Introduction
The three eligibility criteria referred to in the introductory paragraph are spelled out:

You must meet all three of the eligibility criteria to be eligible for the research and development (R&D) tax credit:

• Eligible business or person
• Eligible activities
• Eligible expenditure.

Page 5 of RTF document.

Site area: R&D tax credit > About > Overview of the eligibility criteria.

Eligibility - location of R&D
Deleted "most of the" from the summary criteria:

Carry out most of the R&D activities in New Zealand.

Page 5 of RTF document.

Site area: R&D tax credit > About > Overview of the eligibility criteria.

Overview - partnership with ineligible business
Added note to the How the R&D tax credit works "Who is eligible?" overview:

Note: eligible businesses cannot claim the tax credit for:

• R&D activities done in partnership with an ineligible business.

Page 8 of RTF document.

Site area: R&D tax credit > About > How the R&D tax credit works.

Questionnaire

• The numbering of the questions has been changed.
• Introductory wording clarified to read as follows:

In order for you to assess your eligibility for the R&D tax credit, there are three sets of tests that you must consider:

• You must be an eligible business/person
• Your R&D activities must be eligible
• Your expenditure on R&D must be eligible.

The questionnaire below will help you to understand these three eligibility tests.
The questionnaire will not give you certainty that you are definitely eligible, as this requires a detailed understanding of the terms used, and the facts of each case. It should however indicate whether or not it is worth you pursuing the matter further.
If you require any more information, we suggest that you read the detailed information by way of the links provided, or consult your professional advisor.

Page 11 of RTF document.

Site area: R&D tax credit > Work out > Asses your eligibility.

Eligible business test - subsidiary must be in business itself
Paragraph added to make it clear that a subsidiary must itself be in business.

Other than IRCs, the entity claiming the tax credit must meet the requirement to be in business. A wholly-owned subsidiary set up to undertake R&D may be eligible if it meets the business test in its own right. 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.

Page 22 of RTF document.

Site area: R&D tax credit > Work out > Find out if your business is eligible > Eligible business tests.

Business with tax exempt income

• Link added so that readers are directed to general discussion of eligibility of such businesses.
• Phrase added on the acceptable means of asset valuation:

This may be substantiated by an independent valuationor by other reasonable means.

>Page 71 of RTF document.

Site area: R&D tax credit > Work out > Find out if your business is eligible > Eligible business tests.

Eligible R&D activities
"And" has been replaced by "or" in the following phrase:

Be intended to advance science and or technology by resolving scientific or technological uncertainty.

Page 34 of RTF document.

Site area: R&D tax credit > Work out > Find out what R&D activities are eligible > What is research that is systematic, investigative and experimental (SIE)?

Unsuccessful R&D activities can be eligible
A note has been added to the beginning of the "What is research that is systematic, investigative and experimental?" section:

Important
R&D activities do not have to be successful to be eligible. Activities remain eligible even if they do not resolve the uncertainty or introduce appreciable novelty.

Page 34 of RTF document.

Site area: R&D tax credit > Work out > Find out what R&D activities are eligible > What is research that is systematic, investigative and experimental (SIE)?

Deletion of repeated material on uncertainty and novelty

• A repetitious section on "How does uncertainty and novelty relate to SIE activity?" has been deleted.
• The paragraph on "Success of activity" has been turned into an "Important" note at the top of the page.

The material on uncertainty and novelty interrupted the flow and was repetitious.

The material on "Success of activity" was buried at the bottom of the page.

Page 34 of RTF document.

Site area: R&D tax credit > Work out > Find out what R&D activities are eligible > What is research that is systematic, investigative and experimental (SIE)?

Page 36 of RTF document.

Site area: R&D tax credit > Work out > Find out what R&D activities are eligible > What is research that is systematic, investigative and experimental (SIE)?

