The R&D tax credit is delivered and administered through the tax system, forming part of your income tax assessment. Income resulting from an R&D tax credit is excluded income.

Subject to some exceptions, expenditure must be deductible for income tax purposes to be eligible for the tax credit.

Note: In some circumstances, the "in business" and "on behalf of" tests can be satisfied within a group.

If the subsidiary is performing the R&D on contract, on behalf of a parent company that carries on business in New Zealand, the parent company may be eligible to claim the tax credit.

Control by CRIs, Crown entities, tertiary institutions and DHBs or their associates means either majority ownership or effective control.

Associates of CRIs, Crown entities, tertiary institutions and DHBs are not eligible for the tax credit.

"On behalf of" and "in business" criteria in company groups

The "on behalf of" tests can be met by a group of companies, provided that:

• the group is at least 66% commonly owned, and
• the following are in New Zealand:
  • the entity in business
  • the entity controlling the R&D
  • the entity bearing the financial risk.

In these circumstances the "on behalf of" tests can be met across a number of entities within the group, and the entity that owns the results does not have to be in New Zealand.

The entity that owns the results does not necessarily have to be in New Zealand but can be controlled by a New Zealand-resident member of the group.

Question 1

Are you doing the R&D through a partnership, group of companies or joint venture?

If you answered Yes then note that specific rules apply to partnerships, group of companies and joint ventures*.

• a capital asset not solely for use in R&D. In this case, certain expenditure (see below) of the SIE activities attracts the credit.

Other eligible expenditure on assets

Certain expenditure on systematic, investigative and experimental SIE activities attracts the credit as it is incurred, even where the expenditure is:

• not deductible, and
• does not relate to either depreciable intangible property, or tangible property intended for use only in the R&D activities.

The eligible expenditure types are:

• Employee remuneration for the period the employee spends on SIE activities. Accrued employment income must be paid out by 63 days after the end of the income year, or, for a shareholder-employee, by the last day for filing under an extension of time.
• Employee training, recruitment, relocation and travel to the extent it is incurred directly for SIE activities.
• Contract expenditure for the performance of SIE activities.

Important

The expenditure must be incurred in systematic, investigative and experimental (SIE) activity (ie, support activities are not eligible).

Construction activities are excluded. Even if construction activities are systematic, investigative and experimental, expenditure incurred directly on construction of assets that are not solely for use in R&D is not eligible for the tax credit as it is incurred.

Example - capital expenditure

A business is developing a new production line to produce items in a way that has never been done before. Developing the new production line involves the following stages:

• The company's production scientists design the new production line. On the facts of this case, designing the production line qualifies as R&D.
• The company's engineers construct the new machinery which makes up the production line. They are supervised by the production scientists.

If the production line works satisfactorily, the business will use it in its normal business. The costs of the production scientists, the engineers, and the various materials used to construct the production line are capitalised as part of the costs of the new production line.

The work of the production scientists in designing the new production line is eligible for the R&D tax credit under new section LH 5(4)(c)(ii). So is any expenditure relating to those scientists falling under paragraph 3 of part A of schedule 21. The expenditure on the engineers who build the production line, and the production scientists in supervising them, is not eligible because it is incurred "directly in the construction of tangible property". The expenditure on materials does not qualify.

In this example, the R&D credit will not be available under the depreciation rules if the production line, once completed, is used in the R&D process - perhaps for testing. This is because the requirement in schedule 21, part A, paragraph 2(b) that "all the activities involved in the construction of the property are research and development activities" is not met.

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 and/or consult your professional advisor.

Important

If you or anyone else has contributed unpaid time to your R&D, you cannot attribute a value to those hours and include it in your claim. Remuneration must have actually been paid to be eligible expenditure.

Example - determining net cost

A mountain bike manufacturer is developing a new coating for bike frames which will be more durable than paint. It applies several different trial formulations of the coating to batches of frames to see whether the colour is consistent.

