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 Get Tax Credits, 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.