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Research and development (R&D) is a critical element of the New Zealand economy. There are incentives built into the tax and economic system to motivate businesses to develop new technological or scientific knowledge or improve their products and services. If your business focuses on R&D, this is a fantastic opportunity for you to note. This article will explain: 

  • the R&D Tax Incentive in New Zealand; 
  • how it works; and 
  • whether your business qualifies for it.

What is the R&D Tax Incentive?

In essence, the R&D Tax Incentive is a 15% tax credit for businesses’ expenditure on particular research and development activities. There is relatively broad coverage of what ‘research and development’ means in the context of this incentive. However, not all kinds of R&D fall under this program. We discuss this point later in this article.

There are other limits on the incentive to note. The minimum eligible expenditure for R&D to qualify for the incentive is $50,000 per year. The maximum eligible expenditure that your business can claim is $120 million a year. While this range will capture most medium-to-large businesses, unfortunately, many smaller businesses will not spend enough on R&D to qualify. 

If this is the situation for your business, other innovation incentives may be more suitable (such as others offered by Callaghan Innovation).

Does My Business’ R&D Qualify for the Incentive?

There are some slightly complicated criteria in determining whether the R&D Tax Incentive will cover your business’s R&D activities. Not all kinds of research will make your business eligible for the incentive. Therefore, it is essential to be clear on these criteria in your strategic planning, particularly if your business is planning a significant outlay for R&D.

Key distinctions to note are ‘core’ R&D activities and ‘supporting’ activities. There must be at least some kind of ‘core’ activity in your business to be eligible for the tax incentive. Although, there may also be supporting activities that are relevant. 

The definition of a core R&D activity has the main purpose of creating new knowledge. It must also attempt to resolve scientific or technological uncertainty in some way. To qualify as a core activity, your business’ R&D must tick all of these relevant boxes. In other words, they must: 

  • seek to solve scientific or technological uncertainty;
  • seek to create new knowledge, new or improved processes, services or goods;
  • use a systematic approach; and
  • happen in New Zealand.

Not all of these ideas are immediately intuitive. For instance, scientific and technological uncertainty refers to a knowledge gap in a particular field. If it is not clear from publicly accessible records or information if something can be done, then there is likely to be scientific uncertainty as a result. This can also be true if something can be done, but the process for getting there is unclear. 

The Concept of ‘New’ Knowledge

Your business’ research and development into either knowledge, process, services or goods must be new or improved on a worldwide level. You must look beyond New Zealand for current publicly available information. Publicly available also does not mean free, but available on commercial terms. However, your R&D does not have to have necessarily worked and produced something new or improved – the intention and planning are enough.

It is not also immediately apparent what ‘systematic approach’ may mean in this context. This refers to the idea that R&D must be a planned and structured way to test possible solutions to scientific or technological uncertainty. As a general rule, you must keep records of your business’s systematic approach and the outcome. Finally, your business must perform core R&D activities in New Zealand.

Key Takeaways

The R&D Tax Incentive is a fantastic and potentially financially significant incentive for your business to note and take advantage of where possible. It is a 15% tax credit for certain kinds of R&D. There are some complicated criteria for working out what kind of research will qualify, so getting advice on whether your business is eligible is often a good idea. In general, eligible R&D must grapple with scientific and technological uncertainty and aim at developing new knowledge or advancements to your business’ products and services. 

If you would like more information about the R&D tax incentive, contact LegalVision’s corporate lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What is the R&D tax incentive in NZ?

The R&D Tax Incentive is a 15% tax credit for businesses’ expenditure on research and development activities that aims to create new knowledge. It must also attempt to resolve scientific or technological uncertainty in some way.

Do all businesses qualify for the tax incentive?

Yes, the tax incentive is widely available to a range of businesses and individuals. However, not all of the research and development conducted by those entities will necessarily qualify. There are some criteria about what kinds of R&D are covered and what expenditure will qualify ($50k through to $120m).

What kinds of R&D do the tax incentive cover?

The R&D Tax Incentive will cover ‘core R&D activities’. These activities are defined in terms of their ability to solve scientific or technological uncertainty and create new knowledge, processes, services or goods. The R&D must also use a systematic approach and take place in New Zealand.

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