nz-r-d

The Startup Journey: When Your R&D Becomes an Asset

Tue, 21 Jul 2026 21:03:18 GMT

For many startups, research and development is one of their largest expenses. In the early years, the focus is often on conserving cash, proving the technology and claiming as much eligible expenditure as possible for the R&D tax credit – after all, cash is king.

As the business matures, the conversation changes. Investors want to understand what the company has created, whether the technology is commercially viable and what assets underpin its value. At that point, continuing to expense all development costs may no longer give a complete picture of the business, and, depending on the accounting standards applying to the business, may no longer be permitted.

The transition from expensing R&D to recognising an intangible asset is therefore more than an accounting adjustment. It is often an important milestone in the startup journey.

Research versus development

Financial reporting standard NZ IAS 38 Intangible Assets outlines the accounting and tax rules, and distinguishes between the research phase and the development phase of a project.

Research expenditure must be expensed as it is incurred. This generally includes early-stage investigation, evaluating alternatives and searching for new technical knowledge. At this stage, there is not enough certainty that the work will produce an asset capable of generating future economic benefits.

Development occurs later, when research findings or other knowledge are applied to produce a new or substantially improved product, process, system or service before commercial production or use begins.

A business applying NZ IAS 38 must capitalise development expenditure when it can demonstrate all six of the following:

It is technically feasible to complete the asset so that it will be available for use or sale.
The business intends to complete the asset and use or sell it.
The business has the ability to use or sell the asset.
The asset is expected to generate probable future economic benefits, including through an identifiable market or its usefulness within the business.
Adequate technical, financial and other resources are available to complete the development and use or sell the asset.
The expenditure attributable to the asset during development can be measured reliably.

These requirements create a relatively high threshold. However, once all six criteria are met, capitalisation is not optional for a business applying NZ IAS 38. The business cannot continue expensing the expenditure simply because that produces a more favourable tax outcome.

Capitalisation begins from the date the criteria are first satisfied. Costs incurred from that date are capitalised onto the balance sheet.

Why startups often expense R&D in their early years

At the beginning of the startup journey, there is usually considerable uncertainty. The business may still be working out whether the technology is feasible, whether customers will pay for it and whether sufficient funding will be available to complete the project.

That uncertainty often means the NZ IAS 38 capitalisation requirements have not yet been met. The expenditure is therefore recognised as an expense.

This treatment can also produce a valuable tax result. New Zealand’s tax rules generally allow an immediate deduction for qualifying research and development expenditure that is expensed for accounting purposes.

That deductible expenditure may also qualify for the 15% R&D tax incentive and also the 28% R&D tax loss cash out, provided the activities and costs meet the requirements.

For an early-stage startup, the ability to receive an R&D tax refund can be extremely important. Cash flow is king, and a tax credit received today may be more valuable than an accounting asset that produces deductions over a number of future years.

However, the accounting treatment must still reflect the true stage of the project. A business cannot choose to continue expensing development expenditure solely to maximise its tax deductions or R&D tax credit.

What changes once development expenditure is capitalised?

To claim the R&D tax credit, the expenditure generally needs to be deductible for income tax purposes. Once development costs are capitalised as an asset, they are generally no longer immediately deductible. This means the business will usually be much more restricted in what it can claim for R&D tax credit purposes.

There are some limited exceptions, but these depend on the nature of the asset and the expenditure involved. The key point is that capitalisation can significantly reduce the amount of expenditure qualifying for the R&D tax credit.

Businesses should therefore consider the accounting, tax and R&D tax credit implications together when development expenditure begins to meet the requirements for capitalisation.

However, the accounting treatment cannot be chosen simply to maximise the R&D tax credit. If the requirements for capitalisation are met, the expenditure must be treated accordingly.

The next stage of the startup journey

In its early stages, a startup’s financial statements may show accumulated losses and very few assets, even though the founders and development team have spent years creating potentially valuable technology. That is often the correct accounting outcome because the project has not yet reached the point where an intangible asset can be recognised.

