"The R&D tax credit has been repealed with effect from 2009-2010 income year.
 
The R&D tax credit remains available for qualifying expenditure on R&D activities carried out in the 2008-2009 income year. The timeframes for filing and for notices of proposed adjustment to claims, relating to the 2008-2009 income year remain unchanged.

Further detail is included in relevant parts of guidance material".

"You will need to file an income tax return if you want to claim the tax credit. You must also file a detailed statement, which can only be submitted electronically."

"The R&D tax credit applies from for the 2008-09 income year"

"The R&D tax credit applies from for the 2008-09 income year"

"A 15% (15 cents in each dollar) tax credit was introduced for research and development (R&D) activities carried out by New Zealand businesses, for the 2008-2009 income year.

The government has repealed this credit from the 2009-2010 income year".

"The R&D tax credit provisions are largely in subpart LH of the Income Tax Act 2007 and in schedule 21 of that Act. A number of administrative provisions are included in the Tax Administration Act 1994.

The legislation repealing the tax credits is in part 2 of the Taxation (Urgent Measures and Annual Rates) Act 2008."

Example - no add-back

In March 2009, A Co incurs $100,000 of eligible R&D expenditure on services to be provided by a research organisation. The services have not been performed by the end of A Co's income year.

The amount of the "unexpired portion" (calculated under section EA 3) is $100,000. This is income of A Co in the 2008/09 year under section CH 2. The R&D expenditure eligible for the credit in that year is $0.

The services are provided in May 2009. The $100,000 is deductible in the 2009-10 income year. No tax credits are available for this expenditure.

Note: Examples are simplified. You should check the detailed R&D information and/or consult your professional advisor.

Example - eligibility of add-back

B Co is owned by B, who is a shareholder-employee of the company. B is engaged as an employee to do eligible R&D. In March 2009, B Co accrues a liability for B's salary, but has not paid this by the last date for filing its return of income (as provided in section EA 4(3).
So, the salary is added back as income under section CH 3(2) and is not eligible for the R&D tax credit. in the 2008/09 year. The salary is paid out in the 2009-10 year. No tax credits are available for this expenditure.

Note: Examples are simplified. You should check the detailed R&D information and/or consult your professional advisor.

'If items of trading stock manufactured or acquired during the year are to be processed or transformed in an eligible R&D process, and have not been processed or transformed by the end of the year, for the purposes of the R&D tax credit, the value of the items is added back under CH 1. As a result, expenditure on the items is not eligible for the tax credit.

Example - stock remaining on hand

In February 2009, A Co buys $100 of trading stock, which it intends to transform in R&D. It still has not been transformed in the R&D activity at 31 March 2009.
The value of the closing stock is added back as income in the 2008/09 year. This add-back also applies for the purpose of calculating the credit and there is no eligible expenditure for the tax credit.

Note: Examples are simplified. You should check the detailed R&D information and/or consult your professional advisor.

• Overseas expenditure carried forward from a previous period, until sufficient New Zealand expenditure has incurred on the project.

Example - calculating depreciation loss for tax-exempt income

PHB, a charitable society, undertakes eligible R&D in 2008/09. A digital serial analyser, bought new in 2007, is mainly used in the R&D activity. The resulting depreciation loss would be deductible if PHB earned taxable income. PHB's income year runs from 1 April to 31 March, and an independent valuation of the analyser on 1 April 2008 puts its market value at $35,000.

When calculating the depreciation loss that is eligible for the credit in 2008/09, PHB assumes the analyser was bought on 1 April 2008 for $35,000. The applicable depreciation rate for the analyser is 26.4% (diminishing value rate for an oscilloscope with 20% loading).

PHB is treated as being allowed a deduction for depreciation loss in the 2008/09 income year, which is the completed income year following deemed acquisition. The assumed amounts of depreciation loss and adjusted tax values (ATV) in each year are:

Income year	ATV at beginning of year	Depreciation loss	Amount to claim for R&D tax credit ($)
2008/09	Cost = $35,000	26.4% x $35,000 = $9,240	9,240

In the 2008/09 income year, PHB can claim a tax credit for $9,240 of eligible depreciation loss. If the digital serial analyser was bought second-hand in 2006, the applicable depreciation rate for the analyser would be 22% (diminishing value rate for an oscilloscope without 20% loading).

Example - assumed salary add-back

B Co is owned by B, who is a shareholder-employee. B is engaged as an employee in doing eligible R&D.

In March 2009, B Co accrues a liability for B's salary but has not paid it out by the last date for filing its return of income as provided in EA 4(3). B Co elects to defer a deduction for the expenditure under section EJ 23.
For the purposes of calculating the credit only, there is an assumed salary add-back under section CH 3(2), and the salary is not eligible for the credit in the 2008/09 year.

The salary is paid out in the 2009-10 year. The expenditure is not eligible for a tax credit.

Note: Examples are simplified: You should check the detailed R&D information and/or consult your professional advisor.

Example - no claw-back

Company A buys an asset for $1 million which is used wholly in R&D for three years. Tax credits are claimed in relation to the depreciation. The tax book value at the time of sale is $700,000.
The asset is sold for $650,000. No tax credit is available for the $50,000 loss. Similarly, no claw-back would apply if the asset sold for $800,000.