Addition to existing practice example
Further text added in response to an issue which arose in consultation with the agricultural sector:

Expenditure with a research company (or CRI, etc) does not necessarily mean that the activity is eligible R&D activity. For instance the expenditure may be purchasing a consultant's skills or products rather than SIE activities which meet the uncertainty or novelty tests.

Page 37 of RTF document.

Site area: R&D tax credit > Work out > Find out what R&D activities are eligible > What is research that is systematic, investigative and experimental (SIE)?

Page 38 of RTF document.

Site area: R&D tax credit > Work out > Find out what R&D activities are eligible > What is research that is systematic, investigative and experimental (SIE)?

Page 42 of RTF document.

Site area: R&D tax credit > Work out > Find out what R&D activities are eligible > What is research that is systematic, investigative and experimental (SIE)?

"Integral to"
Wording clarified to read as follows:

Activities are considered to be "integral to" an R&D activity if the R&D activities cannot occur without them. "Integral to" distinguishes support activities from more remote activities such as administrative tasks which do not constitute support activities but where expenditure may be eligible as overhead.

Page 48 of RTF document.

Site area: R&D tax credit > Work out > Find out what R&D activities are eligible > Support activities.

Page 50 of RTF document.

Site area: R&D tax credit > Work out > Find out what R&D activities are eligible > Determining when eligible R&D activities start and finish.

Page 59 of RTF document.

Site area: R&D tax credit > Work out > Find out what R&D activities are excluded > Quality control and routine testing.

Compliance with statutory regulations or standards
Content added to clarify that seeking regulatory approval may be a support activity.

R&D activities that are a condition of a statutory consent or concession are also excluded from being an eligible activity, for example R&D you are required to undertake to research the impact of your activities.

Page 65 of RTF document.

Site area: R&D tax credit > Work out > Find out what R&D activities are excluded > Compliance with statutory requirements or standards.

Compliance with statutory regulations or standards
Added "The costs of applying for regulatory approval for eligible SIE activities may be eligible expenses".

The costs of applying for regulatory approval for eligible SIE activities may be eligible expenses - provided the consent is granted and the activities take place. If the consent is declined, or the activities do not proceed for some other reason, the application costs will not be eligible.

Page 65 of RTF document.

Site area: R&D tax credit > Work out > Find out what R&D activities are excluded > Compliance with statutory requirements or standards.

Page 66 of RTF document.

Site area: R&D tax credit > Work out > Find out what R&D activities are excluded > Management studies or efficiency surveys.

Deductibility of expenditure
The reference that to be eligible for the R&D tax credit expenditure must be deductible for tax in the year the expenditure is incurred, after adding back income under adjustment rules (subpart CH) has been changed.

It now reads that to be eligible for the R&D tax credit expenditure must be deductible for tax for the year in which the claim is made, after adding back income under adjustment rules (subpart CH).
This change has been made in a number of places in the eligibleexpenditure section.

Page 69 of RTF document.

Site area: R&D tax credit > Work out > Find out what expenditure is eligible and what is excluded > Deductibility of expenditure.

Deductibility of expenditure - exceptions to general rule

• Phrase "certain depreciable capital assets that are the object of R&D" replaced with "certain depreciable assets".
• Additional exception added relating to overseas expenditure carried forward until sufficient New Zealand expenditure is incurred.

The new wording is as follows:

There are exceptions to the general rule that, to be eligible, expenditure must be deductible in the year for which the claim is made. These relate to:

• a business/person with tax-exempt income
• R&D deductions deferred under section EJ23
• capital expenditure incurred in creating certain depreciable assets
  
• overseas expenditure carried forward from a previous period, until sufficient New Zealand expenditure has been incurred on the project.

The expression "the object of the R&D" caused confusion.

To ensure consistency.

Page 71 of RTF document.

Site area: R&D tax credit > Work out > Find out what expenditure is eligible and what is excluded > Deductibility of expenditure.

Capital expenditure on depreciable assets

• The phrase "the object of the R&D" has been deleted.
• The phrase "eg for testing" replaced with "eg in experiments or trials".

This expression caused confusion.

