Taxation (Research and Development Tax Credits) Act 2019

1: Title
This Act is the Taxation (Research and Development Tax Credits) Act 2019.
2: Commencement
1: Part 1
2: Part 2
1: Research and development tax credits: year 1
3: Application
This Part applies for the 2019–20 and later income years. Amendments to Income Tax Act 2007
4: Income Tax Act 2007 amended
Sections 5 to 22 Income Tax Act 2007 2019-04-01 Income Tax Act 2007 applies for the 2019–20 and later income years. See section 3.
5: Flowchart B4 amended (Satisfying income tax liability)
Flowchart B4 is amended by inserting the following immediately before the box labelled “Remaining credits”:
6: Section EE 6 amended (What is depreciable property?)
1: In section EE 6(1)﻿(b) income. income; or
c: in deriving exempt income, and it is used in performing research and development activities.
2: In section EE 6 research and development activities
7: New heading and section GB 56 inserted
Before the heading to subpart GC Arrangements involving research and development tax credits
GB 56: Arrangements involving research and development tax credits
When this section applies
1: This section applies when an arrangement has a purpose or effect, not being a merely incidental purpose or effect, of defeating the intent and application of subpart LY Credit reduced
2: A person’s entitlement to a research and development tax credit is reduced to the amount that the Commissioner thinks appropriate, whether or not the person is a party to the arrangement. arrangement, eligible research and development expenditure, goods, research and development tax credit, services
8: Section LA 4 amended (When total tax credit more than income tax liability)
1: After section LA 4(1)﻿(c)
cb: fourth, a research and development tax credit under section LY 1(3)﻿(b)
cc: fifth, a research and development tax credit under section LY 1(3)﻿(a)
2: In section LA 4(1)﻿(d) fourth sixth
3: In section LA 4 research and development tax credit
9: Section LA 5 amended (Treatment of remaining credits)
1: After section LA 5(4) Research and development tax credits
4B: A person’s research and development tax credit is used by—
a: first, the Commissioner refunding the tax credit up to a maximum of $255,000, by treating it as a refundable tax credit and applying section LA 6(2), if the person—
i: meets the corporate eligibility criteria in section MX 2 (Corporate eligibility criteria); and
ii: meets the wage intensity criteria in section MX 3 (Wage intensity criteria); and
iii: does not derive exempt income, ignoring exempt income under sections CW 9 and CW 10 (which relate to income from dividends); and
iv: is not associated with a person that derives exempt income, ignoring exempt income under sections CW 9 and CW 10:
b: secondly, applying section LY 8
2: In section LA 5 associated person exempt income listed company research and development tax credit
10: New subpart LY inserted (Research and development tax credits)
After subpart LU
LY: Research and development tax credits
LY 1: Research and development tax credits
Purpose
1: The purpose of this subpart is to—
a: provide a tax credit (a research and development tax credit
b: ensure that activities, expenditure and losses do not inappropriately qualify for research and development tax credits. General structure of this subpart
2: In this subpart—
a: research and development activity section LY 2
b: section LY 3
c: the amount of a person’s research and development tax credit for a tax year is calculated under section LY 4 Sections LY 5, LY 6, and LY 7
d: section LY 8
e: section LY 9 schedules 21 and 21B
f: section LY 10 Tax credit
3: A person has a tax credit for the tax year equal to the total of—
a: their credit calculated under section LY 4
b: their credit carried forward and credited to the year, as provided by section LY 8 Tax credit: joint venturers’ apportionment
4: Despite subsection (3) Anti-avoidance
5: Section GB 56 Expenditure or loss: GST
6: For the purposes of calculating the amount of a person’s expenditure or loss, section DB 2 (Goods and services tax) is applied to the amounts. amount, goods, income year, research and development activity, research and development tax credit, services, tax year
LY 2: Key terms
Meaning of core research and development activity
1: Core research and development activity
a: means an activity that—
i: is conducted using a systematic approach; and
ii: has a material purpose of creating new knowledge, or new or improved processes, services, or goods; and
iii: has a material purpose of resolving scientific or technological uncertainty; but
b: does not include an activity, if knowledge required to resolve the uncertainty, described in paragraph (a)﻿(iii)
i: publicly available:
ii: deducible by a competent professional in the relevant scientific or technological field; and
c: does not include an activity to the extent to which it is performed outside New Zealand; and
d: does not include an activity to the extent to which it is described in schedule 21, part A Meaning of research and development activity
2: Research and development activity
a: a core research and development activity:
b: a supporting research and development activity. Meaning of supporting research and development activity
3: Supporting research and development activity
a: means an activity that has the only or main purpose of, is required for, and integral to, conducting a person’s core research and development activity; but
b: does not include an activity to the extent to which it is described in schedule 21, part B core research and development activity, goods, New Zealand, research and development activity, services, supporting research and development activity
LY 3: When this subpart applies
When this subpart applies
1: This subpart applies for a person for an income year, if—
a: the person or a joint venture of which the person is a member performs a core research and development activity in New Zealand, or, if the person does not perform a core research and development activity in New Zealand, a research and development contractor performs a core research and development activity in New Zealand on behalf of the person as part of a business that the contractor carries on in New Zealand through a fixed establishment in New Zealand; and
b: the person or a joint venture of which the person is a member carries on a business in New Zealand through a fixed establishment in New Zealand; and
c: the person or a joint venture of which the person is a member may use the results of the relevant core research and development activity and any related supporting research and development activities for no consideration, or the results of the relevant core research and development activity and any related supporting research and development activity are—
i: owned by the person:
ii: if the person is a company, owned by another company that is resident in New Zealand or in a country with which New Zealand has a double tax treaty, and the other company is in the same group of companies as the person:
iii: owned by a joint venture of which the person is a member; and
d: where the person is part of the in-year approval pilot under section 68CB or 68CC When this subpart does not apply
2: Despite subsection (1), this subpart does not apply for a person, for an income year,—