As the technology becomes feasible, funding is secured and a route to market is established, the position may change. Capitalising qualifying development expenditure puts an identifiable asset on the balance sheet and provides investors with greater visibility over the resources being committed to the product.

It can also signal that the business has moved beyond open-ended experimentation. Management now has evidence that the product can be completed, the resources to complete it and a reasonable expectation that it will generate future benefits.

Plan for the transition

The point at which a project moves from early-stage research into capitalisable development is not always obvious. It should be considered each year as the product progresses, funding is secured and the path to commercialisation becomes clearer.

If your business is developing something new, your accountant needs to understand what you are working on and where the project is in its development journey. The accounting, tax, R&D tax credit and wider commercial implications need to be considered together.

If your accountant is not having this conversation with you each year, they may be missing an important issue. Equally, if they do not understand the R&D tax incentive rules, they may not appreciate how capitalising development expenditure could affect your claim.

We can work alongside you and your accountant to:

identify when a project may have reached the point where development costs need to be capitalised;
explain the effect on your tax deductions and R&D tax credit claim;
help establish a practical method for separating and recording different project costs; and
consider how the treatment fits with your funding plans and the information investors expect to see.

Getting advice early means the transition can be planned and properly documented, rather than discovered after year-end when the financial statements and R&D tax credit claim are already being prepared. Contact us for guidance.

Disclaimer

This article is intended for general information purposes only and does not constitute tax, legal or financial advice. The application of New Zealand's R&D tax incentive rules is highly fact specific, and the impact of the Budget 2026 changes will depend on individual circumstances. Professional advice should be obtained before taking any action or relying on the information contained in this article.

Budget 2026: What the R&D Tax Incentive Changes Mean for Businesses

Mon, 29 Jun 2026 20:57:14 GMT

The Government's Budget 2026 includes a number of changes to the Research and Development Tax Incentive (RDTI).

The changes are generally positive. For businesses claiming the RDTI, the key changes are the proposed introduction of in-year payments, greater administrative flexibility for Inland Revenue and a significant reduction in the cap applying to internal software development expenditure.

Unfortunately, the changes stop well short of a significant expansion of New Zealand's innovation policy settings.

In-Year Payments Could Be the Most Significant Change

The headline change is the proposal to introduce in-year payments of RDTI credits.

Under the current regime, businesses incur R&D expenditure during the year and generally do not receive the benefit of the tax credit until well after balance date. In practice, there can be a delay of 12 to 18 months between expenditure being incurred and the credit being received.

The Government has announced that a new mechanism will be developed to allow businesses to access the benefit of the credit during the year.

While there is little detail available at this stage, the proposal has the potential to materially improve the effectiveness of the regime. However, the benefit of the proposal will depend heavily on the detail.

This is not the first time New Zealand has attempted to provide businesses with early access to the RDTI payouts. The previous regime allowed taxpayers to access in-year RDTI payments; however, it struggled with uptake because the compliance costs associated with obtaining the funding were often too high. Once accountant fees, administration costs and management time were taken into account, the effective cost of accessing the funding outweighed alternative funding sources.

Ultimately, businesses will assess the proposal based on the net benefit received rather than simply the timing of the payment. If accessing an in-year payment requires extensive reporting, frequent Inland Revenue reviews or significant professional costs, the benefit may be largely eroded. Conversely, if the Government can leverage existing General Approval processes and keep compliance requirements relatively light, the proposal could significantly improve the attractiveness of the regime.

The concept is promising, but the practical detail will determine whether this is genuinely helpful.

Inland Revenue Given More Flexibility

A welcome change is the proposal to provide Inland Revenue with greater discretion to deal with administrative defects and late filings.

The current RDTI regime contains strict filing requirements. Missing a deadline means a complete loss of entitlement, even where the underlying R&D activity would otherwise qualify.

