to both resolve scientific or technological uncertainty and create new knowledge, or new or improved processes, services, or goods, the RDTI may be right for you.
What do I get?
The RDTI offers most New Zealand-based businesses a 15% tax credit on money spent on R&D in New Zealand. You can use the credit to reduce your income tax bill. It is generally available to businesses who spend more than $50,000 on eligible R&D in a given year, but if you spend less than $50,000 you might be eligible if you use an approved research provider (ARP) for your R&D. You can be eligible whether your business is in profit or loss. Special rules apply to allow you to include some overseas R&D in your claim if you meet certain criteria.
The main features
R&D Tax Incentive
Getting Started Grants
R&D loss tax credit
If your business is in a tax loss position or you do not have enough income tax to pay to use up all of your R&D tax credits, you may now be eligible for refundable R&D tax credits. This will help smaller businesses with cash-flow challenges. If you’re eligible for refundability, you can receive R&D tax credit refunds up to a cap based on labour-related taxes. Read our How-To Guide to learn more about RDTI refundability.
You’re eligible to apply for the RDTI if you:
- perform a core R&D activity in New Zealand yourself or through an R&D contractor in New Zealand, and
- conduct business through a fixed establishment in New Zealand.
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).
The RDTI is intended to reward businesses investing in R&D, so it excludes R&D contractors whose business is doing R&D for others. Find more information on page 27 of Inland Revenue's detailed RDTI guide.
To be eligible to claim:
- you must own the results of your R&D, or
- another company in your corporate group must own the results of the R&D and must also be tax resident of New Zealand or a jurisdiction with which New Zealand has a double tax agreement, or
- your joint venture or partnership (if you are in one) must own the results of the R&D.
Partnerships, look-through companies and joint ventures are eligible for the incentive if they meet certain conditions. Refer to page 29 of the detailed RDTI guide for more information.
You cannot claim the RDTI if you:
- receive – or are directly or indirectly controlled by, or associated with – a person receiving a Callaghan Innovation Growth Grant for the same income year;
- are a Crown Research Institute, district health board or tertiary education organisation, an associate of one of these organisations, or are majority-owned or effectively controlled by one of these organisations or their associates;
- are performing the R&D activity on behalf of another person who carries on a business through a fixed establishment in New Zealand, and/or;
- are a member of a joint venture, a partner in a partnership, or an owner of a look-through company, and not a New Zealand tax resident for the whole tax year.
Special rule for Growth Grant recipients with late balance dates in the 2020/2021 income year
Generally, if you receive a Callaghan Innovation Growth Grant for the whole, or a part, of the 2020/2021 year, you cannot claim the RDTI for that income year. The exclusion also applies where you are directly or indirectly controlled by or associated with a person receiving a Growth Grant. If the exclusion applies, it applies even to R&D activity and expenditure for which you have not received a Growth Grant. However, the exclusion may not apply for the entire 2020/2021 income year if you satisfy both the following:
- Your income year started after 1 April 2020 (you have a late balance date).
- You receive a Growth Grant for a part of the 2020-21 income year.
If both statements apply, you may be eligible to claim your eligible R&D expenditure for the part of the income year after your Growth Grant contract ends. Find out how to apportion your eligible R&D expenditure for the RDTI on page 64 of IR’s detailed guidance.