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Research and development (R&D) loss tax credit

What is the research and development loss tax credit?

The research and development (R&D) loss tax credit allows business losses from eligible expenditure associated with R&D to be cashed out instead of being carried forward. Generally, tax losses are carried forward to the next income year.

Losses that are cashed out are no longer available to apply against income in future years.

For income years beginning on or after 1 April 2015, you may be able to "cash out" (have refunded) up to 28% of any tax losses associated with eligible R&D activity if your company is resident in New Zealand.

Read more information about the R&D loss tax credits in our Tax Information Bulletin Vol 28, No 3 April 2016 pages 19 to 29.

You can repay the R&D loss tax credit by paying:

  • future income tax (ie,by trading into profit), and/or
  • R&D repayment tax following a loss recovery event (LRE). 

New imputation credits for income tax paid by a company won't be available to a company that has cashed out R&D losses until that company has repaid the cashed out amounts.

Find out more about impacts to imputations and trading into profit

Find out more about loss recovery events

How much can be claimed?

The amount you can claim as a tax credit will be the lesser of the company's:

  • net loss for the year x 28%, or
  • total R&D expenditure for the tax year x 28%, or
  • total R&D labour expenditure for the year x 1.5 x 28%.

R&D loss tax credit maximum allowable value for the relevant tax years

Tax year Maximum allowable value
2015-2016 $140,000
2016-2017 $224,000
2017-2018 $308,000
2018-2019 $392,000
2019-2020 $476,000
2020-2021 onwards $560,000

 

Note

The maximum amount allowable will start at $500,000 x the company tax rate, ie, $500,000 x 28% = $140,000. This starting amount will be increased by $300,000 per year and will be capped at $2 million after five years.

Example

Company A for the 2015-2016 tax year has:

  • A net loss of $120,000.
  • Total R&D expenditure of $140,000.
  • Total R&D labour expenditure of $60,000.
  • The company tax rate is 28%.

Company's net loss for the year 

$120,000 x 28% = $33,600

Company's total R&D expenditure for the tax year 

$140,000 x 28% = $39,200

Company's total R&D labour expenditure for the year x 1.5 x 28%

$60,000 x 1.5 = $90,000

$90,000 x 28% = $25,200

The maximum claim for the 2015-2016 year 

$500,000 x 28% = $140,000

For the 2015-2016 tax year, Company A can claim an R&D loss tax credit of $25,200 as it is the lesser amount.

Record keeping

It's important you keep accurate and complete records. Your business records should include:

  • banking information
  • proof of income and expenses
  • cash books, and
  • wage books.

For the purpose of the tax credit you should clearly record your R&D expenditure so it's easily identifiable from any other expenditure when you apply for the credit.

Find out more about keeping records for R&D