Keeping records to support your claim

Keeping records

The R&D tax credit operates on a self-assessment basis. This means claimants are responsible for meeting the key eligibility criteria for the tax credit. These are:

• your business is eligible
• the R&D activity is eligible, and
• R&D expenditure or depreciation is eligible.

Standard reporting

Your standard records should capture a lot of the information required to support your R&D tax credit claim. It is recommended that you review your business's standard reporting in relation to R&D processes, to ensure that they will provide the required information.

Substantiating your claim

Take care to correctly assess your business' eligibility for the R&D tax credit, and maintain adequate supporting documentation.

Use-of-money interest and penalties will apply in the normal way.

How long do I need to keep records?

All records for tax purposes must be kept for seven years.

Find out more about record keeping requirements when running a business.

Find out more about keeping records on computer for audit.

Further advice

If you have any questions after reading this information, you should talk to a tax agent or other professional advisor.

General record keeping

The general record keeping requirements for businesses apply for the tax credit. Every person undertaking business in New Zealand must:

• keep records in New Zealand in the English language.
• demonstrate assessable income and allowable deductions.
• keep records for seven years after the end of the tax year they relate to.
• record all day-to-day entries of all incoming and outgoing sums of money.
• record the assets and liabilities of the person relative to that business.
• keep electronic records in a format that allows us to readily work out the amount of tax payable.

Additional help and information is provided in Standard Practice Statement GNL 430 "Retention of Business Records by Electronic Means" and in a number of guides available on this website.

Exempt income

Please note that entities with only exempt income, which may not normally keep records for income tax purposes, must keep adequate records to support their R&D tax credit claim.

Eligible business test records

Claimants must be in business

To be eligible to claim the R&D tax credit, you must carry on business in New Zealand or be an industry research co-operative (IRC) If the entity is not an IRC then it must be in business and be able to demonstrate that this business carried on with the intention of making a profit within New Zealand.

Find out more about what is required to show you're in business in our guide Smart business IR320.

Non-resident claimants

Non-resident claimants will need to have documentation available demonstrating that they carry on business in New Zealand through a fixed establishment.

Types of records supporting the fixed establishment test would include:

• lease agreements for office premises and plant
• utility accounts (eg electricity, telephone)
• contractual agreements with suppliers
• company location details held with the Companies Office.

"On behalf of" criteria records

To be eligible to claim the R&D tax credit, a claimant must control, bear the financial risk of and effectively own the results (if any) of the R&D activities

Examples of the types of records showing a claimant meets these eligibility criteria follow.

Control of the R&D activities

Examples of the types of records demonstrating the claimant's control over the R&D activities include minutes of meetings showing the claimant has decision-making authority in relation to the R&D activity being undertaken, and the direction of that activity. It is possible that control decisions may be taken jointly.

Bear the financial risk

Documentation should be available showing the claimant is funding, or has funded, the financial cost of the R&D activity - for example, evidence of equity or borrowed funds being applied by the claimant to fund the R&D activity.

Effectively own the results of the R&D activity (if any)

The claimant should be able to show that they can access the results (if any) of the R&D activity and commercially exploit any results.

Records that might support the claimant’s ownership of the R&D activity include:

• project initiation or commissioning documents
• the registration of patents resulting from the R&D activity
• contractual agreements with research providers that make it clear the claimant has commissioned the R&D activity and has the ability to commercially exploit any results arising from that activity without further payment.

Ownership and control of results may be complex in joint ventures and partnership situations. If unsure, claimants should seek professional advice before taking a tax position.

Activity test records

Key tests

It is essential that the key tests for the RD activity are able to be substantiated. Key information needed is:

• the current state of knowledge and/or technology
• the new knowledge, materials, products, devices, processes or services that you are intending to develop as a result of the R&D activity
• the advance in science or technology you intend to achieve by resolving scientific or technological uncertainty, or the appreciable element of novelty
• the hypothesis you are testing and the systematic, investigative and experimental (SIE) activities planned to test this hypothesis
• the current state of knowledge and/or technology
• the indicators or measures that will be used to determine whether the objectives of the R&D activity have been met.

If the purpose of the R&D and/or the hypothesis changes materially throughout the course of the R&D, record these changes too.

State of knowledge

You should document the current state of knowledge or technology that existed in relation to the R&D activity when you made the judgement that the SIE activity was required. Records should include evidence of how you confirmed that the knowledge or development sought through the R&D activity was not already publicly available, or deductible by a competent professional working in the field.

Types of records that could demonstrate the current state of knowledge include:

• literature reviews
• results of patent searches
• results of searches conducted through the Foundation for Research, Science and Technology's Global Expert
• documented reviews of the scientific or technological characteristics of competitor products
• reports from a competent professional working in the field (if you employ a competent professional in the relevant field, this may be an internal report)
• trade journal, scientific or technological articles indicating the state of knowledge in a particular sector, technology or trade.

SIE activities

To be eligible for the tax credit, R&D activities must include SIE activity. While the records kept by individual claimants will vary, depending on the nature of their business and the R&D activity, the systematic conduct of the R&D activity should be reflected in the records supporting any claim.

Your R&D activity records should show:

• the purpose (or overall objective) for the R&D
• the hypothesis (proposed solution) and the technical objectives and material changes to them
• the plans for SIE activities
• the results from those activities or
• the evaluation conducted.

Examples of non-accounting documents demonstrating an SIE approach might include project plans, memos or other documents such as test reports or sign-off sheets that demonstrate a systematic approach to the research activity being undertaken.

Supporting R&D activities

You should be able to show activities claimed as support activities were an essential part of the SIE process. If support activities occurred before the SIE activities, you will need to ensure your records include the plans for SIE activities and establish the link between SIE and supporting activities. This may require plans for a multi-year period.

Project finalisation

Both planned and actual actions need to be documented and retained, as changes are likely to occur throughout an R&D project

Project progress reports should help confirm the point when the R&D activity finishes and pre-production work begins.

Find out more

• Find out what you need to do
• Records showing eligible expenditure
• Conducting research by contracting a third party

 

 

Date published: 02 Nov 2009

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