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Income Tax Act 2007

Tax credits and other credits - Research and development tax credits

LY 8: Carry forward for remaining research and development tax credits

You could also call this:

“Unused R&D tax credits can be carried forward to the next year, with special rules for companies”

If you have any research and development tax credits left over from one tax year, you can usually use them in the next tax year. This is called carrying forward your tax credits.

If you’re a company, you need to meet some special rules to carry forward your tax credits. These rules are about keeping the same people owning or controlling your company. If you don’t meet these rules, you might lose your tax credits.

If you’re not a company but you earn some types of income that don’t get taxed (called exempt income), you can’t carry forward your tax credits.

For companies, there are some ways to keep your tax credits even if you don’t meet the usual rules. You might be able to use them if you can show that your business activities stayed the same, or if you can prove you met the ownership rules for part of the year.

To carry forward your tax credits, you need to give the tax department (called the Commissioner) some financial information. This information needs to show how you calculated your tax or your research and development tax credits.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS199257.

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

LY 8Carry forward for remaining research and development tax credits

  1. For the purposes of section LA 5(4B) (Treatment of remaining credits), a person’s remaining research and development tax credit for a tax year is carried forward to the next tax year and credited under section LY 1(3)(b) for that next tax year.

  2. Despite subsection (1), if the person is a company, the remaining tax credit is extinguished and must not be carried forward and credited, unless the continuity rules in subsection (3) are met. This subsection is subject to subsections (4B) to (6).

  3. Despite subsection (1), if a person is not a levy body researcher and the person derives exempt income for the tax year under section CW 38, CW 39, CW 40, CW 41, CW 42, or CW 55BA (which relate to exempt income), the remaining tax credit is extinguished and must not be carried forward and credited.

  4. For a company, the remaining tax credit is carried forward and credited if a group of persons exists that has, for the continuity period,—

  5. minimum voting interests in the company that total 49% or more; and
    1. when a market value circumstance exists for the company in the continuity period, minimum market value interests in the company that total 49% or more.

      1. In this section,—

        continuity period means the period that starts on the first day of the income year that corresponds to the tax year in which the research and development tax credit first arises and ends on the last day of the income year that corresponds to the tax year to which the credit is being carried forward and credited to:

          minimum market value interest means the lowest market value interest that a person has in the company for the continuity period:

            minimum voting interest means the lowest voting interest that a person has in the company for the continuity period.

            1. If a company’s remaining tax credit cannot be carried forward and credited because the requirements of subsection (3) are not met, the company may apply subsection (4C), or subsections (5) and (6), to determine whether some or all of its remaining tax credit is carried forward and credited.

            2. Despite a breach of continuity under subsection (3), a company may carry forward a remaining research and development tax credit arising in a tax year to a later tax year and credit it under section LY 1(3)(b) for that later tax year, if the remaining tax credit could be carried forward to that later tax year under subpart IB (Carrying forward companies’ loss balances: continuity of business activities), treating the remaining tax credit as a tax loss component arising on the last day of the income year corresponding to the tax year in which the credit first arose.

            3. Despite a breach of continuity under subsection (3), a person’s remaining research and development tax credit for an earlier tax year may be carried forward to a tax year (year A) and credited under section LY 1(3)(b) to the extent to which—

            4. the requirements for continuity of ownership would be met if the continuity period included only part of the income year of the company that corresponds to year A; and
              1. the company provides the Commissioner with adequate financial statements relating to the continuity period, calculating the amount of the person’s income tax liability for the relevant part of the corresponding income year.

                1. Despite a breach of continuity under subsection (3), a person’s remaining research and development tax credit may be carried forward to the tax year (year B) from year A and credited under section LY 1(3)(b) to the extent to which—

                2. the requirements for continuity of ownership would be met if the continuity period included only part of the income year of the company that corresponds to year A; and
                  1. the company provides the Commissioner with adequate financial statements relating to the continuity period, calculating the amount of the person’s research and development tax credit for the relevant part of the corresponding income year.

                    Notes
                    • Section LY 8: 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 8(2): amended (with effect on 1 April 2020), on , by section 121(1) (and see section 121(6) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                    • Section LY 8(2B) heading: inserted (with effect on 1 April 2019), on , by section 164(1) (and see section 164(3) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                    • Section LY 8(2B): inserted (with effect on 1 April 2019), on , by section 164(1) (and see section 164(3) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                    • Section LY 8(4B) heading: inserted (with effect on 1 April 2020), on , by section 121(2) (and see section 121(6) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                    • Section LY 8(4B): inserted (with effect on 1 April 2020), on , by section 121(2) (and see section 121(6) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                    • Section LY 8(4C) heading: inserted (with effect on 1 April 2020), on , by section 121(2) (and see section 121(6) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                    • Section LY 8(4C): inserted (with effect on 1 April 2020), on , by section 121(2) (and see section 121(6) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                    • Section LY 8(5): amended (with effect on 1 April 2020), on , by section 121(3) (and see section 121(6) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                    • Section LY 8(6): amended (with effect on 1 April 2020), on , by section 121(4) (and see section 121(6) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                    • Section LY 8 list of defined terms exempt income: inserted (with effect on 1 April 2019), on , by section 164(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
                    • Section LY 8 list of defined terms tax loss component: inserted (with effect on 1 April 2020), on , by section 121(5) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).