Receiving your R&D tax credit
The R&D tax credit is designed to help reduce the total amount of income tax that you pay.
For most businesses, the R&D tax credit claimed for a particular income year will be used to reduce the income tax payable for that year.
However, in some situations, e.g. if you are in a tax loss position or your tax credit exceeds your income tax to pay, either some or all of your R&D tax credit could be refunded in cash, and/or carried forward to a future income year. Find out more about this below.
General ordering rules for applying tax credits
Tax credits against your income tax liability are applied in the following order, with R&D tax credits from the current tax year coming 5th in this order:
- non-refundable tax credits (which are extinguished if you do not use them in the income year they arise)
- tax credits for supplementary dividends
- imputation credits
- R&D tax credits from a previous tax year
- non-refundable R&D tax credits from the current tax year
- refundable R&D tax credits.
When could I get a cash refund?
If you have any ‘left over’ R&D tax credit, i.e. the credit ends up being greater than your income tax to pay, you may be eligible to receive it as a cash refund.
A cap applies to the amount of refund you can receive. Different rules also apply to any refundable and non-refundable component of your R&D tax credit. Here’s how it all works:
- any ‘left over’ R&D tax credit can be refunded in cash, up to a cap based on labour-related taxes paid by your business
- labour related taxes include PAYE (including withholding tax on schedular payments); FBT (fringe benefit tax); and employee superannuation contribution taxes (ESCT)
- if you are a controller or group company, the refundability cap can also include labour-related taxes paid by other companies that you control or that sit within the same wholly-owned group
- any refundable tax credit payable will first be applied to any liabilities you have from other tax years that are not under an instalment arrangement
- any non-refundable portion of an R&D tax credit that’s not used to offset tax liabilities in the current year will be carried forward to a future income year
- if you are a company, you can only carry your R&D tax credits forward if you meet the shareholder continuity requirements (if continuity of ownership is only met for part of a year, you may only be able to carry forward a portion of your tax credits).
Including R&D credits in provisional tax calculations
If you wish, you can choose to factor your anticipated R&D tax credits into your provisional tax calculations for the corresponding income year.
If I’m eligible for a refund, how and when will I receive it?
Any refundable tax credit will be paid into the bank account held by Inland Revenue for your income tax account.
The payment will be made after:
- you have filed your income tax return, and
- Inland Revenue has reviewed and approved your RDTI Supplementary Return for the relevant income year.
Companies and Māori authorities
If you are a company or Māori authority, you will receive imputation credits or Māori authority credits equal to your R&D tax credits.
You will need to include the imputation credits you expect to receive as a result of your R&D tax credit claim in your imputation return.
Publication of claim recipients
Inland Revenue will publish the following details 2 years after the end of each tax year:
- the name of businesses that have received R&D tax credits that year, and
- the amount of tax credit received, in dollar bands.
This is intended to provide transparency of the RDTI scheme.