Research and Development Tax Incentive
A Tax Incentive is now available to businesses conducting eligible research and development in New Zealand.
The R&D Tax Incentive will help more businesses innovate and contribute to a stronger, more productive economy that benefits all New Zealanders.
Main features of the Incentive
The main features of the R&D Tax Incentive include:
- a credit rate of 15%
- a $120 million cap on eligible expenditure
- a minimum R&D expenditure threshold of $50,000 per year, unless the expenditure related to R&D contracted out to an Approved Research Provider
- a definition of R&D that ensures the credit can be accessed more easily across all sectors, including the technology sector
- the inclusion of state-owned enterprises, industry research cooperatives, levy bodies, and minority-owned subsidiaries of select Crown entities
- a limited form of refundability is in place for the first year of the scheme that will mirror the R&D tax-loss cash-out scheme run by Inland Revenue. A more comprehensive policy will be in place for the second year of the scheme
When and how can I apply?
The Taxation (Research and Development Tax Credits) Act 2019 (The Act) introduced a Tax Incentive for businesses conducting eligible R&D in New Zealand that is available from the 2019/2020 tax year.
For most businesses, eligible expenditure on R&D undertaken from 1 April 2019 will qualify for the R&D Tax Incentive. Businesses should be recording their R&D expenditure now to ensure records are ready to file at the end of the 2019/2020 tax year.
An online tool has also been developed by Inland Revenue to help businesses assess their eligibility: Research and Development (R&D) Tax Incentive eligibility tool(external link) - Inland Revenue website.
More information about eligibility and record keeping obligations can be found in Inland Revenue’s R&D Tax Incentive guidance material(external link).
Businesses that intend to claim the Tax Incentive will be able to enrol via MyIR in mid 2019 before they officially apply by submitting a supplementary return at the end of the financial year. Enrolment will provide businesses with an initial assessment of their eligibility and key information about how to apply.
Businesses will be able to begin uploading supporting documentation to MyIR in late 2019 ahead of filing.
Changes from 1 April 2020
From the 2020/2021 income year (1 April for most businesses) an in-year approval process will be introduced to help increase business certainty about eligibility for the Incentive. The Government is also proposing broader refundability rules (see below).
Policy development – broader refundability
In 2019/20, there is limited refundability available for pre-profit businesses. They can “cash out” their credits (up to a maximum limit of $255k) - this will help smaller businesses with cash-flow challenges. They can also carry their R&D tax credits forward into future years.
The Taxation (KiwiSaver, Student Loans, and Remedial Matters) Bill has recently been introduced to the House. It proposes changes that would make refunds of R&D tax credits broadly available. A business’s refund would generally be capped at the amount of payroll-related taxes such as PAYE and FBT, paid in the same year.
The proposed changes will enable more pre-profit and loss-making businesses to access the benefit of their credits sooner.
This achieves the goal of supporting as much eligible R&D as possible while maintaining the integrity of the tax system.
The intention is that these provisions be in place for the 2020/2021 tax year.
The Taxation (Research and Development Tax Credits) Act 2019
The Act which introduced the Tax Incentive was passed into law in early May 2019. The following related documents track the progress of the legislation through Parliament and the policy development process:
Policy changes from the discussion document
Briefing documents for download
View the submissions for the R&D Tax Incentive consultation.