This has been a source of frustration for taxpayers and advisors since the regime was introduced.

The proposed changes should allow Inland Revenue greater flexibility to accept late filings and remedy certain procedural issues.

From our perspective, this may prove to be one of the most valuable changes in the package.

Internal Software Cap Reduced

The principal tightening measure announced in Budget 2026 is a significant reduction in the cap applying to internal software development expenditure.

Under the current rules, up to $25 million of eligible internal software expenditure can qualify for the RDTI each year. This cap will be reduced to $3 million.

The change appears to reflect concerns that the regime may have been providing substantial support for large internal software projects that primarily benefit the business undertaking the development rather than generating wider spillover benefits for the New Zealand economy.

For many claimants, this change will have little impact.

What Hasn't Changed?

The core framework of the RDTI remains unchanged. The following key features continue to apply:

A 15% tax credit;
A minimum expenditure threshold of $50,000 (subject to approved research provider rules);
The General Approval process;
Annual supplementary return requirements; and
The existing definitions of eligible and ineligible R&D activities.

Businesses will still need to demonstrate that they are attempting to resolve scientific or technological uncertainty through a systematic approach.

Good documentation remains critical.

Positive Signals, but Not a Major Shift

The Budget sends a positive signal that science, innovation and technology continue to be viewed as important drivers of New Zealand's future.

The policy direction appears increasingly focused on ensuring publicly funded research generates tangible economic and commercial outcomes.

However, it is difficult to view the Budget as a major expansion of New Zealand's support for innovation. Most of the announced changes are refinements to the existing framework rather than substantial new investment.

That is somewhat disappointing given New Zealand's long-standing productivity challenges.

For now, Budget 2026 appears to be less about reimagining the RDTI and more about fine-tuning the existing regime. For most claimants, that is still a step in the right direction.

If you're considering an RDTI claim or would like to understand how the Budget 2026 changes may affect your business, our specialist R&D team can help, contact us here.

Disclaimer

What is Research & Development (R&D)?

Tue, 02 Jun 2026 21:15:48 GMT

When most people hear the term “Research & Development” (“R&D”), they think of scientists in laboratories or large technology companies building futuristic products. In reality, R&D is much broader than that, and many New Zealand businesses are undertaking R&D activities without even realising it.

At its core, R&D is about solving uncertainty through experimentation.

That concept of uncertainty is critical. The fact that something is new to your business, or even new to New Zealand, does not automatically make it R&D. Instead, the question is whether there is scientific or technological uncertainty that a competent professional in the field could not readily resolve using existing publicly available knowledge.

If the answer is already known, or the solution can simply be implemented using existing techniques, it is unlikely to qualify as R&D.

However, if your business is trying to create something new, improve an existing product or process, or overcome technical challenges where the outcome is not already known, there is a good chance you may be undertaking R&D.

What does R&D actually involve?

R&D generally involves activities where a business is attempting to create new knowledge, or new or improved products, processes, or services, by systematically working through technical or scientific uncertainty. This means the answer is not already known or easily obtainable.

Examples can include:

developing and testing prototypes;
creating moulds or tooling to test whether a new concept can function commercially;
designing entirely new materials or products where the outcome is uncertain;
scaling laboratory concepts; or
pursuing ambitious or unconventional ideas that have not previously been achieved and where it is unclear whether they are technically possible.

Importantly, R&D is not limited to “successful” projects. In many cases, failed experiments and unsuccessful prototypes are strong indicators that genuine uncertainty existed.

The importance of uncertainty

The key feature of eligible R&D is uncertainty.

For example:

creating software using standard coding practices is generally not R&D;
configuring existing systems together is generally not R&D; and
applying known techniques to achieve a predictable outcome is generally not R&D.

However, where a business is attempting to solve a problem where:

the solution is not publicly known;
existing technology cannot readily achieve the outcome; or
experimentation is required to determine whether something is even possible,

then the activity may qualify as R&D.

