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In order to be eligible you must spend 20% or more of your total labour expenditure on R&D.

The formula to calculate your percentage of R&D labour expenditure is:

total R&D labour expenditure ÷ total labour expenditure x 100

Total R&D labour expenditure is defined as the total of:

  • salary or wages paid to employees for carrying out R&D
  • amounts paid to shareholder-employees as income for carrying out R&D, and
  • the costs of R&D carried out by a contractor excluding GST x 0.66 (the multiplier is intended to exclude profit and non-wage cost components of the contract price).

R&D labour expenditure does not include labour on activities excluded from eligibility.

Total labour expenditure is the total of:

  • salary or wages paid to employees
  • amounts paid to shareholder-employees as income, and
  • the costs of research and development carried out by a contractor excluding GST x 0.66.

The total R&D labour expenditure and total labour expenditure can also include:

You need to include all of the above in your equation for both total labour expenditure and R&D labour expenditure or none at all.

In cases where an employee divides their time between business-as-usual duties for the company, and the R&D project, the total expenditure on the above listed items for each employee should be the same proportion as their total R&D labour expenditure.

Calculating your eligible R&D wage intensity

Find out how to calculate your eligible R&D labour expenditure and how you meet the wage intensity criteria here:

R&D wage intensity criteria

Example: Eligible expenditure

For the 2015-16 tax year, Company A calculated their total labour expenditure and R&D labour expenditure as: 

 

Total labour expenditure (including R&D labour expenditure):

Contractor R&D excluding GST x 0.66 $49,500

Salary or wages paid $645,000

Amounts paid to shareholder-employees $120,000

Total labour expenditure $814,500

 

R&D labour expenditure:

Contractor R&D excluding GST x 0.66  $49,500

Salary or wages paid $240,000

Amounts paid to shareholder-employees $50,000

Total R&D labour expenditure $339,500

 

R&D wage criteria calculation

$339,500 / $814,500 = 0.4168 x 100 = 41.68%

For the 2015-16 tax year, Company A meets the wage intensity criteria as their R&D expenditure is greater than 20% of their total labour expenditure.

Example: Employee with time split over usual duties and R&D project

Tony receives an annual salary of $49,400 and contributes to KiwiSaver for which the employer pays an employer superannuation cash contribution of 3%. His total labour expenditure for the year will include:

 

Salary $49,400

Net employer superannuation cash contributions $1,227.20

ESCT $256,80

Tony's total labour expenditure for the year $50,884

 

Tony spends 60% of his time carrying out R&D. The rest of his time is spent carrying out normal duties for the company. In this case, 60% of his salary, net employer superannuation cash contribution and ESCT would be included as the company's R&D labour expenditure as:

 

$49,400 x 60% = $29,640

$1,227.20 x 60% =  $736.32

$256,80 x 60% =  $154.08

Tony's total labour expenditure for the year $30,530.40