The purpose is to encourage business innovation as research and development is a key element in the innovation process. Thus, this provision allows loss-making research and development (R&D) start-up companies to “cash out” their tax losses from R&D expenditure by claiming a tax credit of up to 28 percent of such losses in a given year.

From income year started 1 April 2015, the R&D loss credit can be claimed and the criteria for the company are as below:

·         Must be a tax resident in New Zealand

·         Have a net loss in that year

·         Have eligible R&D expenditure in that year

·         Have sufficient R&D wage intensity

·         Meet the corporate eligibility criteria as below

·         Own the intellectual property

The company won’t be eligible if it is:

·          Resident of a foreign country or territory under a double tax agreement

·         Look through company

·         Listed on a recognised exchange

·         50% or more shares owned by

o   Public authority

o   Local authority

o   Crown research institute

o   State enterprise

·         Established subject to:

o   The Education Act 1989

o   The New Zealand Public Health and Disability Act 2000

o   The Crown Entities Act 2004

R&D wage intensity 

The company must spend 20% or more of the total labour expenditure on R&D.

If the company want to claim R&D loss tax credit, they will be required to register their interest with the IRD before filling IR4 returns.

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