The R&D tax credit has been repealed, effective from the 2009-10 income year. It is still available for qualifying expenditure on R&D activities carried out in the 2008-09 income year. Find out more about the R&D tax credit repeal >
Tax agents: To file a detailed statement on behalf of a client, you must upgrade your online services user ID to access your client's detailed statement. For help, ask the online services support person or administrator in your office, or contact the R&D tax credit team.
Minimum expenditure threshold
Larger version of image | Long description of flowchart
What is the minimum expenditure threshold?
The minimum eligible expenditure is $20,000 a year, unless:
- you were in business for only part of the year and have pro rata eligible expenditure of less than $20,000, or
- you outsourced the R&D to an non-associated listed research provider (LRP).
The minimum eligible expenditure is the amount of eligible R&D expenditure that meets the requirement above, and that is tax deductible in the year after making adjustments under various timing rules.
Eligible expenditure is expenditure that is:
- listed in schedule 21, part A
- not excluded under part B, and
- deductible in the year incurred after making required adjustments.
New Zealand legislation
Income Tax Act 2007
- LH 2(3) and (4)
- Schedule 21, part A
- Schedule 21, part B
Pro rata
If your business has only been an eligible business for part of the income year (eg it has only been in operation for part of the year), the eligible R&D expenditure is calculated pro rata as:
| $20,000 x days* in part-year 365 |
*where this is the days the business is operating during the income year.
If you have been in business all year but your eligible R&D activities only started part-way through the year, there is no provision to pro rata the minimum expenditure threshold.
New Zealand legislation
Income Tax Act 2007
- LH 2(3)
- LH 15
- YB 1-4, 7, 9-11, 13-18, 20, 21
Example - expenditure below minimum threshold
Company A operated all year and carried out R&D itself, incurring $15,000 of eligible R&D expenditure and depreciation loss in its income year. This expenditure does not meet the threshold so company A does not meet the minimum expenditure threshold.
Note: Examples are simplified. You should check the R&D information for more details and/or consult your professional advisor before making a claim.
Example - R&D contracted to LRP
Company B has operated all year and has $11,000 of eligible expenditure for R&D contracted out to an LRP. This expenditure meets the threshold because of the exception for work contracted out to an LRP.
Note: Examples are simplified. You should check the R&D information for more details and/or consult your professional advisor before making a claim.
Example - pro rata expenditure
C is a sole trader establishing a business. C starts up business in October 2008 and has $12,000 of eligible expenditure for R&D she carried out herself, before the end of her income year at 31 March 2009. This expenditure meets the threshold because she can pro rata it over the six-month period she was in business.
Note: Examples are simplified. You should check the R&D information for more details and/or consult your professional advisor before making a claim.
New Zealand legislation
Income Tax Act 2007
- LH 2(3)
- LH 2(4)
Partnerships
You need to take to take care to calculate the minimum threshold correctly. If you use an LRP for all your research when the total is under $20,000, the minimum threshold requirements do not apply.
If you do not use an LRP, for your expenditure to be claimable you must either:
- have more than $20,000 of eligible expenditure and so meet the minimum threshold in your own right (you can count your share of a partnership's R&D towards this), or
- meet the minimum threshold through a partnership. If you claim your share of a partnership's eligible R&D expenditure where the partnership has met the minimum expenditure threshold, you cannot also claim individual expenditure unless your total expenditure meets the $20,000 minimum threshold.
Example - partnership not meeting minimum threshold
AB has been in business for the whole year and is made up of partners C and D, each with a half-share in the partnership. AB does eligible R&D and has $15,000 of eligible expenditure.
C has other eligible expenditure of $16,000. C can claim the credit on $7,500 (50% of the partnership's eligible expenditure) and $16,000 (expenditure on her own account), as this totals $23,000 of eligible expenditure, meaning she meets the minimum threshold in her own right.
Her partner D has $6,000 eligible expenditure on his own account, in addition to his $7,500 from the partnership. He is not eligible for the credit for any of the expenditure, because neither the partnership nor D in his own right has met the minimum expenditure threshold.
Note: Examples are simplified. You should check the R&D information for more details and/or consult your professional advisor before making a claim.
Example - partnership meets minimum threshold
JK has been in business for the whole year, and is made up of partners M and N, each with a half-share in the partnership. JK does eligible R&D and has $22,000 of eligible expenditure.
M has other eligible expenditure of $10,000. M can claim the tax credit on $21,000, because he meets the minimum expenditure threshold in his own right.
N has an additional $5,000 eligible expenditure. N can claim the tax credit on $11,000, which is eligible because the partnership meets the minimum threshold criteria. He cannot claim any credit for the $5,000, because with only $16,000 eligible expenditure he does not meet the minimum threshold in his own right.
Note: Examples are simplified. You should check the R&D information for more details and/or consult your professional advisor before making a claim.
Find out more
- Types of eligible expenditure or depreciation loss
- Deductibility of expenditure
- Using listed research providers
- Industry research co-operatives (IRCs) and their expenditure
- What expenditure is excluded from a claim?
Date published: 02 Nov 2009
Back to top
