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New Zealand: Tax credit for research and development from April 2019

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The New Zealand government has announced a non-refundable tax credit of 12.5% of eligible research and development (R&D) expenditure (R&D credit), from April 2019.

An R&D credit has not been available in New Zealand since 2009. The reintroduction of an R&D credit is intended to increase R&D expenditure in New Zealand, which is well below the OECD average. The design of the R&D credit is still to be decided, but the main eligibility criteria, as proposed in the government's consultation document 'Fuelling Innovation to Transform Our Economy', are described below.

Proposed eligibility criteria

To receive the R&D credit a business must be located and carrying out R&D activity in New Zealand. The business must also have control over, and bear the risks and own the results of, the R&D activity. All businesses, regardless of legal structure, can be eligible for the R&D credit. However, the eligibility of government-owned or funded entities (including state-owned enterprises, which are taxed in the same way as non-government-owned businesses) is still being considered.

Research and development activity for the purposes of the R&D credit means activities conducted using scientific methods that are performed for the purpose of acquiring new knowledge, or creating something new or improved. Activities must also be intended to resolve scientific or technological uncertainty. Support activities sufficiently connected to those activities will also be treated as an R&D activity. Mineral or petroleum exploration, research of a non-scientific nature (e.g. market research, research in social sciences, and management studies) and certain other activities will be excluded from being R&D activities.

Businesses with less than NZ$100,000 ($69,000) of eligible expenditure on R&D activities in a year will not receive any R&D credit (unless R&D activities are outsourced to an approved research provider). A NZ$120 million cap of eligible expenditure is proposed (meaning a maximum R&D credit of NZ$15 million). Expenditure will be eligible only if it has sufficient connection to an R&D activity. Interest expenditure, certain related party costs and other costs will be excluded. Businesses in a loss position, or whose R&D credit is greater than their tax liability, will be able to carry forward any unused R&D credit.

Design issues yet to be considered

The consultation document acknowledges that the government is still considering a number of design issues. These include:

  • Whether some continuity of business ownership should be required for unused R&D credits to be carried forward to subsequent years (this might disadvantage businesses in a growth phase that need to bring in new owners);

  • How the definition of R&D activity should apply to software R&D, and whether there should be 'special treatment' for certain software activities; and

  • Whether the measure of eligible expenditure should be based solely on direct R&D labour costs, or on a broader range of direct and indirect costs.

It is expected that these issues will be addressed before September 2018 when a bill to implement the R&D credit is expected to be introduced in New Zealand's parliament. Businesses carrying on R&D in New Zealand should consider the proposed eligibility criteria for the R&D credit, and take the opportunity to provide feedback when the bill is referred to a select committee for consideration (expected to be in late 2018).






Brendan Brown ( and Matt Woolley (

Russell McVeagh

Tel: +64 4 819 7748 and +64 4 819 7303


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