What a tax credit is
The research and development tax incentive (RDTI) offers a tax credit at the rate of 15% of eligible R&D eligible expenditure or loss up to $120 million. It operates by offsetting tax to pay and in some circumstances it is refundable.
To claim the tax incentive, you must spend at least $50,000 a year on eligible R&D. You might be eligible if you spend less than $50,000 and use an approved research provider.
Reading our RDTI guides will help you to choose the right process and submit accurate information to support your applications.
Receiving your R&D tax credit
When applying tax credits against your income tax liability, your R&D tax credits apply after imputation credits but before refundable tax credits. Your tax credits are used in the following order:
- Non-refundable tax credits
- Tax credits for supplementary dividends
- Imputation credits
- R&D tax credits from a previous tax year
- R&D tax credits from the current tax year
- Refundable tax credits
Any R&D tax credits that are leftover can be carried into your next income year.
If you are a company, you may only carry your R&D tax credits forward if you meet the shareholder continuity requirements.
Getting a refund
The Government has brought forward the proposed changes to refundability rules. You can now apply these new rules to R&D claims for year 1 of these changes, the 2019-20 tax year.
Limited refundability rules
If you're a company doing eligible R&D, you may be able to get an R&D tax credit refund of up to $255,000. This equals $1.7 million of eligible R&D expenditure if you:
- are in a tax loss position
- are in a tax paying position but have surplus tax credits
- satisfy the R&D tax loss cash-out corporate eligibility and wage intensity criteria
- do not derive exempt income and are not associated with anyone who derives exempt income.
If you're a company resident in New Zealand, you and the associated person are allowed to derive income from dividends, and still be eligible for a refund, if they are from:
- foreign companies
- New Zealand wholly-owned groups.
You'll need to check sections CW 9 and CW 10 of the Income Tax Act 2007 for the full criteria.
Broader refundability rules
The broader refundability rules apply by default to all claimants in the 2019-20 income year. However, businesses have the option of using the limited refundability rules of year 1 if they prefer.
The broader refundability rules carry forward the previous criteria, but do not include the:
- R&D wage intensity method
- $255,000 cap, replacing it with one based on labour-related costs.
Filing an R&D supplementary return
When filing an R&D supplementary return, we will ask the business to confirm which set of refundability rules they're applying to its claim. For more information, see our Research and Development Tax Incentive: Guidance - IR1240 and Research and development supplementary return guide - IR1060.
Refundability rules for 2020-21 onwards
All businesses will have to use the broader refundability rules from the 2020-21 income year onwards.
Wage intensity criteria
You must also satisfy the wage intensity criteria In order to satisfy this criteria, 20% or more of your labour costs must relate to R&D. If you are part of a group of companies, the wage intensity amount calculated for your group must be at least 20%.