Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Tax credits and other credits - Research and development tax credits

LY 5: Eligible research and development expenditure

You could also call this:

“What costs can be claimed for research and development tax credits”

When talking about tax credits for research and development, eligible expenditure means money you spend or lose that is described in part A of schedule 21B. This money must directly relate to, be required for, and be an important part of your research and development activity.

You can also include some money spent on supporting activities. These activities can happen in the year before or after your main research and development work.

However, there are some things that don’t count as eligible expenditure. These are listed in part B of schedule 21B. Also, if you’re doing research as part of normal business, and you would have spent the money anyway, it doesn’t count unless it’s for an employee’s work on the research.

If you hire someone else to do research for you, there are special rules about how much of that cost you can include. The same goes for research done outside New Zealand or payments to people who don’t live in New Zealand.

Remember, you can’t claim for money that someone else is already claiming as their research and development expenditure.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS199242.

Topics:
Money and consumer rights > Taxes
Previous

LY 4: Calculation of tax credit, or

“How to work out your research and development tax credit”

Next

LY 6: Contracted research and development expenditure, or

“Tax credits for money spent on research and development done by others”

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

LY 5Eligible research and development expenditure

  1. For the purposes of this subpart, eligible research and development expenditure—

  2. means expenditure or loss, described in schedule 21B, part A, if, for the income year, the expenditure or loss—
    1. directly relates to a research and development activity; and
      1. is required for a research and development activity; and
        1. is integral to a research and development activity; and
        2. includes expenditure or loss, described in schedule 21B, part A, to the extent to which the expenditure or loss is incurred on a supporting research and development activity conducted—
          1. in the income year immediately before the income year that this subpart first applies for the core research and development activity to which the supporting activity relates:
            1. in the income year immediately after the income year that this subpart last applies for the core research and development activity to which the supporting activity relates; but
            2. does not include expenditure or loss, to the extent to which the expenditure or loss is described in schedule 21B, part B:
              1. does not include expenditure or loss that would have been incurred in the absence of the research and development activity, if—
                1. the research and development activity is performed in the course of commercial production; and
                  1. the expenditure or loss is not in relation to an employee’s contribution to a research and development activity.

                  2. Despite subsection (1), for an amount that is otherwise eligible research and development expenditure,—

                  3. an amount that is for a research and development contractor to perform research and development activities for the person is only eligible research and development expenditure to the extent to which section LY 6 provides:
                    1. an amount that is incurred on a research and development activity performed outside New Zealand, or is a payment of salary or wages to a non-resident, or is a payment for a service performed by a non-resident is only eligible research and development expenditure to the extent to which section LY 7 provides.

                      1. A person does not have eligible research and development expenditure to the extent to which the relevant expenditure or loss is eligible research and development expenditure of another person.

                      Notes
                      • Section LY 5: 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 5(1)(a): replaced (with effect on 1 April 2019), on , by section 120(1) (and see section 120(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                      • Section LY 5(1)(a): amended (with effect on 1 April 2020), on , by section 131(1) (and see section 131(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                      • Section LY 5(1)(ab): inserted (with effect on 1 April 2020), on , by section 131(2) (and see section 131(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).