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Free Money - Come & Get it - If You Can! Research & Development Tax Credits

I’m bound to upset someone with this picture - pale, stale and male - but such is life!  Is it only old white boffin-like old guys that carry out research and development these days? No, most certainly not, there’s more around than you might think, and the New Zealand government is trying to encourage us to do more research and development by giving away yet more of our money. It’s surprising they have any left to give away!

The incentive scheme for R&D has been around for some while but has been revamped earlier than planned as part of the government’s response to Covid 19. However, unlike the other economy and job saving measures the government has introduced which were simple the R&D tax credit is anything but - the guidebook is a whopping 138 pages - a guaranteed solution to insomnia, that’s for sure!

At its simplest, if you spend at least $50,000 on eligible activities, you are an eligible claimant and your R&D activity qualifies you can get a 15% tax credit which is capped at the level of your labour -related taxes paid. Here are a few pointers:

  • Eligible expenditure is depreciation for items used in performing R&D, expenditure or loss on acquiring goods and services used in performing R&D, and amounts for employees performing R&D. So – not much!
  • An eligible activity is that which creates new knowledge, or new and improved processes, services or goods. You must have a systematic approach to the R & D.
  • An eligible claimant would be most New Zealand businesses who owned the R&D afterwards. There are some exceptions so check first.
  • To claim, you need to register first and then claim on your income tax return and a supplementary return, both of which must be filed strictly to time limits.
  • To justify your claim, you must keep detailed records of virtually everything you do R & D-wise.
  • Amounts overpaid will be subject to interest and penalties if clawed back by the IRD.
  • You can apportion expenditure which is partly for R&D and partly not, but you must be able to justify the apportionment which can be based on a number of methods.

If you want to claim the R&D tax credit contact me to discuss, it can amount to a tidy sum!