The R&D tax credit has been repealed, effective from the 2009-10 income year.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.
Glossary of R&D tax credit terms
Advance in science or technology
The discovery of scientific or technological knowledge, through the resolution of scientific or technological uncertainty.
Appreciable novelty
Appreciable novelty involves seeking to develop new technology or to use existing technology in a new way. This can be paraphrased as seeking to extend the technological frontier or seeking to use technical approaches that are new to the relevant area.
Appreciable
Whether a given situation would amount to "appreciable" novelty depends on whether it is likely to be seen as a meaningful or significant development, or a new use. A meaningful development or new use in a field is one regarded as such by a competent professional in that field.Novelty (legal definition)
A development of technology or a new use of existing technology, by comparison with the knowledge of the technology that is publicly available on a reasonably accessible world wide basis.
"At risk" contracting
Where the contractor controls the work on the basis that their fee is not payable unless the research or development succeeds. The contractor takes the financial risk in this situation. The party contracting out the work would not be eligible for the tax credit. The contractor may be eligible, if they meet the eligibility requirements in their own right.
Carrying on business
Has the same meaning as for other tax purposes and essentially means you must operate with the intention of making a profit.
Competent professional
A professional who, in their field of expertise, is:
- knowledgeable about the relevant scientific and technological principles involved
- aware of the current state of knowledge, and
- recognised as having a successful track record in that field.
A competent professional may be an employee of the business.
Consideration
Something of value, such as money, given by one party to another, in exchange for an act or promise.
Control
A business has 'control' over the R&D activities for the purpose of the 'on behalf of' criteria where they control the strategic decisions. This will arise if, for example, they have the ability to:
- determine the R&D activities to be undertaken
- decide on major changes of direction
- stop an unproductive line of research
- follow up on an unexpected result
- terminate the activities or project.
Find out more about on behalf of criteria/tests.
Costing methodology
The method by which costing is done. Details of the standard costing methodology used for the R&D activity may be required by Inland Revenue. This methodology could be by percentage of time, volume, unit sales, dollar value or other means, as appropriate.
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.
Crown Research Institute (CRI)
An agency owned by the Crown, whose primary purpose is to perform research. CRIs and entities controlled by or associated with CRIs are not eligible to claim the R&D tax credit. A partnership which has a CRI as a partner cannot carry out eligible R&D activities.
Depreciation loss
Find out more about depreciation loss.
Detailed statement
The electronic form on Inland Revenue's website that must be completed by all businesses wishing to claim the R&D tax credit.
Detailed statement due date
This is no later than 30 days after the due date of your income tax return. Special rules apply to partnerships and internal software development groups where partners or members have different due dates for filing their income tax returns. The due date for the detailed statement is 30 days after the due date of the income tax return of the partner or member who has the latest due date for the income year.
Dispute resolution process
The process by which claimants or Inland Revenue can formally raise concerns about a claim. Transitional rules apply for the first few years of the R&D tax credit.
Find out more about the dispute process.
District Health Board (DHB)
A district board established by or under section 19 of the New Zealand Public Health and Disability Act 2000. DHBs and entities controlled by or associated with them are not eligible to claim the tax credit. A partnership which has a DHB as a partner cannot carry out eligible R&D activities.
Effective ownership of results
A business does not need to own the intellectual property to be considered to have effective ownership of the results.
While ownership can be shared, the business must retain sufficient rights to have reasonable commercial use of the results without further payment. The rights must be commensurate with the business's contribution to the work.
Find out more about effective ownership of results.
Eligible expenditure
Expenditure and depreciation loss that is eligible for the R&D tax credit. This expenditure must fall into one of a number of categories.
Find out more about eligible expenditure categories.
Eligible person (business)
You must be an eligible person to claim the R&D tax credit. To be an eligible person you must carry on business in New Zealand unless you are an industry research co-operative (IRC) and you cannot be an excluded person. CRIs, DHBs and tertiary institutions and entities associated with them or controlled by them are not eligible persons. A partnership with a CRI, DHB or tertiary institution as a partner is also not an eligible person.
If you are a non-resident, to be an eligible person you must carry on business through a fixed establishment in New Zealand.
Find out more about eligible persons.
Eligible R&D activities
Find out more about R&D activities.
