Businesses involved in research and development (R&D) projects can claim a 15% tax credit for the 2019-20 income year. R&D has a specific statutory definition for the purposes of tax credit which is not the same as the commercial, engineering or accounting definitions. The tax credit is not just for scientific research but also for development activity that meets the eligibility criteria.
To be eligible for the new R&D Tax incentive, the following requirements must be met:
- A core R&D activity must be intended to create new knowledge, or improved processes, services or goods.
- The R&D is trying to resolve a scientific or technological uncertainty, where experts in the area do not know the answers or possibilities.
- Research in the following fields is excluded from eligible R&D
- Social Sciences
- market research for your product or service.
- A minimum of $50,000 is spent on R&D. However, to ensure that even small businesses can qualify for the R&D tax credit, there is no minimum spend if the business uses an approved research provider. A list of approved research providers can be found on the Inland Revenue website.
- A systematic approach is used to undertake R&D. This involves a methodical approach that is planned, structured and documented, which could involve prototyping, experimentation or analysis that tests and evaluates possible solutions.
- The activities being undertaken in R&D are predominantly taking place in New Zealand. Overseas expenditure is limited to 10% of your total R&D expenditure.
- You own the results of the undertaken R&D or are able to use the results at no extra cost.
Starting from the 2020-21 income year, a new approval process will be introduced. This will make it easier for businesses to understand whether or not they are eligible for the R&D Tax Incentive.
If you are seeking an R&D tax credit for the 2019/2020 or 2020/2021 tax years, you now have until 31 August 2021 to apply.
Please note: if your application is approved, Year 1 payments won’t be processed until new legislation has passed to enable the extended deadline. This is likely to be in early 2022.
If you have any questions about the R&D tax credit, please get in contact with one of our partners so that we can walk you through the process. Whilst you can enrol online yourself to take advantage of this incentive, we strongly encourage you to speak with our team before proceeding.