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Income Tax Act 2007

Tax credits paid in cash - Tax credits for R&D tax losses

MX 3: Wage intensity criteria

You could also call this:

“How much of your wage spending must be on R&D to qualify for tax credits”

You can get tax credits if you spend enough money on research and development (R&D) compared to your total spending on wages. This is called meeting the wage intensity criteria.

To meet these criteria, you need to spend at least 20% of your total labour costs on R&D. If you’re part of an R&D group, the whole group also needs to meet this 20% requirement.

To work out if you meet the criteria, you use a simple math formula. You divide your total R&D labour costs by your total labour costs. If the result is 0.2 or more, you meet the criteria.

Your R&D labour costs include money paid to contractors for R&D work, wages paid to employees for R&D work, and some payments to shareholder-employees for R&D work. You can also choose to include some extra costs like superannuation and fringe benefits for employees doing R&D work.

Your total labour costs include all of these R&D costs, plus the same types of costs for all your other work that isn’t R&D.

The law also explains what “contractor R&D consideration” means. It’s the money you pay to people outside your company or R&D group for R&D work, not including GST.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM6767139.

Topics:

Money and consumer rights > Taxes

MX 2: Corporate eligibility criteria, or

“Rules for companies to qualify for cash tax credits”

MX 4: R&D loss tax credits, or

“Tax credits for research and development losses”

Part M Tax credits paid in cash
Tax credits for R&D tax losses

MX 3Wage intensity criteria

For the purposes of section MX 1(1)(f), a person meets the wage intensity criteria for an income year if, for the income year or for the part of the income year for which the person exists (the part-year) if that is not the whole income year,—
the amount calculated for the person using the formula in subsection (2) is 0.2 or more; and
if the person is a member of an R&D group, the amount calculated for the R&D group in aggregate using the formula in subsection (2) is 0.2 or more.

The formula is—
$total R&D labour expenditure ÷ total labour expenditure.$

Where:
In the formula,—
total R&D labour expenditure for a person, or an R&D group of which the person is a member, is the total, for amounts incurred in the income year or the part-year, of—
1. the total amount of contractor R&D consideration multiplied by 0.66:
2. the amount of salary or wages paid to employees for providing R&D material:
3. if the person chooses to include the amount referred to in subsection (4), the same proportion of that amount, for each employee who provides R&D material, as the proportion of the employee’s salary or wages that is paid to the employee for providing R&D material:
4. the amount paid to shareholder-employees, to which section RD 3B(3) or RD 3C(4) (which relate to income derived by shareholders who are employees) apply, for providing R&D material:
total labour expenditure for a person, or an R&D group of which the person is a member, is the total, for amounts incurred in the income year or the part-year, of—
1. the total amount of contractor R&D consideration multiplied by 0.66:
2. the amount of salary or wages paid to employees:
3. if the person makes the election referred to in paragraph (a)(iii), the amount referred to in subsection (4) for each employee:
4. the amount paid to shareholder-employees to which section RD 3B(3) or RD 3C(4) apply.

For the purposes of subsection (3)(a)(iii) and (b)(iii), the expenditure of an employer for an employee that the person may choose to include in the items total R&D labour expenditure and total labour expenditure is the total of all—
the employer’s superannuation cash contributions for the employee that are not salary or wages:
tax on the employer’s superannuation cash contributions for the employee:
fringe benefits provided by the employer and attributed to the employee:
the employer’s FBT liability in relation to the employee and fringe benefits attributed to the employee.

In this Act, contractor R&D consideration means—
for a person, an amount, excluding GST, paid by the person to another person (the contractor) who is not a member of an R&D group that includes the person and is not employed by the person or by a member of an R&D group that includes the person, as consideration for R&D material provided by the contractor to the person:
for an R&D group, an amount, excluding GST, paid by a member of the R&D group to a person (the contractor) who is not a member of the R&D group and is not employed by a member of the R&D group, as consideration for R&D material provided by the contractor to a member of the R&D group.

Notes

Section MX 3: inserted (with effect on 1 April 2015 and applying for income years beginning on or after that date), on 24 February 2016, by section 213(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section MX 3(3)(a)(iv): amended (with effect on 30 March 2017), on 30 March 2022, by section 135(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section MX 3(3)(b)(iv): amended (with effect on 30 March 2017), on 30 March 2022, by section 135(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).