Eligibility criteria
The claim process for the credit follows self-assessment principles. Claimants are responsible for assessing whether or not they are eligible to claim the credit. Criteria include whether the:
- business is eligible to receive the credit
- R&D activities are eligible, and
- R&D expenditure is eligible.
End result tangible asset
Physically observable outcome of the R&D in the sense of a tangible product or item.
End result intangible asset
The outcome of the R&D - although not a physical product or item.
Excluded activities
Activities that are outside the scope of the tax credit or that are excluded to clarify the boundary between innovative and routine work, or between R&D and pre or post-R&D activities.
Find out more about excluded activities.
Find out more about ineligible activities.
Excluded expenditure
Expenditure that will not be considered eligible for the R&D tax credit.
Find out more about what expenditure is excluded.
Find out more about ineligible expenditure.
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.
Expenditure limit
The maximum eligible expenditure ($3 million) for R&D on internal software development, unless the limit has been raised for a particular applicant by the Minister of Finance.
Find out more about the expenditure limit.
Experimental activities
An experiment is a structured intervention designed to test a hypothesis. This hypothesis must seek to advance science or technology, or involve appreciable novelty. To be eligible for tax credits R&D activities must contain experimentation.
Find out more about experimental activities.
Find out more about hypotheses.
Facilitative assets
Capital assets that are not the object of the R&D activities but that are used in R&D, for example the building that the R&D is done in or the test equipment that is used in the analysis (for example a spectrograph).
Filing due dates
There are two filing due dates for the R&D tax credit. The first of these is the filing due date for your income tax return; the second is the filing due date for your detailed statement, which is no later than 30 days after the due date for your income tax return.
See Get ready to file your detailed statement for more information.
Filing requirements
The things that a claimant is required to do in order to file a claim. For the R&D tax credit, claimants must file both an annual income tax return and an R&D tax credit detailed statement for the year the tax credit relates to.
Find out more about filing requirements.
Firmware
Software that is an integral part of an electrical or mechanical device and has the same purpose as the device. If the device is for the purpose of sale to the public then the firmware also has that purpose.
Government grant funding
A government or local authority grant. Expenditure funded by such a grant is excluded expenditure for the R&D tax credit.
Find out more about government grant funding.
Hypothesis
SIE activities must test a hypothesis. In the context of the tax credit, a hypothesis means a:
- proposed solution to a scientific or technological uncertainty, or
- proposal to develop new and improved processes, products etc that involve an appreciable degree of novelty.
Find out more about hypotheses.
Industry research co-operatives (IRC)
An organisation that undertakes or commissions R&D on behalf of businesses within a particular sector or industry. Such co-operatives may be eligible for the R&D tax credit, even though they may not be in business in their own right.
See Industry research co-operatives (IRCs) and their expenditure for more information.
Ineligible activities
An activity that is either outside the scope of the tax credit or excluded because it falls outside the boundary between innovative and routine work, or between R&D and pre- or post-R&D activities.
Find out more about ineligible activities.
Find out more about excluded activities.
Ineligible businesses
A business that is not eligible to claim the R&D tax credit. This includes organizations such as: Crown research institutes (CRIs); tertiary institutions; district health boards (DHBs); their associates; entities controlled by any combination of the above.
Find out more about ineligible businesses.
Ineligible expenditure
Expenditure that is not eligible for credits.
Find out more about the types of ineligible expenditure.
Find out more about excluded expenditure.
Ineligible partner
It is possible that one partner in a partnership may be ineligible when another partner is eligible.
Find out more about ineligible partners.
Intangible assets
Intangible assets are things that do not have a physical quality. This might include assets such as software licenses or patents.
Find out more about intangible assets.
Internal software development
Eligible R&D involving development of software that will be used for internal purposes, for example support and administration, or for the supply of a non computing service to customers (for example accounting, banking or consulting services) and which is neither sold to two or more non-associated customers nor used as firmware. Internal software development includes software developed as a support activity.
Find out more about internal software development.
Internal software development limit
The maximum expenditure on eligible R&D in internal software development that will be eligible from each claimant or group. The limit applies to the 2008-09 year and is $3 million, unless a higher limit has been approved by the Minister of Finance for that claimant or group.
Find out more about the internal software development limit.
Investigative activities
Activities that have sound problem definition and research methodology.
Listed Research Provider (LRP)
An R&D provider which has applied to Inland Revenue to be included on the list of research providers, and which met certain criteria to do so. Listing by Inland Revenue does not constitute an endorsement of the provider.
