RDTI vs RDLTC: Which R&D Scheme Is Right for Your Business?
Comparing New Zealand's two R&D incentive schemes - the R&D Tax Incentive and the R&D Loss Tax Credit - to help you decide which one to claim.
New Zealand offers two distinct R&D incentive schemes, and many businesses don't realise they may be eligible for both. Understanding the difference between the R&D Tax Incentive (RDTI) and the R&D Loss Tax Credit (RDLTC) is crucial for maximising your returns.
Quick Comparison
The RDTI provides a 15% tax credit on eligible R&D expenditure. It's available to profitable and loss-making businesses alike and is the broader of the two schemes.
The RDLTC converts a portion of your tax losses attributable to R&D into a cash payment. It's specifically designed for businesses that are not yet profitable - typically startups and high-growth companies that are investing heavily in R&D but haven't reached profitability.
The R&D Tax Incentive (RDTI)
Best for: Businesses of any size with at least $50,000 in annual R&D spend.
The RDTI is straightforward: spend money on qualifying R&D, get 15% back as a tax credit. If the credit exceeds your tax liability, you receive a cash refund.
Key features:
- 15% credit on eligible R&D expenditure
- Minimum $50,000 spend threshold
- Available to both profitable and loss-making companies
- Requires General Approval from MBIE
- Credit applied against income tax, excess refunded
The R&D Loss Tax Credit (RDLTC)
Best for: Pre-revenue and loss-making companies with significant R&D expenditure.
The RDLTC works differently. Instead of a credit on expenditure, it allows you to cash out a portion of your tax losses that are attributable to R&D. The cash-out rate is the company tax rate - currently 28%.
Key features:
- Converts R&D-related tax losses into cash at 28%
- No minimum spend threshold (but must have eligible R&D)
- Only available to companies in a tax loss position
- Capped at the lesser of your R&D expenditure or tax loss
- Maximum claim linked to total R&D spend
- Must file with your income tax return
Can You Claim Both?
Yes, but there are important rules to prevent double-dipping. The same expenditure cannot be counted under both schemes. However, if you have R&D expenditure that exceeds the amount used for your RDLTC claim, you can potentially claim the RDTI on the remainder.
In practice, many early-stage companies find the RDLTC more valuable because the 28% cash-out rate is almost double the RDTI's 15% credit rate. If you're in a tax loss position and your R&D spend is significant, the RDLTC typically delivers a larger cash benefit.
Decision Framework
Claim the RDLTC if:
- Your company is in a tax loss position
- You have significant R&D expenditure
- You want to maximise the cash-out percentage (28% vs 15%)
- You're a startup or high-growth company not yet profitable
Claim the RDTI if:
- Your company is profitable (or has minimal tax losses)
- Your R&D spend is at least $50,000
- You want a straightforward credit against your tax bill
- You have R&D expenditure beyond what the RDLTC covers
Consider claiming both if:
- You have R&D expenditure exceeding your tax losses
- You want to maximise your total benefit across both schemes
A Practical Example
Consider a software company with:
- $400,000 in R&D expenditure
- A tax loss of $300,000
RDLTC claim: The company can cash out $300,000 (the lesser of R&D spend and tax loss) at 28%, receiving $84,000 in cash.
RDTI claim on remainder: The remaining $100,000 of R&D expenditure ($400,000 minus $300,000 used for RDLTC) could qualify for the RDTI at 15%, giving an additional $15,000 credit.
Total benefit: $99,000 - significantly more than claiming either scheme alone.
Getting Started
The application processes for both schemes involve documenting your R&D activities, demonstrating eligibility, and filing the appropriate returns. At R&D by Automatax, our platform helps you through both processes, using AI to identify eligible activities and generate the required technical documentation.
Whether you're a startup exploring the RDLTC for the first time or an established business looking to optimise your RDTI claim, understanding which scheme - or combination of schemes - works best for your situation is the first step to securing your credits.