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Definition of R&D

Not everything that a business calls research and development (R&D) will qualify for the research and development tax incentive. Only activities that meet the legislative definition of R&D are eligible.

Legislative definition of R&D activities (Parliamentary Counsel Office)


Eligible R&D activities must involve core R&D activity. There may also be supporting activities.

Type of activity Definition
Core activity An activity that has the material purpose of creating new knowledge or new or improved services or goods. It must also attempt to resolve scientific or technological uncertainty using a systematic approach.
Supporting activity An activity that has the only or main purpose of supporting the core activity

Core R&D activities

Core R&D activities must do all the following:

  • seek to solve scientific or technological uncertainty
  • seek to create new knowledge, new or improved processes, services or goods
  • use a systematic approach
  • happen in New Zealand
  • not appear on the list of ineligible R&D activities.

Scientific and technological uncertainty

Scientific or technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not publicly available or deducible by a competent professional working in the field.

Knowledge that resolves the uncertainty is considered publicly available if it is reasonably accessible. This may include knowledge published in professional journals, on the internet, or in published patents.

Reasonably accessible does not mean the knowledge must be available for free. Knowledge that is reasonably accessible on commercial terms is considered publicly available.

A competent professional is a hypothetical person with ordinary knowledge and experience in the relevant scientific or technological field. The competent professional possesses relevant skills and experience and/or relevant qualifications and understands common practices for solving common problems in the field.

'Deducible by a competent professional' means that a competent professional, faced with the scientific or technological uncertainty in question, could resolve the uncertainty without undertaking a systematic course of investigation. They do not have to be able to resolve the uncertainty off the top of their head, but can use their knowledge and abilities to resolve the uncertainty without undertaking a systematic course of investigation.

Purpose of creating something new or improved

A core activity must have the material purpose of attempting to create new knowledge, new or improved processes, services or goods.

New or improved processes, services or goods are created when something is changed or adapted to the point where it is 'better' than the original.

It is not a requirement that the R&D is successful in creating something new or improved.

Systematic approach

In this context, a systematic approach involves a planned, logical investigation to solve the uncertainty. A systematic approach can be flexible and adaptive, changing in response to results, but the approach remains logical and focused on solving the uncertainty. The research standard for a systematic approach is that it is structured and documented in such a way that it can be repeated.

 You must keep records of the systematic approach you used and the outcome. You must know and document:

  • what the scientific or technological uncertainty is
  • what possible solution your systematic approach is testing 
  • the actual activities that were undertaken to test the possible solution
  • the results of the tests, analysis or experimentation.

A systematic approach does not include trial and error despite any beneficial results.

Taking place in New Zealand 

Core R&D activities must be performed in New Zealand. The person performing the R&D must be present in New Zealand. Those who use software applications to perform their R&D are still eligible if they meet the other eligibility requirements. 

Supporting activities performed overseas are still eligible. 

Up to 10% of your total eligible expenditure can be for supporting activities conducted overseas, provided the activity is supporting a core activity taking place in New Zealand.

Supporting R&D activities

If you have core R&D activity there may be related activities which, although they do not meet the definition of core R&D activity are directly related to it and are required for the conduct of the core R&D activity.

Eligible supporting activities must:

  • have the only or main purpose of supporting the core R&D activity
  • be integral to carrying out the core R&D activity.

Supporting activities may also have other uses and benefit other parts of the business. However, their main purpose must be to support the core R&D activity, and you must be able to prove this. 

Example: Activity with R&D as its only or main purpose

A business which develops new fruit cultivars is running a trial which seeks to resolve technological uncertainty and qualifies as core R&D. Work to tend and manage the trial crops is eligible as a supporting R&D activity.

The main purpose of tending and managing the crop is to support the research and this activity qualifies as a supporting activity.

Example: Activity that is not for the only or main purpose

Company K is planning a series of tests to resolve a technological uncertainty related to its emissions. It uses data drawn from its regular environmental monitoring in its planning of the testing process.

The cost of the regular environmental monitoring process cannot be claimed for the tax credit as the activity does not meet the only or main purpose test

Last updated: 21 May 2021
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