Cost of inputs (value of bare steel frames and coating)	$2,000
Other production costs (labour, electricity etc)	$1,000
Total costs	$3,000
Value of coated frames	$2,500

The credit will not be available for the input cost of $2,000. The other production costs of $1,000 remain eligible for the credit.

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

Is the expenditure:

• incurred on labour, labour-related support costs, or is it contracted-out R&D expenditure,
• on scientific, investigative and experimental activities (not on support activities), and
• not directly incurred in the physical construction of a tangible asset.

• depreciable asset which is the product of R&D but which will not have sole use in eligible R&D, and all the activities involved in the construction of the asset are R&D activities?

Note: In some circumstances, the "in business" and "on behalf of" tests can be satisfied within a group.

Tax agents: If you're going to file a detailed statement on behalf of a client, you must upgrade your online services user ID to access their detailed statement. Ask the online services support person or administrator in your office for help or contact the R&D tax credit team.

Due dates

The due date for your detailed statement is no later than 30 days after the due date for your income tax return, including any agent's extension of time arrangement.

Special rules apply to partnerships and internal software development groups.

We will not accept late claims.

The tax credit will not become available until we receive the detailed statement and the associated income tax return.

Important

Different timeframes may apply when disputing an assessment

In some circumstances, claimants will have more time than usual to finalise their R&D claim. If your dispute relates solely to an amount of R&D tax credit, you have two years from the date you filed your income tax return with us to issue a notice of proposed adjustment (NOPA). Normal response periods apply in all other cases.

If you did not include an R&D tax credit amount in your 2008-09 income tax return and did not file a detailed statement, you also have two years from the due date of your income tax return to submit an R&D tax credit detailed statement. You must also submit a NOPA to request that your income tax return be reassessed to include your claim for an R&D tax credit.

If you lodged a detailed statement and included the R&D tax credit in your 2008-09 income tax return and now want to dispute the amount, you have two years from the due date of your income tax return to issue a NoPA which should include all the relevant information relating to your dispute.

Note: Partners are required to file individual statements including contributions to R&D done on behalf of a partnership and R&D on their own account.

Tax agents: If you're going to file a detailed statement on behalf of a client, you must upgrade your online services user ID to access their detailed statement. Ask the online services support person or administrator in your office for help or contact the R&D tax credit team.

Note: You do not have to print out and sign your detailed statement.

Note: Research and development tax credits are excluded income.

If you dispute our assessment of your R&D tax credit, you can request a reassessment of your claim by submitting a notice of proposed assessment ( NOPA).

In some circumstances, different timeframes apply for submitting a NOPA or a detailed statement in support of a NOPA.

When the disputes process is complete, you cannot submit a NOPA for an R&D tax credit for the disputed period that has been resolved. However, we still have discretion to amend the claim.

Refer to our standard practice statements for more information about your rights and responsibilities:

• if we initiate a dispute (SPS 08/01)
• if you initiate a dispute (SPS 08/02).

Crown entities

An entity which the Crown has a controlling interest in, but is legally separated from the Crown. There are five categories of Crown entities: statutory, companies, subsidiaries, school boards of trustees and tertiary education institutes. Crown entities and entities controlled by, associated with them or in partnership with them cannot carry out eligible R&D activities. Crown entities are defined in the Crown entities Act 2004.

Excluded income

Excluded income as defined in section YA1 of the Income Tax Act 2007 is omitted from a person's calculation of income tax for an income year.

Note: The time period for performing research eligible for the R&D tax credit has ended. It is no longer possible to become a listed research provider.

LRP status

The time period for performing research eligible for the R&D tax credit has ended. It is no longer possible to become a listed research provider. Removed paragraphs about becoming an LRP.

This section gives information to help you use the R&D tax credit tools available through online services.

Listed research provider (LRP)

A research provider can provide systematic, investigative and experimental (SIE) research and development (R&D) services on behalf of on-associated businesses. A business whose eligible R&D expenditure is likely to be less than $20,000 per annum can qualify for the R&D tax credit only if it uses an LRP to do this research.

