What businesses need to know about the new R&D Tax Incentive



The Taxation (Research and Development Tax Credits) Act 2019 has received the Royal Assent, and was passed into law on 7 May 2019. The R&D Tax Incentive will apply to eligible R&D activities conducted by businesses from the 2019/20 income year. Here is what eligible businesses need to know about the recent legislation.

The aim of the tax incentive is to raise New Zealand’s expenditure on research and development to 2% of GDP over the next 10 years. This is in the hope that it will create a more productive and sustainable economy. However, in order to reach this target, more businesses will need to increase their expenditure on R&D. The main features of the incentive are:

  • A credit rate of 15% applied against income tax liability.
  • A minimum expenditure threshold of $50,000 per year, with a $120 million cap.
  • Limited form of refunds for the first year of the scheme that is similar to the R&D tax-loss cash-out scheme run by IRD.

Core R&D activities are defined as having a material purpose of creating new knowledge or new and improved processes, or to resolve technological or scientific uncertainty.

For most businesses, expenditure on eligible R&D activities that are undertaken from 1 April 2019 will qualify for the tax incentive. These businesses will be eligible to transition into the new regime at the start of their 2019-20 income year and should start recording their R&D expenditure now to ensure that their records are ready to file.

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