If you are a New Zealand company investing in product development, there is a government incentive that could reduce your net R&D costs by 15%. Many companies that qualify for it are not claiming it: either because they do not know about it, or because they are not sure whether their activities qualify.
Here is a plain-language explanation of what the R&D Tax Incentive is, how it works, and whether your product development activities might qualify.
What Is the R&D Tax Incentive?
The R&D Tax Incentive (RDTI) is a New Zealand government scheme administered by Inland Revenue (IRD). It provides eligible companies with a 15% tax credit on qualifying R&D expenditure. This is a credit, not a deduction: it reduces your tax liability dollar for dollar, rather than just reducing your taxable income.
The scheme is designed to encourage New Zealand businesses to invest in genuine research and development activities. It covers a range of activities, from developing new products and processes to improving existing ones.
What Qualifies as R&D Under the RDTI?
To qualify, activities must involve experimental development with the purpose of creating new knowledge or resolving scientific or technological uncertainty. In practice, this often includes activities like developing a new product that requires solving engineering challenges, testing new materials or manufacturing processes, developing new software functionality, or adapting existing technology for a new application in a way that involves genuine technical uncertainty.
Activities that do not qualify include routine product development or improvement without genuine technical uncertainty, quality control and testing of existing products, and commercial or market research.
The distinction between qualifying and non-qualifying activities can be nuanced. This is why working with an approved R&D provider can help: they can help you identify and document the qualifying portions of your development work.
What Is an Approved R&D Provider?
An approved R&D provider is a company that has been assessed by IRD as meeting specific criteria for supporting R&D activities. Working with an approved provider allows eligible clients to use those provider costs as qualifying R&D expenditure in their RDTI claim.
Pro-Dev is an IRD-approved R&D provider. This means that if you are an eligible New Zealand company working with Pro-Dev on qualifying R&D activities, the fees you pay to Pro-Dev for those activities may form part of your RDTI claim.
How Much Could You Claim?
The 15% credit applies to qualifying R&D expenditure above the minimum threshold (currently NZD $50,000 per year). If your company spends NZD $200,000 on qualifying R&D in a year, a 15% credit on that amount is NZD $30,000.
The actual amount depends on your specific activities, what qualifies, and your company’s tax position. Your accountant is the right person to advise on the numbers specific to your situation.
How to Find Out If You Qualify
The first step is to speak to your accountant about whether your product development activities could qualify under the RDTI. They will be able to assess your situation and advise on whether it is worth pursuing.
If you are working with or considering working with Pro-Dev, we can discuss which parts of your development project may involve qualifying R&D activities: and make sure our engagement is structured in a way that makes it straightforward to document for an RDTI claim.
The RDTI is a meaningful incentive for companies genuinely investing in product development. If there is any chance you qualify, it is worth taking 30 minutes to find out.