What is NOT eligible for R&D tax incentives?

Not every innovative activity qualifies as R&D for tax purposes. The focus is not on whether a business is commercially innovative, but whether genuine scientific or technological uncertainty exists.

Activities that are generally not considered eligible R&D include:

routine testing or quality control;
cosmetic or minor product changes;
ordinary troubleshooting;
market research;
standard commercial production activities; or
work where the solution is already publicly known and can simply be implemented.

In addition, a business may not qualify for the RDTI where it is performing R&D on behalf of someone else and does not own the resulting intellectual property (“IP”) or the results of the R&D.

There are also specific limitations where products generated during the R&D process are sold or commercialised. Under the “feedstock” rules, the amount of eligible R&D expenditure may be reduced where the costs are effectively recouped through the sale of products or outputs generated during the R&D activities.

Common examples of R&D in New Zealand businesses

Many industries undertake R&D, including sectors that would not traditionally view themselves as “technology companies”.

Examples where we have helped our clients claim R&D tax incentives include:

software companies developing AI-driven platforms or automation tools;
manufacturers creating new biodegradable or sustainable materials;
agricultural businesses trialling new farming technologies;
engineering firms designing new systems or machinery;
food producers developing new formulations or preservation methods;
construction businesses solving structural or materials challenges; and
medical or biotech businesses developing new treatments, devices, or testing methodologies.

New Zealand’s tax credits

New Zealand offers two key tax incentive regimes designed to encourage businesses to invest in innovation and R&D activities. Together, these regimes are intended to support businesses undertaking genuine scientific or technological development.

The Research & Development Tax Incentive (“RDTI”) provides a 15% tax credit for eligible R&D expenditure.

The rules are highly technical and not all expenditure qualifies. Notably, you generally need to have a minimum $50,000 eligible expenditure per year (which can include wages for time spent on eligible R&D projects).

In addition, loss-making companies may qualify for the Research & Development Tax Loss Cash-Out (“RDTLC”) regime, which can provide a cash refund of up to 28% of eligible R&D tax losses.

Importantly, businesses can potentially “double dip” by:

claiming the 15% RDTI tax credit; and
also accessing the RDTLC cash-out regime.

However, there are detailed eligibility criteria and clawback rules that can apply in future years.

Final thoughts

R&D is not limited to large multinational companies or laboratories. Many ordinary New Zealand businesses undertake genuine R&D every day as they solve technical problems, improve products, and develop new technologies.

The challenge is often not whether R&D exists, but identifying it properly, documenting it correctly, and ensuring the associated tax treatment is managed appropriately.

If your business is investing significant time and money into innovation, it may be worthwhile reviewing whether some of those activities qualify as R&D for tax purposes.

If your business is investing in innovation, product development, software, engineering, or technical problem-solving, it may be worthwhile reviewing whether some of those activities qualify for New Zealand’s R&D tax incentives. Contact NZ Tax Desk to discuss your situation and assess whether your activities may be eligible.

We strive to add value to our clients. We are not just a computer algorithm based overseas, we are local experts that work closely with our clients throughout their start-up journeys.

Want to talk about your ideas? Your journey? Get in touch to arrange your complimentary introduction session now.

Disclaimer
This article is intended for general information purposes only and does not constitute tax, legal or financial advice. The application of New Zealand’s R&D tax incentive rules is highly fact specific. Professional advice should be obtained before taking any action or relying on the information contained in this article.

Deadline Approaching for FY26 General Approval Applications

Fri, 24 Apr 2026 22:19:11 GMT

If your business is undertaking research and development activities and has a 31 March 2026 balance date, then 30 June 2026 is the final deadline to submit your General Approval (GA) application if you want to claim the R&D Tax Incentive (RDTI) for FY26.

This deadline is fast approaching, and it is critical. Without a GA in place, no RDTI claim can be made for the year.