"For testing" wrongly suggested that the asset was test equipment.

Page 73 of RTF document.

Site area: R&D tax credit > Work out > Find out what expenditure is eligible and what is excluded > Deductibility of expenditure.

Employee remuneration
Clarified that expenditure on employee shareholder salary is eligible.

Remuneration payments to an employee who is also a shareholder are eligible for the tax credit on the same basis that applies to ordinary employees.

Page 76 of RTF document.

Site area: R&D tax credit > Work out > Find out what expenditure is eligible and what is excluded > Types of eligible expenditure or depreciation loss.

Page 77 of RTF document.

Site area: R&D tax credit > Work out > Find out what expenditure is eligible and what is excluded > Types of eligible expenditure or depreciation loss.

Page 79 of RTF document.

Site area: R&D tax credit > Work out > Find out what expenditure is eligible and what is excluded > Types of eligible expenditure or depreciation loss.

End-result intangible assets
"Part A" replaced with "Part B" in the following reference:

New Zealand legislation Income Tax Act 2007: Schedule 21, Part A, clauses 8 and 15.

Page 80 of RTF document.

Site area: R&D tax credit > Work out > Find out what expenditure is eligible and what is excluded > What expenditure is excluded from a claim?

Ineligible expenditure

• Added hyperlinks to initial list of expenditure types.
• "Interest" has been deleted as a separate category and added to "Expenditure under a financial arrangement" as an example.

Page 86 of RTF document.

Site area: R&D tax credit > Work out > Find out what expenditure is eligible and what is excluded > What expenditure is excluded from a claim?

Core technology
The definition of core technology was misleading and has been re-stated as follows:

Core technology may be:

• Knowledge, or a product, of which the eligible R&D activities are an extension, continuation, development or completion
• The basis for obtaining new knowledge based on that technology
• The basis for new or improved materials, products, devices, services or processes to be created as a purpose of the eligible R&D activities.

An example of core technology has been added.

To provide clarity.

Requested in consultation.

Page 90 of RTF document.

Site area: R&D tax credit > Work out > Find out what expenditure is eligible and what is excluded > What expenditure is excluded from a claim?

Overseas R&D
Additional material including examples has been added to clarify the location of expenditure as follows:

The location of the expenditure is determined by where the related activity takes place. This will be the place that the good purchased is consumed or where the service purchased is performed.

Page 93 of RTF document.

Site area: R&D tax credit > Work out > Find out what expenditure is eligible and what is excluded > What expenditure is excluded from a claim?

Page 99 of RTF document.

Site area: R&D tax credit > Work out > Find out what expenditure is eligible and what is excluded > Industry research cooperatives (IRCs) and their expenditure.

Page 132 of RTF document.

Site area: R&D tax credit > Work out > Find out what expenditure is eligible and what is excluded > Minimum expenditure threshold.

Pages 102 - 118 of RTF document.

Site area: R&D tax credit > Work out > Limits on internal software development expenditure.

Page 104 of RTF document.

Site area: R&D tax credit > Work out > Limits on internal software development expenditure.

Software as an integral part (firmware)
Explanation of firmware amended to reflect that the requirement is for sale to one or more customers:

Development of firmware for sale, rent, license, hire or lease to one or more customers as part of the taxpayer's business would not be internal software development or subject to the $3 million limit on internal software development expenditure, unless the software was used in the internal administration of the taxpayer's, or an associated business, or used to deliver non-computer services.

Page 107 of RTF document.

Site area: R&D tax credit > Work out > Limits on internal software development expenditure > About the limit on internal software development expenditure.

What happens if I dispute an assessment?

Added the sentence:

The Commissioner retains a discretion under S113.

Page 141 of RTF document.

Site area: R&D tax credit > Managing changes, corrections and disagreements > Disputing our assessment of your claim.

Glossary

A glossary of terms has been added.

Page 155 of RTF document.

Site area: R&D tax credit > Additional information and help > Glossary of R&D tax credit terms.