The implementation of the Research & Development Tax Incentive (RDTI) has not exactly been a smooth ride, but remember, nothing good comes easy. Yes, in-year payments are still unavailable to support R&D activities, however the Government has made sure more R&D activities are eligible to receive the 15% tax credit, attempting to spark some fine Kiwi ingenuity!
R & D Tax Incentive
So, what is and isn’t eligible R&D for the incentive? Essentially, the R&D activities need to be undertaken with the purpose of resolving scientific, or technological uncertainty. Although this sounds intense, this can be anything from researching a new way to manufacture a product in your industry (that there is no current knowledge surrounding), to solving an in-depth scientific equation in your field – the possibilities are endless(ish).
While the focus is on Scientific and Technological R&D, software activities are in fact eligible for the RDTI, as long as they meet certain requirements.
If you want to make a strong software claim, you need to focus on two things:
1. a clear explanation of its technological uncertainty and
2. that this undertaking is not just your ordinary, run of the mill development.
Remember: the regulators are only concerned if you’re trying to solve a technological or scientific uncertainty or not.
What is ‘scientific or technological uncertainty’?
The focus is on whether knowledge is available on whether something is scientifically possible, or technologically feasible, and how to achieve it in practice. This uncertainty could be encountered throughout ordinary design and prototyping for a product, where you’re trying to achieve a desired objective (especially if there is no knowledge on how to achieve it).
There is a bit of grey around this, so it would be best to give us a bell, and we’ll get to the bottom of whether you will be eligible for the RDTI.
Research & Development success
The goal of the RDTI is to increase the R&D activities of businesses, so even unsuccessful commercial outcomes qualify. Valuable knowledge is still gained, even if objectives are not reached. Even the size of the market of a future product is also immaterial, so you need not worry yourself about this.
Demonstrate technological or scientific uncertainty clearly
You don’t need a science degree to make a strong claim. To reiterate – what’s important is your ability to demonstrate technological or scientific uncertainty. The regulators who assess the claims are experienced and highly intelligent and would understand technical information. However, it might be best to use bullet points and avoid using jargon to streamline the claim and avoid unnecessary delays.
Your technical team should be the one to draft activity descriptions, not your finance team, unless someone in your finance team has the right skills or experience with successful claims. Know the support you will need and plan with the right people from the start, so you don’t waste precious resources.
R&D timesheets
Keeping timesheets is a good way to track time spent on R&D and demonstrate accuracy. Your records must be able to substantiate the R&D activity and identify when the uncertainty arose and was resolved. Your records must clearly tie each expenditure to an activity as well.
RDTI
You need to submit a General Approval of activities within seven days and two months after the end of financial year but if you can, we recommend you submit it as soon as you know the activities you will undertake. Doing so will give you the value of your tax credit and likely pave way for a quicker assessment as you avoid peak claim times.
If you have any questions on the RDTI, flick us a quick email or give us a buzz – our team will be more than happy to talk to you about it!
Your Outside Team
Contact
Address: Level 2, 182 Vivian Street,
Te Aro, Wellington 6011, New Zealand
Mail: PO Box 24-457, Wellington 6142
Phone: 04 889 2975
