Greenlion Explain New Research & Development Credits

The research and development (R&D) tax incentive is part of the Government's strategy to increase the amount of R&D done in New Zealand. The R&D tax incentive operates as a tax credit and for clarity that is how Greenlion refer to it in this guidance material.

The key features of the R&D tax credit include a 15% tax credit available from the beginning of a business' 2020 tax year, minimum R&D expenditure threshold of $50,000 per year, $120 million cap on eligible expenditure, definition of R&D intended to ensure accessibility across all sectors and limited form of refunds in the first year. This will allow some firms with a tax loss to receive a refund of the tax credit.

A critical part of the definition of an R&D activity is the requirement that it must seek to resolve scientific or technological uncertainty. You must be trying to do something that a competent professional in that field is uncertain can be done. If others have successfully done what you are trying to do, your work will not be eligible for the tax credit - unless the knowledge of how to do it was still a trade secret.

The test is not that no-one in your business knows how to achieve your goal, or no one in New Zealand has done it before, but that the knowledge is not publicly available in the world. You must be able to show that you searched for an existing solution before you started your R&D activity.

Even if it is new to the world, the development of a new product, system or process is ineligible if someone who knows how to do those sorts of things (a competent professional) could use existing knowledge to identify, in advance, the approach to take to successfully develop it. It is only where a competent professional is uncertain whether the technology can achieve the goal, and a systematic process must be undertaken to evaluate possible solution(s), that work can qualify for the tax credit.

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