Importantly, this deadline is not just for new applications. It also applies where existing approvals need to be updated or expanded to reflect changes in your R&D programme.

What Is the R&D Tax Incentive

The RDTI is a government initiative that offers a 15% tax credit on eligible R&D expenditure. Its purpose is to support innovation by helping New Zealand businesses offset the cost of developing new or improved products, processes, or technologies.

The regime applies to a wide range of industries, including software development, engineering, manufacturing, agritech, life sciences, and more – provided the activities meet the legislative definition of eligible R&D (i.e. they seek to resolve scientific or technological uncertainty through a systematic process).

Key features include:

15% tax credit on eligible R&D expenditure
Refundable credit for businesses in loss (subject to caps and criteria)
Applies to R&D conducted in New Zealand

Why You Need a General Approval

To claim the RDTI, you must have a General Approval (GA) in place. This application outlines your core and supporting R&D activities and is reviewed and approved by Inland Revenue in advance of making your claim.

The GA application requires you to clearly set out:

The technical uncertainty being addressed
Why the solution was not readily deducible by a competent professional
The experimental process undertaken to resolve that uncertainty

Having this in place before or during the income year gives your business certainty. You can proceed with your investment in innovation knowing the activities will qualify for the tax credit.

If you have not yet submitted a GA application for the 2026 income year, you still have time, but the 30 June 2026 deadline is final for businesses with a 31 March balance date. If approved, the General Approval can apply for up to three years, allowing you to streamline future claims (but only to the extent your activities remain consistent with what was approved).

General Approval application deadline for 31 March 2026 year-end: 30 June 2026

Note: If you have a non-standard balance date, your GA deadline may differ. Please contact us to confirm your specific due date.

Where Experienced Claimants Still Get Caught Out

Even for businesses with prior RDTI experience, we see a number of recurring issues:

Scope drift from prior approvals:
Projects evolve, but approvals often are not revisited. What was approved in an earlier year may not cover the current iteration of the work.
Incomplete coverage of activities:
Not all qualifying activities are captured within the GA, resulting in parts of the R&D programme falling outside the approved scope.
Blurring of R&D and commercial activity:
As projects move toward commercialisation, it becomes critical to clearly isolate the R&D.
Framing the uncertainty incorrectly:
Even where genuine R&D is occurring, applications can default to describing product outcomes or business challenges rather than technical uncertainty that is not readily deducible.
Government grants:
This area is currently a minefield with Inland Revenue. The interaction between grants and the RDTI can materially impact eligibility and claim values, and should be addressed upfront.
Overseas activities not treated correctly:
Activities performed offshore are often not recorded or assessed correctly against the RDTI rules, creating risk around eligibility and supportability of the claim.

We work in this space every day. Whether it is identifying gaps in existing approvals, refining uncertainty narratives, dealing with grant interactions, or ensuring offshore activity is treated correctly, we help clients navigate these issues before they become problems.

Changes to Existing Approvals: Do Not Assume You Are Covered

A common misconception is that once a multi-year GA is in place, nothing further is required. In practice, many businesses need to update or supplement their approval each year.

If your R&D activities in FY26 have:

shifted in scope or direction,
moved from feasibility into scale-up or deployment,
incorporated new technologies or methodologies, or
introduced new areas of uncertainty,

then your existing GA may no longer fully cover the work being undertaken.

In those cases, an updated or additional GA submission is required, and must also be filed by 30 June 2026.

We recommend reviewing your existing General Approval before 30 June to confirm it still reflects your FY26 R&D activities, and whether any updates or a new application is required. We can assist with that review and ensure any required changes are identified and filed on time.

How We Can Help

We are a specialist R&D tax team with deep experience in New Zealand’s RDTI regime. We work with clients across software, engineering, biotech, and advanced manufacturing, and regularly support claims involving complex technical and eligibility issues.

