R&D TAX CREDITS

From April 1st, companies undertaking approved R&D expenditure may be eligible for R&D tax credits

R&D tax credits will be operating under a pilot scheme for the 2020 financial year

The existing R&D loss tax credit is still in operation

The R&D tax credit scheme replaces Callaghan Innovation’s Growth Grant scheme and will be managed through the Inland Revenue Department. The following is a simplified overview.

A tax credit is available to companies whose expenditure on Research & Development activities exceed $50,000.

To qualify;

  • you must have a core R&D activity.
  • you can demonstrate you use a systematic approach to resolve scientific or technological uncertainty.
  • you own the outcomes of the R&D
  • the R&D was undertaken within New Zealand
  • you have a system in place to capture and record expenditure

Core R&D activity;

  • is carried out to create new knowledge, or new or improved processes, services or goods, and
  • uses a systematic approach, to resolve scientific or technological uncertainty.

A systematic approach is an organised and planned approach to formulate and test possible solutions to the uncertainty.

Scientific or technological uncertainty exists if the knowledge;

  • is not publicly available, and
  • cannot be worked out by a competent professional in that field

Scientific or technological uncertainty can arise when;

  • it may be uncertain whether a goal can be achieved
  • you may be confident that the goal can be achieved but don’t know how to achieve it.

There is scientific or technological uncertainty if a competent professional would need to undertake an investigative process to test, analyse or prototype possible approaches to achieving your goal, or

There may be uncertainty (from a scientific or technological perspective) in relation to whether the output will meet desired specifications such as response time, reliability, reproducibility or cost.

Eligible expenditure

  • Salary and wages paid to employees when working on eligible R&D activities.

This might be recorded in a time recording system where eligible R&D is coded separately from other activities, or it might be assessed and recorded in project documentation on a regular (for example daily or weekly) basis.

  • Other inputs such as ingredients, materials and depreciation on capital equipment used in the eligible R&D activities
  • Overheads to the extent they were incurred for the eligible R&D activity. This will normally require apportionment.

Record keeping;

  • The purpose of the R&D – it must be for new knowledge or a new or improved process, product or service.
  • The scientific or technological uncertainty (the question) that the systematic approach is intended to resolve.
  • How you know the uncertainty could not be resolved based on publicly available information or deduced by a competent professional.
  • The systematic approach that was undertaken in an attempt to resolve the uncertainty.

Innovation and experimental development

You may be undertaking work which will result in a new product or service and which is innovative, substantially novel, or which involves experimental development. These terms are not defined in the legislation which governs the operation of New Zealand’s R&D tax credit. What matters for eligibility in New Zealand is that your activities have a material purpose of resolving scientific or technological uncertainty.

Trials

Trials are a systematic approach that may be used in eligible core R&D activities and for other purposes.

If a process, system, or product has already been tested and proven in one context and is known to work, trials you undertake to test it in your context (for example in a new location or to test it with a new crop or soil type) are unlikely to be regarded as an eligible core R&D activity.

This is because the underlying technology is likely to be well understood by a competent professional even if the specific test results in the new context cannot be predicted in advance.

If, however, these processes throw up unexpected problems requiring the resolution of scientific or technological uncertainty, there may be an eligible R&D activity.

Regulations and standards

Activity involved in demonstrating compliance with statutory requirements or standards is excluded from being a core R&D activity. This exclusion will cover any activity carried out to meet a requirement in:

•   legislation

•   regulations, or

•   standards – for example, those developed by Standards New Zealand or joint Australia-New Zealand or international standards.

The Resources Guys specialise in R&D Grants and R&D Tax Credits advise, applications and setting up. If you’d like to know more about the new R&D Tax Credit scheme, or anything about R&D in general, contact us at this email address