Market value
The price buyers in the open market are willing to pay for a product or service.
Minimum expenditure threshold
Eligible expenditure or depreciation loss of at least $20,000 in the 2008-09 year. This is pro-rated when a business is not eligible under the "eligible person" test for part of the year, for example if the business was only in business for part of the year. The minimum eligible expenditure threshold of $20,000 for the income year does not apply if the R&D activity is outsourced to an unassociated LRP.
Non-computer service
A non-computer service is where the customers use the technology mainly to obtain a service other than the use of the taxpayer's computer technology or software (even though that service may be enabled, supported or facilitated by computer or software technology).
'On behalf of' criteria/tests
The criteria and tests used for the R&D tax credit to determine if the R&D activity has been carried out on the claimant's behalf.
Find out more about 'on behalf of' criteria.
Overseas R&D Expenditure
Expenditure on R&D activities that occur outside New Zealand.
Find out more about overseas R&D expenditure.
Ownership of results
See definition for effective ownership of results.
Partnership
The test of partnership for R&D purposes is the same as for normal income tax purposes.
Professional fees
Fees paid to professionals (for example accountants, lawyers or other specialist advisors) to determine whether claimants, activities and expenditure are eligible, or for calculating the amount of the claim.
Find out more about the eligibility of professional fees.
Publicly available
Information that is available publicly, or deducible by a competent professional working in the field, on commercial terms, in an international context.
R&D project
A planned and coordinated set of eligible R&D activities with start and finish dates, cost and time constraints and directed towards a specified objective where:
- the claimant meets the "on behalf of" tests, and
- more than half the eligible expenditure or depreciation loss on the project is incurred on R&D activities performed in New Zealand.
Research and Development activities (R&D activities) (legal definition)
- systematic, investigative, and experimental activities that are performed for the purposes of acquiring new knowledge or creating new or improved materials, products, devices, processes, or services, and that:
- are intended to achieve an advance in science or technology by resolving scientific or technological uncertainty;
- involve an appreciable element of novelty.
- other activities that are wholly or mainly for the purpose of, required for, and integral to, the performing of the activities referred to in paragraph (a).
Research and development Tax Credit (R&DTC, R&D tax credit)
A tax credit of 15% for eligible expenditure on R&D activities conducted in New Zealand by eligible businesses.
Find out more about the R&D tax credit.
Scientific or technological uncertainty (legal definition)
Means uncertainty concerning the scientific or technological possibility of a thing, or the achievement of the thing in practice, created by an absence of relevant knowledge from the knowledge that is publicly available or deducible by a competent professional working in the field.
Systematic, investigative and experimental (SIE) activities (legal definition)
Activities that:
- are planned activities directed towards a particular purpose and following a logical progression of work involving hypothesis, experiment, observation, and evaluation; and
- are not excluded under schedule 21, part c (expenditure and activities related to research and development).
Find out more about SIE activities.
SIE activities (plain English)
Systematic, investigative and experimental activities, planned activities;
- are directed towards one of the required purposes, and
- follow a logical progression involving hypothesis, experiment, observation and evaluation.
Find out more about SIE activities.
Supporting activities
Activities that are mainly or wholly for the purpose of, required for, and integral to, carrying out SIE activities.
Systematic activities
Where the methodology is sufficiently structured and documented that it can be reproduced by another "competent professional". Investigations that are carried out in an ad hoc or random manner are not systematic activities, regardless of whether anything useful is discovered.
Tangible property
Property that has physical substance but not includingreal estate (real property) or money.
Tax credit
See R&D Tax Credit.
Tax exempt businesses
Entities that derive exempt income.
Tertiary institution
Universities, colleges of education, polytechnics, institutes of technology, technical institutes and community colleges that are either specified in the Schedule to the Education Act or established by subsequent order in council.
Technology (legal definition)
The practical application of scientific principles and knowledge.
Third party co-funding
Where a funding contract between a government agency and a business performing R&D requires additional funding from a third party, the funding from the third party is known as third party co-funding. Expenditure covered by third party co-funding is ineligible expenditure for the R&D tax credit.
Use-of-money interest (UOMI)
Use-of-money interest applies to amounts of tax credit as it would apply to other amounts of tax.
Date published: 02 Nov 2009
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