New Zealand’s R&D tax incentive gives eligible businesses a 15% tax credit on qualifying research and development expenditure. Introduced in 2019, the scheme aims to increase business investment in R&D — and for many NZ tech companies, startups, and manufacturers, it represents a significant cash benefit.
Eligible NZ businesses get a 15% tax credit on qualifying R&D expenditure. Minimum eligible spend: $50,000/year. Maximum: $120 million/year (credit capped at $18 million). The credit offsets your income tax bill — if you have insufficient tax to use it against, you may receive a refund (cash out) if your R&D intensity is high enough. You must register with Callaghan Innovation before the end of the tax year. Software development, manufacturing process improvement, and scientific research can qualify.
What Is the R&D Tax Credit?
The R&D tax incentive is a 15% tax credit on eligible R&D expenditure. It was legislated in the Taxation (Research and Development Tax Credits) Act 2019 and administered jointly by IRD and Callaghan Innovation.
Key features:
- 15 cents back for every $1 of eligible R&D spending
- Applies to income tax — reduces your tax bill dollar-for-dollar
- If insufficient tax to use the credit, a cash refund is available for loss-making businesses (and those with high R&D intensity)
- Applies to companies, trusts, partnerships, and sole traders (entities that pay income tax in NZ)
Who Qualifies
| Requirement | Detail |
|---|---|
| NZ tax resident | Must be a NZ tax resident, or a non-resident with a fixed establishment in NZ |
| Performing R&D | Must carry out R&D activities — not just fund others to do it |
| Minimum spend | $50,000 minimum eligible R&D expenditure per year |
| Maximum spend | $120 million (credit capped at $18 million) |
| Not tax-exempt | Must be liable for NZ income tax |
What Is Eligible R&D?
R&D for the purposes of the credit means systematic activities conducted for the purpose of advancing knowledge or creating new products, processes, or software — where the outcome is scientifically or technologically uncertain.
Core R&D Activities (Directly Eligible)
- Scientific or industrial research
- Development of new products or materials
- Significant improvements to existing products or processes
- Software development involving technical innovation (not routine development)
- Clinical trials
Supporting Activities (Eligible if Directly Related)
- Project management of R&D
- Training staff specifically for R&D activities
- Overheads directly attributable to R&D
Excluded Activities
| Activity | Why excluded |
|---|---|
| Market research | Not R&D — understanding markets, not advancing knowledge |
| Routine software maintenance | Not new — fixing bugs, minor updates |
| Quality control | Standard production process |
| Feasibility studies | Before R&D decision is made |
| Social sciences, arts | Excluded sector |
| Mining exploration | Excluded sector |
Eligible Expenditure
What you can include in your R&D spend:
| Type | Notes |
|---|---|
| Salary and wages | For staff directly performing R&D (time-based allocation required) |
| Contractor payments | For R&D services from third parties — capped at $1.5 million or 20% of total R&D (whichever is higher) |
| Materials and supplies | Used directly in R&D activities |
| Depreciation | On assets used for R&D (apportioned) |
| Overheads | Directly attributable to R&D (rent, utilities for R&D space) |
Not eligible: Capital expenditure on land, buildings. General administration costs. Costs already funded by government grants.
How the Credit Works Against Your Tax
The 15% credit offsets your income tax liability:
Example — profitable company:
- Eligible R&D spend: $500,000
- Credit: $500,000 × 15% = $75,000
- Company’s income tax payable: $200,000
- After credit: $200,000 − $75,000 = $125,000 tax owed
Example — loss-making startup:
- Eligible R&D spend: $200,000
- Credit: $30,000
- Tax payable: $0 (loss-making)
- Cash refund available if R&D intensity ≥ 20% of total expenditure: up to $30,000 cash back
The cash refund for loss-making businesses (called “refundable credit”) has an annual cap and intensity requirements — check IRD’s current rules.
How to Apply
Step 1: Register with Callaghan Innovation
You must register your R&D activities with Callaghan Innovation before the end of the income year in which you want to claim. Late registration means no credit.
Register at callaghaninnovation.govt.nz — the Supplementary Return system.
Step 2: Keep R&D Records
Document:
- What activities you performed
- Why they involved technical/scientific uncertainty
- Who worked on them (time records)
- All eligible expenditure with receipts
Step 3: File Your Supplementary Return
After year end, file the R&D Supplementary Return with your income tax return (IR3 or IR4). This details your eligible spend and calculates the credit.
Step 4: IRD Processes the Credit
IRD reviews and processes the credit. First-time claimants or large claims may be subject to a Callaghan Innovation eligibility review.
Callaghan Innovation Grants vs R&D Tax Credit
| Feature | R&D Tax Credit | Callaghan Innovation Grants |
|---|---|---|
| Benefit type | Tax credit (15%) | Direct cash grant |
| Who benefits | Tax-paying businesses | Early-stage businesses without tax liability |
| Application timing | After year end (retrospective) | Before R&D begins (prospective) |
| Certainty | Post-activity claim | Pre-approval of activities |
| Maximum | $18 million/year | Varies by programme |
You cannot double-dip — expenditure funded by a Callaghan Innovation grant is not eligible for the R&D tax credit on the same spending.
Frequently Asked Questions
We develop software — can we claim the R&D credit?
Yes, but only for software development that involves genuine technological innovation and uncertainty. Routine app maintenance, standard database work, and UI improvements generally do not qualify. Building novel algorithms, AI/ML systems, or technically challenging new functionality may qualify.
We spent $30,000 on R&D. Can we claim the credit?
No — the minimum eligible spend is $50,000. If you are below the threshold, consider whether spending more in the current year or accumulating activities to exceed the minimum is feasible.
Our R&D is partly done by an overseas contractor. Is that eligible?
Overseas contractor costs may be eligible up to the contractor cap ($1.5 million or 20% of total R&D, whichever is higher) — but only if the R&D is conducted for the NZ entity’s benefit and the results are available to the NZ business.