How to Calculate Your R&D Tax Credit in New Zealand
Step-by-step guide to calculating your RDTI and RDLTC tax credits, with worked examples for New Zealand businesses.
Calculating your R&D tax credit in New Zealand involves identifying eligible expenditure, allocating costs correctly, and applying the right formula. This guide walks through the process for both the RDTI (15% credit) and the RDLTC (28% loss cash-out).
Step 1: Identify Your R&D Activities
Before you can calculate anything, you need to clearly define which activities qualify as R&D. The key test is whether the work involves resolving scientific or technological uncertainty through systematic investigation.
Common qualifying activities include:
- Developing new software features where the technical approach is uncertain
- Engineering new products or processes that go beyond routine design
- Experimenting with new materials, formulations, or methodologies
- Building and testing prototypes to validate technical hypotheses
Activities that typically don't qualify:
- Routine software development or bug fixing
- Market research or business model development
- Cosmetic design changes without technical uncertainty
- Quality control as a standalone activity
Step 2: Calculate Eligible Expenditure
Once you've identified your qualifying R&D activities, add up the costs directly associated with them.
Staff costs are usually the largest line item. For each employee involved in R&D, calculate:
Annual salary x R&D time percentage = Eligible staff cost
For example, if a developer earning $120,000 spends 60% of their time on eligible R&D:
$120,000 x 60% = $72,000 eligible
Don't forget to include employer KiwiSaver contributions (3%) and ACC levies on the R&D portion of salary.
Contractor costs should be calculated based on actual invoices for R&D work performed. Only include contractors performing work that meets the R&D eligibility criteria.
Materials and consumables used in R&D should be recorded at cost. This includes prototype materials, testing supplies, and anything consumed during experimentation.
Depreciation on R&D assets should be calculated using standard IRD depreciation rates, pro-rated for R&D usage.
Overheads directly attributable to R&D (lab rent, specialised software licences, etc.) should be allocated on a reasonable basis.
Step 3: Apply the RDTI Formula
The RDTI calculation is straightforward:
Total eligible R&D expenditure x 15% = RDTI tax credit
Worked example:
| Cost Category | Amount |
|---|---|
| Staff costs (3 developers at 70% R&D) | $252,000 |
| Contractor (specialist testing) | $45,000 |
| Cloud infrastructure (R&D portion) | $18,000 |
| Prototype materials | $12,000 |
| Equipment depreciation (R&D share) | $8,000 |
| Total eligible expenditure | $335,000 |
RDTI credit: $335,000 x 15% = $50,250
If the company's tax liability is $30,000, they pay zero tax and receive the remaining $20,250 as a cash refund.
Step 4: Apply the RDLTC Formula (If Applicable)
If your company is in a tax loss position, the RDLTC may deliver a larger benefit. The calculation is:
Minimum of (eligible R&D expenditure, tax loss) x 28% = RDLTC cash payment
Worked example:
Same company as above, but this year they have a tax loss of $200,000.
- Eligible R&D expenditure: $335,000
- Tax loss: $200,000
- RDLTC base: min($335,000, $200,000) = $200,000
- RDLTC cash-out: $200,000 x 28% = $56,000
That's $56,000 in cash, compared to the $50,250 from the RDTI. For loss-making companies, the RDLTC often wins.
Can they also claim RDTI on the remainder?
- R&D spend used for RDLTC: $200,000
- Remaining R&D spend: $335,000 - $200,000 = $135,000
- Additional RDTI credit: $135,000 x 15% = $20,250
- Total combined benefit: $76,250
Step 5: Gather Supporting Documentation
Your calculations need to be backed by evidence. Key documents include:
- Timesheets or time allocation records for staff R&D percentages
- Invoices and contracts for contractor work
- Receipts for materials and consumables
- Asset registers showing depreciation calculations
- Technical documentation describing R&D activities and uncertainties
- Financial statements reconciling R&D costs to your accounts
Common Calculation Pitfalls
Over-claiming staff time: Be honest about R&D percentages. If a developer spends half their time on maintenance and support tickets, only the genuine R&D portion qualifies.
Missing the $50,000 threshold: For the RDTI, your total eligible expenditure must exceed $50,000. If you're close to the line, make sure you've captured all eligible costs including overheads and depreciation.
Forgetting employer contributions: KiwiSaver employer contributions (3%) and ACC levies on R&D salaries are eligible costs that are often overlooked.
Not separating R&D from BAU: Clearly distinguish between R&D activities and business-as-usual operations. The boundary should be documented before you start calculating.
Using Technology to Simplify the Process
At R&D by Automatax, our platform connects directly to your accounting software (like Xero) to pull in your financial data, map accounts to R&D categories, and calculate your eligible expenditure automatically. This removes much of the manual effort and reduces the risk of errors in your calculation.