What expenditure is subject to certain restrictions?
Special conditions apply to all of the following types of expenditure/situations:
Expenditure connected with associates
If you acquire goods, services, property, or a right to use property from an associate, you can only claim the cost they incurred to acquire the property or service, or the market value of your right to use it.
Expenditure on contractors
If you contract out your R&D, you must deduct any ineligible expenditure incurred by the contractor from the expenditure you claim.
For example, if your payment to the contractor includes an amount for them to purchase specialised equipment (depreciable property for the contractor), you can’t include the cost of that equipment. However, you might include an amount for depreciation loss on the item while it was being used in your R&D.
You can’t claim spending on R&D performed outside New Zealand if it is not integral to a core R&D activity conducted in New Zealand.
Eligible expenditure for supporting activities conducted outside New Zealand can’t exceed 10% of your total eligible expenditure.
Special rules mean that amounts you pay non-resident contractors and employees to do R&D in New Zealand are considered foreign expenditure, and come within the 10% cap.
Expenditure incurred in the course of normal production
If you perform R&D in the course of normal commercial production, you can only claim the employee and additional costs related to the actual R&D.
This means that costs like rent, rates, insurance and maintenance aren’t eligible.
Expenditure incurred in a situation where goods resulting from R&D are sold (feedstock rule)
If any goods produced as a result of your R&D activities are sold, you will need to:
- deduct the sale price or market value of those goods from your eligible expenditure
- keep records of the production costs, volume and value of goods produced and sold, and the volume on hand at the end of the year.