What R&D spend applies?

There are some rules around what types of R&D expenditure are eligible for claiming the RDTI.

Eligible expenditure

To claim the RDTI you must be able to identify which expenditure:

• is directly related to, required for and integral to the R&D taking place, and
  
• meets the eligibility criteria.
  

It must be greater than $50,000 in the year, unless it is for a contract with an approved research provider (ARP). The maximum eligible expenditure in any year is $120m unless you receive approval for a higher limit.

Amounts you spend can generally only be claimed to the extent they relate to R&D. A special rule applies for R&D done in a commercial production environment, such as a manufacturing line. For more information on the commercial production rule, refer to page 66 of Inland Revenue's detailed RDTI guide.

Types of eligible expenditure

Depreciation

You can’t claim the RDTI on assets you acquire and use in your R&D activity, but you can claim depreciation on them. Depreciation is calculated using the same rates and methods you use to calculate your income tax deductions.

Where assets are used for eligible activities and other purposes, the depreciation must be reasonably apportioned between them. This would normally be based on the time used for each, ignoring any downtime.

Special rules apply for amounts you spend creating new assets. For more information on these rules, please refer to page 76 of the detailed RDTI guide.

Employee costs

You can claim your costs for employees involved in eligible activities, including:

• Salaries, wages, overtime, bonuses, sick, annual and long service leave
  
• The cost of shares issued to employees.
  

If employees are performing other duties, their costs must be reasonably apportioned and documented with time sheets, project plans, or other documents giving a clear breakdown.

Goods and services

You can claim the RDTI on the cost of acquiring goods and services (other than assets) you use in your R&D. This includes overheads, materials used, and paying contractors performing R&D for you.

Special cases

Associated persons

If you acquire goods, services, property, or a right to use property from an associate, you can only claim the cost they incurred to acquire the property or service, or the market value of your right to use it.

Contracted expenditure

If you contract out your R&D, you must deduct any ineligible expenditure incurred by the contractor from the expenditure you claim. For example, if your payment to the contractor includes an amount for them to purchase specialised equipment (depreciable property for the contractor), you can’t include the cost of that equipment (but you might include an amount for depreciation loss on the item while it was being used in your R&D).

For further detailed information, download our How-To Guide: Claiming R&D performed by a contractor.

Production expenditure

If you perform your R&D in the course of normal commercial production, you can only claim the employee and additional costs related to the actual R&D. This means that costs like rent, rates, insurance and maintenance won’t qualify.

Foreign expenditure

If you carry out R&D activities outside New Zealand which are not integral to a core R&D activity you conduct in New Zealand, the expenditure on those activities is ineligible.

Expenditure on supporting R&D activities conducted outside New Zealand might be eligible for the RDTI, but can’t exceed 10% of your total eligible expenditure.

Special rules mean that amounts you pay non-resident contractors and employees to do R&D in New Zealand are considered foreign expenditure, and come within the 10% cap. For more information on this, refer to page 70 of the detailed RDTI guide.

Ineligible expenditure

You can’t claim the RDTI on the following:

• The GST input portion of expenditure
  
• Someone else’s eligible expenditure
  
• Amounts in excess of $120m unless you have approval for a higher amount (this includes any amounts spent by your associates on R&D)
  
• Expenditure incurred in acquiring depreciable property or that would be depreciable in the absence of an election under section EE 8 of the Income Tax Act 2007
  
• Expenditure that contributes to the cost of depreciable tangible property (other than prototypes) or tangible property that would be depreciable in the absence of an election under section EE 8 of the Income Tax Act 2007 (limited exceptions may apply)
  
• Expenditure incurred by petroleum miners, mineral miners or a person who would be a mineral miner of geothermal energy (limited exceptions may apply)
  
• Depreciation on property to the extent the cost of the property is eligible expenditure
  
• Depreciation on pooled property where an item in the pool is not used solely in performing R&D
• Depreciation when an asset is written off or sold below its adjusted tax value
• Certain amounts of depreciation when property is acquired from an associate
• Profits on R&D services and property provided by associates
• Amounts in excess of market value for leasing assets from associates
• Expenditure to acquire land
• Interest and other financing costs
• Expenditure in determining a person’s entitlement to an R&D tax credit
• Expenditure on corporate governance activities
• Expenditure to acquire an interest in intangible property other than software
• Expenditure on bespoke software
• Internal software development expenditure in excess of $25m (this includes any amounts spent by your associates on R&D)
• Expenditure on goods or services in excess of market value
• Gifts
• The cost of acquiring technology that is used as a basis for further R&D activities
• Expenditure to commercialise the results of R&D activity
• Expenditure on decommissioning
• Expenditure on remediating land
• Expenditure that relates to a government or local authority grant (some exceptions apply in relation to Callaghan Innovation project grants)
• Expenditure on inputs used, or subject to a process or transformation, to the extent the expenditure does not exceed the value of the output from that expenditure (feedstock rule)
• Expenditure for which you have received an R&D tax credit from another country
• If your eligible expenditure is less than $50,000, expenditure or loss that is not for an approved research provider (ARP).

Download the full eligible R&D expenditure guide

December 2021

PDF

Eligible R&D Expenditure

To claim the RDTI you need to understand which items of expenditure qualify. You will also need to keep good records of the costs of your R&D. This how-to guide will assist you in compiling and recording the data needed to submit your claim after the end of the income year.

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