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Expenditure and depreciation loss are eligible to the extent that they are incurred on eligible R&D activities. Because employees and equipment are often used on eligible R&D and for activities that do not qualify, you will need to use a reasonable method of apportionment to allocate expenditure and deprecation to eligible R&D activity.   

The following expenditure is eligible:

  • depreciation loss for items used in performing R&D
  • expenditure or loss on acquiring goods and services used in performing R&D
  • employee costs for employees performing R&D.

Maximum threshold 

You cannot claim a tax credit on more than $120 million of expenditure unless you have applied to us, and been granted, approval to exceed the maximum threshold.

The threshold is exclusive of GST if the business is registered for GST.

Minimum threshold

You must have eligible R&D expenditure of at least $50,000.

Expenditure incurred with an approved research provider is not subject to the minimum threshold. This expenditure must be spend on eligible R&D activity and cannot be on the list of ineligible expenditure types.

The threshold is exclusive of GST if the business is registered for GST.

Eligible depreciation

Depreciation on assets used in performing R&D is eligible for the tax credit. The calculation is based on the time the asset is used for R&D in proportion to its total use. Availability for use is not taken into consideration in the calculation.

Depreciation is eligible for tax credit on facilitative assets and end result assets.

Depreciation loss is not eligible for the tax credit in the year an asset is sold or disposed of. 

Depreciation on pooled assets is only eligible if all the assets in the pool are used solely on eligible R&D.

Eligible expenditure on goods and services

You can claim tax credits on the expenditure on goods and services that are not depreciable, such as:

  • the cost of goods used for R&D activities
  • overheads that relate directly to R&D activities, including utilities, cleaning, insurance, lease payments, maintenance and corporate services. 

You can also claim the tax credit for the cost of materials used in prototypes which are used solely for R&D. However, if you bought a prototype, that expenditure or depreciation loss is ineligible technology expenditure and cannot be claimed.  

This category also includes expenditure on contracts for R&D services.

Expenditure on goods that have not been used by the end of the income year are not eligible for R&D tax credit. They cannot be claimed until they are used.

Employee costs

Amounts paid to employees for the time they spend on eligible R&D activity may be claimed for the research and development tax incentive.  Allowable employee costs include:

  • salaries and wages
  • bonuses
  • employee share schemes
  • employee recruitment and relation costs
  • overtime
  • holiday and long-service pay
  • superannuation contributions.

If an employee is only working on R&D activities for a portion of their time, you have to be able to  show the calculations you used to work out how much time they spent on R&D. You can base employee costs on timesheets, project reporting data or other information, provided you use a reasonable method of apportionment.

Commercial production environment

If your R&D is performed in the course of commercial production only certain costs are eligible. This means you are doing your R&D in an environment where the R&D is performed as part of the process of producing goods or services for sale. In such an environment the amount you can claim is limited to expenditure:

  • in relation to your employee’s contribution to the R&D
  • you incur on the R&D that you can show is additional to what you would have otherwise spent. 

If you perform your R&D in the course of commercial production, you probably performed R&D as an integral part of a:

  • production line that is producing products for sale
  • process of designing, developing or building something which is for sale.

R&D conducted overseas

Expenditure on R&D conducted overseas is generally ineligible. However, if the activity is supporting your core R&D activity in New Zealand,up to 10% of your total eligible expenditure can be foreign expenditure.

Foreign R&D expenditure is made up of expenditure:

  • incurred on integral R&D activities performed outside New Zealand
  • for services performed in New Zealand by people who are non-residents for tax purposes.

R&D tax incentive guidance: R&D overseas (govt.loomio.nz)

R&D tax incentive guidance: eligible expenditure (govt.loomio.nz)

A number of types of expenditure and depreciation loss are excluded from eligibility for the tax credit.

Example: Activity in the course of commercial production

JJ Co produces spa baths. The company makes improvements to its production line to try and make its water jets more energy efficient. The improved water jets are produced alongside the company's regular water jets and all of them are sold.

JJ Co's R&D activity occurs in the course of commercial production, because the more energy efficient jets are produced alongside its normal production.

Example: Overseas expenditure

Mia travels to Los Angeles to attend a conference relevant to the R&D she is undertaking.

The cost of the airfare and conference are eligible overseas expenditure as they are consumed overseas, even though the tickets were purchased from a retailer in New Zealand.