Correcting errors in relation to your detailed statement

Contact us if you have already submitted your detailed statement and want to correct an error.

Australia New Zealand Standard Research Classification (ANZSRC) definitions

The ANZSRC Socio-economic objective classification can be found on the website of the Australian Bureau of Statistics.

The ANZSRC codes are a classification system owned and maintained by Statistics New Zealand in collaboration with the Australian Bureau of Statistics. These codes cover all possible research types, some of which are excluded from eligibility for the research and development (R&D) tax credit.

Select yes if both of the following apply:

• you have already filed your income tax return for the period, and
• you want to change the amount of R&D tax credit you claimed on the income tax return.

If this is the case, you will need to submit a notice of proposed adjustment (NOPA) to initiate the standard process for disputing an assessment of an income tax return.

Note: Do not use special formatting (ie, tables, bullet points or tabs) or special characters (ie, macrons) in your answer because the page will not save.

You must describe the research plan, outline, methodology or framework that you used to develop your research, and clearly identify the R&D activities conducted within the 2008-09 income year.

When you describe the R&D activities, include details that support the eligibility of your claim. Make sure to include clear descriptions of your hypothesis (what you are trying to prove with your research; note that it is different from the intended research outcome), and any related experimentation conducted in the 2008-09 income year.

Note: Do not use special formatting (ie, tables, bullet points or tabs) or special characters (ie, macrons) in your answer because the page will not save.

What is the problem that no-one knows how to solve, on a worldwide basis (the scientific and technological uncertainty)? If others have solved the problem but the answer is not accessible, you can still claim.

Provide information on the background research you have done on the problem and state why you are confident it qualifies as a scientific or technological uncertainty.

Note: Scientific or technological uncertainty is when knowledge of whether something is scientifically or technologically possible, or of how to achieve it in practice, is not publicly available or deducible by a competent professional working in the field.

Note: Do not use special formatting (ie, tables, bullet points or tabs) or special characters (ie, macrons) in your answer because the page will not save.

What is the new thinking or original idea (the appreciably novel element) in your R&D? How have you developed the technological frontier or used the technology in a way that is outside its previously known capabilities?

Provide information on the background research you have done on the novel element and what differentiates your proposal from similar products, processes or knowledge already available in a worldwide basis.

Note: Do not use special formatting (ie, tables, bullet points or tabs) or special characters (ie, macrons) in your answer because the page will not save.

Enter the amount of eligible expenditure on contracts for eligible R&D activities with research providers (including listed research providers) on this project.

If you cannot claim any expenditure in this section, you will need to enter "0" in this field.

Note: Remember to identify which eligible R&D activities were contracted in the "Activities Details" section.

Click on the Yes or No button to indicate whether or not the total eligible expenditure includes overseas expenditure.

If yes, overseas expenditure.*

Enter the amount of eligible overseas expenditure that was incurred on this project.

Note:

• Your overseas expenditure is limited to 10% of the amount of your project's eligible expenditure in New Zealand.
• Remember to identify which eligible R&D activities were developed overseas in the "Activities Details" section.

Click on the Yes or No button to indicate whether or not a government grant (including a local government grant) was received for this project.

If Yes, how much expenditure is ineligible because it is funded by a government grant?*

Enter the total amount of any of your expenditure on this project that has become ineligible for the R&D tax credit because of government funding you have received. You cannot receive both a government grant and the R&D tax credit for the same expenditure on R&D.

Note:

• You must manually deduct this amount from the total expenditure claimed, because it is not automatically deducted from the total claimed expenditure.
• Remember to identify which eligible R&D activities were funded by a grant in the "Activities Details" section.

Note: A claim for the R&D tax credit is not complete unless both a detailed statement and income tax return with a completed R&D tax credit keypoint have been submitted.