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Income Tax Act 2007

Tax credits and other credits - Research and development tax credits

LY 1: Research and development tax credits

You could also call this:

“Tax credits for businesses doing research and development”

This law is about giving you a special tax credit if you do research and development. Research and development means creating new knowledge or improving things like processes, services, or goods.

You can get this tax credit if you do research and development activities yourself or if you pay someone else to do them for you. The law wants to make sure that only the right activities and expenses get this tax credit.

The law explains what counts as research and development activities and how to calculate your tax credit. It’s based on how much money you spend on these activities. There are specific rules about what expenses you can include.

If you don’t use all your tax credit in one year, you can carry it forward to the next year. The government can change the lists of activities and expenses that qualify for the tax credit.

Every five years, the government will check how well this tax credit system is working.

If you’re part of a group project (called a joint venture) doing research and development, you’ll get a tax credit based on how much of the project you’re responsible for.

There’s also a rule to stop people from trying to cheat the system to get more tax credits than they should.

When you’re figuring out your expenses for this tax credit, you need to include goods and services tax in your calculations.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS199229.

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LY 2: Key terms, or

“Definition of core and supporting research and development activities for tax purposes”

Part L Tax credits and other credits
Research and development tax credits

LY 1Research and development tax credits

  1. The purpose of this subpart is to—

  2. provide a tax credit (a research and development tax credit) as an incentive to a person for performing, or contracting for the performance of, activities to create new knowledge, or new or improved processes, services, or goods; and
    1. ensure that activities, expenditure and losses do not inappropriately qualify for research and development tax credits.

      1. In this subpart—

      2. research and development activity is defined in section LY 2, along with other key terms:
        1. section LY 3 provides when this subpart applies:
          1. the amount of a person’s research and development tax credit for a tax year is calculated under section LY 4 by reference to their expenditure or loss in relation to their research and development activities. Sections LY 5, LY 6, and LY 7 provide detailed rules as to what is eligible expenditure:
            1. section LY 8 provides for the carry forward of unused research and development tax credits from the current tax year:
              1. section LY 9 provides an empowering provision for the Governor-General to make Orders in Council to maintain the lists in schedules 21 and 21B (which relate to activities and expenditure or loss for the research and development tax credit):
                1. section LY 10 provides for a 5-yearly evaluation of the research and development tax credit regime.

                  1. A person has a tax credit for the tax year equal to the total of—

                  2. their credit calculated under section LY 4; and
                    1. their credit carried forward and credited to the year, as provided by section LY 8.

                      1. Despite subsection (3), a person who is a member of a joint venture in relation to research and development activities has a tax credit for the tax year equal to their proportion of their interest in the joint venture.

                      2. Section GB 56 (Arrangements involving research and development tax credits) provides a specific anti-avoidance provision.

                      3. For the purposes of calculating the amount of a person’s expenditure or loss, section DB 2 (Goods and services tax) is applied to the amounts.

                      Notes
                      • Section LY 1: inserted, on , by section 10 (and see section 3 for application) of the Taxation (Research and Development Tax Credits) Act 2019 (2019 No 15).
                      • Section LY 1(4): amended (with effect on 1 April 2019), on , by section 162(1) (and see section 162(2) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).