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Income Tax Act 2007

Timing and quantifying rules - Spreading of specific expenditure - Definitions

EJ 23: Allocation of deductions for research, development, and resulting market development

You could also call this:

“How to spread out tax deductions for research and development expenses”

When you spend money on research, development, or market development for a product that came from research or development, you can choose to spread out the deduction over time. This also applies to the loss in value of items you use for research or development.

You can spread these deductions to a year when you make money that you wouldn’t have made without the research, development, or use of the item. You can also spread them to a year when you’re carrying forward a loss from the year you spent the money.

You must spread at least as much as the smaller of two amounts: the money you made because of the research or development, or the deductions you haven’t spread yet.

You can’t spread more than the larger of two amounts: the money you made because of the research or development, or the deductions from other years that you can carry forward and haven’t spread yet.

This way of spreading out your deductions helps you match the money you spend with the money you make from your research and development efforts.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515155.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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Part E Timing and quantifying rules
Spreading of specific expenditure: Definitions

EJ 23Allocation of deductions for research, development, and resulting market development

  1. This section applies when a person has—

  2. a deduction for expenditure incurred on research or development that the person chooses to allocate under section DB 34(7) (Research or development):
    1. a deduction for an amount of depreciation loss for an item used for research or development, that the person chooses to allocate under section EE 1(5) (What this subpart does):
      1. a deduction for expenditure incurred on market development for a product that has resulted from expenditure incurred on research or development that the person chooses to allocate under section EJ 22(2).

        1. The person must allocate the deduction to an income year—

        2. in which the person derives an amount of income that is assessable income that the person would not have derived but for—
          1. expenditure that gives rise to a deduction that may be allocated under this section:
            1. the use or disposal of an item for which the person has an amount of depreciation loss that may be allocated under this section:
            2. to which under Part I (Treatment of tax losses) a loss balance is carried forward for the income year in which the expenditure or depreciation loss was incurred.

              1. The person must not allocate to an income year (the current year) an amount of deductions referred to in subsection (1) that is less than the lesser of—

              2. the amount of assessable income referred to in subsection (2)(a) that the person derives in the current year:
                1. the amount of the deductions that have not been allocated to an income year before the current year.

                  1. The person must not allocate to an income year (the current year) an amount of deductions referred to in subsection (1) that is more than the greater of—

                  2. the amount of assessable income referred to in subsection (2)(a) that the person derives in the current year:
                    1. the amount of the deductions that—
                      1. arise in other income years from which a loss balance may be carried forward under Part I to the current year; and
                        1. have not been allocated to income years before the current year.

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