Our clients choose us for our:

Technical depth and understanding of IRD’s eligibility criteria
Ethical, fixed-fee pricing model – no % of your claim
Flexible, low-touch process, so you can stay focused on growing your business

Whether you need end-to-end support or just help with the General Approval, we can tailor our involvement to suit your needs. We will handle the complexity, engage with your team as required, and ensure your application is accurate, compliant, and optimised for success.

If you think your business may qualify for the RDTI but have not yet submitted your General Approval, contact us today. We will help you assess eligibility, prepare your application, and unlock the full benefit of the incentive.

Disclaimer:
The information provided in this article is general in nature and does not constitute personalised tax advice. You should consult with a qualified tax adviser familiar with both US and NZ tax systems before making any decisions based on this content.

R&D Tax Incentive (RDTI) - Deadline Approaching

Fri, 06 Jun 2025 03:22:01 GMT

The Deadline is Approaching for FY25 General Approval Applications

If your business is undertaking research and development activities and has a 31 March 2025 balance date, then 30 June 2025 is the final deadline to submit your General Approval (GA) application for the Research and Development Tax Incentive (RDTI). This deadline is now just around the corner.

What Is the R&D Tax Incentive?

The regime applies to a wide range of industries — including software development, engineering, manufacturing, agritech, life sciences, and more — provided the activities meet the legislative definition of eligible R&D.

Key features include:

15% tax credit on eligible R&D expenditure
Refundable credit for businesses in loss (subject to caps and criteria)
Applies to R&D conducted in New Zealand

Why You Need a General Approval

To claim the RDTI, you must have a General Approval (GA) in place. This application outlines your core and supporting R&D activities and is reviewed by Callaghan Innovation and Inland Revenue.

Having this in place before or during the income year gives your business certainty — you can proceed with your investment in innovation knowing the activities will qualify for the tax credit.

If you haven’t yet submitted a GA application for the 2025 income year, you still have time — but the 30 June 2025 deadline is final for businesses with a 31 March balance date. If approved, the General Approval can apply for up to three years, allowing you to streamline future claims.

GA application deadline for 31 March 2025 year-end: 30 June 2025

Note: If you have a non-standard balance date, your GA deadline may differ. Please contact us to confirm your specific due date.

Our Advice

If you’ve invested in innovation, product development, software, or scientific experimentation in FY25 — or if you’re planning to — now is the time to ensure you’re eligible to claim under the RDTI.

We are a specialist R&D tax team with deep expertise in New Zealand’s RDTI regime. We’ve helped businesses across a wide range of industries — from engineering to biotech to SaaS — secure substantial R&D funding, often in the hundreds of thousands of dollars.

Our clients choose us for our:

Technical depth and understanding of IRD’s eligibility criteria
Ethical, fixed-fee pricing model — no % of your claim
Flexible, low-touch process — so you can stay focused on growing your business

Whether you need end-to-end support or just help with the General Approval, we can tailor our involvement to suit your needs. We’ll handle the complexity, engage with your team as required, and ensure your application is accurate, compliant, and optimised for success.

If you think your business may qualify for the RDTI but haven’t yet submitted your General Approval — contact us today. We’ll help you assess eligibility, prepare your application, and unlock the full benefit of the incentive.

R&D Tax Loss Cash-Out Deadline Approaching

Mon, 14 Apr 2025 00:05:55 GMT

If your business is carrying out research and development (R&D) work, you may be eligible to receive a cash payment from Inland Revenue— however there is limited time to act if you want to claim this for FY24.

The deadline to apply for the R&D Tax Loss Cash-Out for the 2024 income year is 30 April 2025 (assuming you have a March balance date and an Extension of Time). If you miss this date, you lose the opportunity to turn your tax losses into cash—even if you fully qualify.

We’ve had clients successfully claim up to $500,000 in cash refunds under this regime—don’t miss the opportunity to access funding that could support your next stage of innovation.

