Important:
- To claim the R&D tax credit, you must submit a detailed statement online.
- In most instances, the last date for submitting a detailed statement was April 30 2010. Find out more
Pre-production activities
Excluded activities
Pre-production activities are excluded from being eligible systematic, investigative, and experimental (SIE) activities for the R&D tax credit. This includes activities that occur before production, where the objective is not to resolve scientific or technological uncertainty or establish novelty. These activities may include:
- demonstration of commercial viability
- tooling-up
- trial runs
- planning the production process
- developing control systems
- undertaking start-up procedures
- commissioning new equipment.
Testing new plant and systems
While the testing of new plant and systems require sound professional practice and may involve systematically testing and recording results, they are excluded because they use established business or engineering procedures to achieve a known result rather than to discover something unknown.
Example - retooling and test runs
A company has developed a new product on its pilot line and is satisfied that the technical specifications are met.
The process for transferring the technology to the production environment requires:
- the retooling of the line with commercial quality dies, and
- a number of test runs to calibrate the equipment and confirm that the product can be produced to specification.
The work involved is standard practice in that environment and is ineligible for the R&D tax credit, as it does not require the resolution of scientific or technological uncertainty or appreciable novelty.
Note: Examples are simplified. You should check the detailed R&D information and/or consult your professional advisor.
Can these activities be support activities?
There may be a requirement for limited tooling-up or trial runs to support eligible SIE activities.
To be eligible, the activities must take place before the resolution of the technological uncertainty or the development of the novel features (find out more about determining when eligible R&D activities start and finish).
The activities must be all of the following:
- wholly or mainly for the purpose of the SIE activities
- required for the SIE activities
- integral to the SIE activities.
Potentially eligible R&D
If a problem arises during pre-production activities that a competent professional working in the field cannot resolve on the basis of publicly available or deducible information, the excluded processes may lead to eligible R&D activities.
Example - technical uncertainty around process mechanisation
A new ingredient has been developed in the laboratory using a labour-intensive process. There is technological uncertainty about how to mechanise the process and scale-up so that it can be economically and consistently produced in commercial quantities.
The programme of SIE activities around how to redevelop the laboratory process for the production line could meet the definitions of eligible R&D.
Note: Examples are simplified. You should check the detailed R&D information and/or consult your professional advisor.
New Zealand legislation
Income Tax Act 2007
- schedule 21 part C, clause 11
- LH 7(1)(b)
- LH 7(2)(b)
Date published: 30 Sep 2008
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