Note: Examples are simplified. You should check the detailed R&D information and/or consult your professional advisor.

Example - loss on disposal of depreciable assets

Company AB buys an asset for $1 million which is used wholly in eligible R&D for three years  with credits claimed in relation to the depreciation. The asset is sold for $650,000. The book value at the time of sale is $700,000. No tax credit is available for the $50,000 loss.

Note: Examples are simplified. You should check the detailed R&D information and/or consult your professional advisor.

"If R&D activities within an R&D project as defined above are carried out in the 2008/09 income year in both New Zealand and overseas, you can claim eligible overseas expenditure of up to 10% of the eligible New Zealand expenditure. Any excess over this is not eligible for the tax credit.

New Zealand legislation

Income Tax Act 2007:

• LH 6

Example - overseas expenditure over 10% of New Zealand eligible expenditure

A New Zealand company, AB, incurs eligible expenditure of $1 million on an R&D project conducted in New Zealand in the 2008/09 income year. It also incurs $400,000 of eligible expenditure in relation to R&D conducted overseas on the project in the same income year.

AB can only claim the R&D tax credit for the overseas expenditure equal to 10% of the New Zealand eligible amount, in this case, that equals $100,000.The other $300,000 is excluded.

Note: Examples are simplified. You should check the detailed R&D information and/or consult your professional advisor.

Example - New Zealand expenditure under 50%

G Co is undertaking eligible R&D activities. The eligible expenditure and depreciation loss totals $350,000 in the 2008/09 income year.

$100,000 is incurred in New Zealand and $250,000 in Australia. This does not meet the definition of an R&D project.

G Co can claim the R&D tax credit for the eligible New Zealand expenditure and depreciation loss, but not for any portion of the overseas expenditure or depreciation loss.

Note: Examples are simplified. You should check the detailed R&D information and/or consult your professional advisor.

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 detailed R&D information and/or consult your professional advisor.

Determinations and binding rulings

Determinations and private binding rulings cannot be obtained in relation to the R&D tax credit.

New Zealand legislation

 Tax Administration Act 1994  

• 91(C)
•  

Filing and Notice of proposed adjustment - periods

Claimants have more time than usual to finalise their R&D claim, in some circumstances.

A taxpayer has two years from the date their income tax return was furnished to issue a notice of proposed adjustment (NOPA), if the NOPA relates solely to an amount of R&D credit. Normal response periods apply in all other cases.

If (and only if) you did not include an R&D tax credit amount in your income tax return, you also have two years from the date your income tax return was due to be filed to submit an R&D tax credit detailed statement.

"The R&D tax credit is subtracted in calculating the residual income tax figure of a claimant.

Claimants may choose to factor their tax credit into their provisional tax calculations for the year the credit is being claimed.
 
For example, if you have estimated you are entitled to a $60,000 tax credit in 2008/09, you may reduce your provisional tax payments in that year in anticipation of receiving the credit.

If provisional tax is estimated, the reduction will be immediate. If you use the uplift or standard method for calculating provisional tax, the reduction will be delayed. Claimants will be liable for use-of-money interest if provisional tax is underpaid because the R&D tax credit claim is reduced or not allowed.

Also, claimants who receive R&D tax credits in the 2008/09 should consider the provisional tax implications of the regime's repeal, particularly if they are applying the standard 5% uplift to calculate their liability. To correct for this variation you may need to estimate your provisional tax for the following year."

Example - receiving imputation credits

In the 2008-09 year, company A has assessable income of $200,000 and allowable deductions of $170,000, $100,000 of which is eligible expenditure for the tax credit. Company A claims an R&D tax credit of $15,000 on R&D expenditure.

Assessable income	$200,000
Less
Deductions	$170,000
Net income	$30,000
Tax liability	$9,000
Less
R&D tax credit	$15,000
Tax to pay	$0
Surplus credit	$6,000

Addendum

Credit to imputation credit account	$15,000 (on the date that the return is received)
Debit to imputation credit account	$6,000 (on the date that the refund is paid)

Note: Examples are simplified. You should check the details in the detailed R&D information and/or consult your professional advisor.

Managing changes, corrections and disagreements.

If you have over-claimed the tax credit, or if we have made an error which as led to too much tax liability being offset or too much money being refunded, overpayments will be recovered through our standard debt recovery actions.

Process for disagreements or if you make an error on your detailed statement

Within the time frames set out in the Notice of proposed adjustment – period the process for disputing an assessment is the standard process.

If you simply wish to correct an error in relation to your detailed statement contact us by phone on the normal call centre number stating that your issue relates to the Research and Development Tax Credit (there will be an R&D 0800 number on our website from February 2009) or by writing to us at:

Research and Development tax credit team
Inland Revenue
PO Box 3753
Christchurch Mail Centre
Christchurch 8140

What happens if you dispute an assessment?

Within the time limits set out in Transitional rules Filing and Notice of proposed adjustment - periods, existing disputes resolution processes will apply for disputes you begin in relation to the R&D tax credit.

What happens if we dispute an assessment?

Within the time limits set out in Transitional Rules Filing and Notice of proposed adjustment - periods, existing disputes resolution processes will apply for disputes initiated by us.