What is the R&D Tax Loss Cash-Out?

The R&D Tax Loss Cash-Out allows qualifying companies to receive a cash refund of up to 28% of their eligible R&D-related tax losses instead of carrying those losses forward. It's designed to support innovative New Zealand businesses who are investing heavily in new ideas but are not yet making a profit.

This incentive has already helped many of our clients unlock early-stage cash flow, including:

An engineering firm developing a new kind of feed wagon with enhanced efficiency and modular design.
A technology company applying nanobubble technology in a novel, previously untested way to enhance system performance and efficiency.
A dairy equipment manufacturer creating a new mastitis spray system to reduce labour and increase effectiveness.
A biotech start-up researching new cancer drug candidates.
A company designing cutting-edge scientific research equipment.

If your business is involved in resolving scientific or technological uncertainty—for example, testing whether something will work in practice, or building a prototype you can't yet confidently replicate—there’s a good chance you're conducting eligible R&D.

Key R&D Criteria (Do You Qualify?)

To qualify, the R&D activity must:

Be aimed at creating or improving products, processes, or services.
Involve uncertainty—you must not already know how to achieve the result using existing knowledge.
Be conducted by a New Zealand tax-resident company that is loss-making.

Eligible expenses may include R&D labour, materials used in trials, prototype costs, testing, and certain overheads.

Don’t Miss Out – Here’s What Needs to Happen

To claim the R&D Tax Loss Cash-Out for the year ending 31 March 2024 the R&D tax loss cash-out application must be submitted by 30 April 2025.

If you miss this deadline, you forfeit the right to claim—even if you fully meet the criteria.

How We Can Help

We’ve helped a wide range of clients—from tech start-ups to farmers and engineers—successfully claim the R&D tax loss cash-out. When it comes to R&D claims, experience matters, we’ve seen first-hand the costly mistakes made by less experienced or overly aggressive advisers. We are genuine R&D tax specialists, and we take the time to get it right, ensuring your claim is both compliant and optimised.

We can assist you with:

Confirming whether your activity qualifies as eligible R&D.
Reviewing and categorising your R&D expenditure correctly.
Completing and lodging your income tax return and application on time.
Ensuring your documentation and labour records meet IRD requirements.
Planning for future claims under both the R&D Tax Loss Cash Out and the R&D Tax Incentive regimes.

Final Reminder: Applications must be submitted by 30 April 2025

We recommend getting in touch with us before the deadline, so we have time to assess your eligibility, prepare your records, and lodge your claim with Inland Revenue.

If you think your business is doing innovative or technical work—even if you’re not sure it qualifies— contact us today. We’d love to help you make the most of this opportunity.

How Would You Use R&D Tax Credits to Develop Your Product Further?

Wed, 10 Nov 2021 22:47:00 GMT

A successful start-up company will typically have a five-stage journey:

Along the way, there will be many challenges and problems to resolve, including accessing grants and managing cash flow, undertaking capital raises, and a potential final stage – an exit.

You need the right expertise in your camp, fighting your fight and looking out for what you don’t know you need to look out for. A team that works together to get your business to the end goal.

HOW CAN WE HELP WITH YOUR R&D JOURNEY?

Accessing R&D Tax Credits

With an R&D tax specialist, you can put your confidence in an experienced professional who has developed knowledge of the complexities of this notoriously difficult area. Technical knowledge concerning R&D tax goes a long way to ensure your claims are successful, so by working with us, you can approach making a claim with greater confidence.

There are two options for R&D tax credits, both outlined below. We are happy to meet with you, discuss these options and work out the best path for you and your business.

R&D Tax Incentive

Summary

The Detailed Process

Step One – Confirm Eligibility

The first step is to confirm whether your organisation qualifies for the RDTI. The core concept here is whether you are a taxpayer in New Zealand and whether you either own the results of the R&D or can use the results without payment.

Your R&D activities must also meet the defined criteria. We will work closely with you to review your R&D activities and advise whether they are likely to qualify for the RDTI. The RDTI regime has its own definition of R&D, which goes beyond whether something is “new”.

Your R&D activity must:

We also consider your R&D expenditure, as there are specific rules around what expenditure will or won’t qualify for the RDTI.

Step Two – Application for General Approval

We then lodge an Application for General Approval. To do this we need to break down your R&D activities into core and supporting activities and calculate the relative costs. The Application for General Approval is due 7 May (for a 31 March balance date). For example, the Application for General Approval for the year ending 31 March 2022 is due on 7 May 2022.

Once the IRD grants its approval, it gives you certainty around whether you will be able to claim this 15% tax credit for your R&D expenses. This Application can be valid for up to three years, so think of it as providing an ongoing benefit for your business.

We recommend we complete the Application for General Approval as soon as possible so you can spend with confidence.

Step Three – Supplementary Return

Each year, we need to submit the Supplementary Return. This is essentially the tax return that calculates the RDTI each year, based on actual costs and revenue. We go beyond what a computer algorithm can do here, as we will hunt through your P&L, and work with you to identify as much eligible R&D expenditure as we can.

We also calculate what portion of the RDTI is refundable. The Supplementary Return is due on 30 April of the following year (for a 31 March balance date). For example, the Supplementary Return for the year ending 31 March 2022, is due on 30 April 2023.

R&D Tax Loss Cash Out

The R&D Tax Loss Cash Out process has been around for a few years.As a result, it is reasonably streamlined and more straightforward in terms of IRD processing. However, it is still essential to paint the best picture possible in your application, which is where we come into it. We are experts in dealing with the IRD on these applications. We know the rules. And we also go further – we hunt through your P&L and work with you to identify as much qualifying R&D expenditure as possible.

The R&D Tax Loss Cash Out is essentially an interest-free loan from the government. It allows you to ‘cash’ out your tax losses now, rather than wait to make a future profit to be able to utilise their benefit. The loan is paid back out of your future tax payments. However, there are several scenarios that can also trigger a repayment liability, such as the sale of the IP. We also work with clients looking at an exit to advise on the tax implications of a sale of the IP, and the best timing in terms of triggering an R&D Tax Loss Cash Out Repayment Event. Depending on your future circumstances, the loan may or may not be required to be repaid.

In the meantime, if you qualify for the R&D Tax Loss Cash Out, we strongly recommend going down this path as you can get up to 28% of your R&D expenditure back in cash. We love working with our clients on these applications as we see the positive impact these payments can have in terms of their cash flow and growth, or even just pushing the cap raise out for another year – meaning the R&D development is more complete and the share values have increased.

Compliance – Financial Statements and Income Tax Returns

Understanding the financial complexities of running a successful business is critical to continued growth and sustained performance, so it pays to have access to the very best knowledge and experience. However, when it comes to start-ups and R&D intensive businesses, the difference between a basic understanding and full expertise can be critical to the growth of your business and raising future capital.

There are ongoing questions as to recording details, categorisation of expenses, and the “right” time to recognise the R&D IP on the balance sheet. There are tax losses to protect, and options to defer expenses. These are fundamental questions that need to be answered in the context of your business and your goals.

As such we work with our R&D clients closely, as part of their team. The measure of success is not just whether we can complete financial statements and file your tax returns on time, we strive to ensure we add real value to your team. We love being part of the start-up R&D journey.

GET IN TOUCH

We strive to add value to our clients. We are not just a computer algorithm based overseas, we are local experts that work closely with our clients throughout their start-up journeys

Want to talk about your ideas? Your journey? Get in touch to arrange your complimentary introduction session now.

*This publication contains generic information only. NZ Tax Desk Ltd is not responsible for any loss sustained by anyone relying on the contents of this publication. We recommend you obtain specific taxation advice for your circumstances.