a: if they fail to file a return of income for the income year on or before the date that is 1 year after the latest date for them to file the return of income for the year under section 37 of the Tax Administration Act 1994:
b: if they receive a Callaghan Innovation Growth Grant, or they are directly or indirectly controlled by, or associated with, a recipient of a Callaghan Innovation Growth Grant:
c: to the extent to which the person is a research and development contractor for another person ( person B
d: if the person is, or is directly or indirectly controlled by, or is associated with,—
i: a Crown research institute:
ii: a district health board:
iii: a tertiary education organisation:
e: if the person is a member of a joint venture or a partner in a partnership or has owner’s interests for a look-through company, and the person is not resident in New Zealand in the tax year. Exception: carry forward
3: Despite subsection (1), sections LY 1(3)﻿(b) and LY 8 Special rule: non-business researcher
4: For the purposes of subsection (1), a person that is a non-business researcher is treated as carrying on a business in New Zealand through a fixed establishment in New Zealand. associated, business, core research and development activity, fixed establishment, group of companies, look-through company, New Zealand, non-business researcher, owner’s interests, partner, partnership, research and development contractor, return of income
LY 4: Calculation of tax credit
When this section applies: thresholds
1: This section applies for a tax year and a person, ignoring, for purposes of this subsection only, sections HB 1 and HG 2 (which relate to entity transparency) and substituting as the relevant person the person’s partnership or look-through company, when—
a: the person’s eligible research and development expenditure, together with eligible research and development expenditure for any joint venture of which the person is a member, is $50,000 or more for the year:
b: the person has, for the year, eligible research and development expenditure for an approved research provider performing a research and development activity on behalf of the person. Calculation of tax credit
2: A person’s research and development tax credit for a tax year is calculated using the formula— 0.15 × total eligible R & D expenditure. Definition of item in formula
3: In the formula, total eligible R & D expenditure
a: $120 million, or the person’s approved research and development cap if the person has an approved research and development cap:
b: the total amount of the person’s eligible research and development expenditure for the corresponding income year. amount, approved research and development cap, approved research provider, eligible research and development expenditure, look-through company, loss, partnership, research and development activity, tax year
LY 5: Eligible research and development expenditure
Eligible research and development expenditure
1: For the purposes of this subpart, eligible research and development expenditure
a: means expenditure or loss, described in schedule 21B, part A
b: does not include expenditure or loss, to the extent to which the expenditure or loss is described in schedule 21B, part B:
c: does not include expenditure or loss that would have been incurred in the absence of the research and development activity, if—
i: the research and development activity is performed in the course of commercial production; and
ii: the expenditure or loss is not in relation to an employee’s contribution to a research and development activity. Modification of eligible research and development expenditure
2: Despite subsection (1), for an amount that is otherwise eligible research and development expenditure,—
a: an amount that is for a research and development contractor to perform research and development activities for the person is only eligible research and development expenditure to the extent to which section LY 6
b: an amount that is incurred on a research and development activity performed outside New Zealand, or is a payment of salary or wages to a non-resident, or is a payment for a service performed by a non-resident is only eligible research and development expenditure to the extent to which section LY 7 No double dip for contractors and others
3: A person does not have eligible research and development expenditure to the extent to which the relevant expenditure or loss is eligible research and development expenditure of another person. amount, eligible research and development expenditure, income year, loss, New Zealand, non-resident, pay, research and development activity, research and development contractor, salary or wages
LY 6: Contracted research and development expenditure
When this section applies
1: This section applies for a person for the purposes of section LY 5(2)﻿(a) contracted research and development expenditure Calculation of eligible research and development expenditure: contracted research and development expenditure
2: For the purposes of section LY 5(2)﻿(a) contract amount − ineligible expenditure. Definition of items in formula
3: In the formula,—
a: contract amount
b: ineligible expenditure section LY 5(1) Relationship with subject matter
4: If an amount of contracted research and development expenditure, described in subsection (1) section LY 7(1) section LY 7 amount, eligible research and development expenditure, loss, research and development activity, research and development contractor
LY 7: Foreign research and development expenditure
When this section applies
1: This section applies for a person for the purposes of section LY 5(2)﻿(b) foreign research and development expenditure
a: is incurred on a supporting research and development activity performed outside New Zealand:
b: is a payment of salary or wages to a non-resident person, and the non-resident performs the relevant activity in New Zealand:
c: is a payment for a service performed by a non-resident person, and the non-resident performs the relevant activity in New Zealand. Calculation of eligible research and development expenditure: foreign research and development expenditure
2: For the purposes of section LY 5(2)﻿(b) eligible research and development expenditure
a: the amount given by the formula in subsection (3):
b: the amount given by the formula in subsection (5). Actual overseas expenditure amount
3: For the purposes of subsection (2)﻿(a), the amount is calculated using the formula— contract amount − ineligible expenditure + foreign in-house amount. Definition of items in formula
4: In the formula in subsection (3),—
a: contract amount foreign contractor
b: ineligible expenditure section LY 5(1)
c: foreign in-house amount section LY 5(1) Capped overseas expenditure amount
5: For the purposes of subsection (2)﻿(b), the amount is calculated using the formula— 0.1 × total NZ R & D expenditure ÷ 0.9. Definition of item in formula
6: In the formula in subsection (5), total NZ R & D expenditure section LY 5 amount, core research and development activity, eligible research and development expenditure, loss, New Zealand, non-resident, research and development activity
LY 8: Carry forward for remaining research and development tax credits
Carry forward
1: For the purposes of section LA 5(4B) section LY 1(3)﻿(b) Carry forward: exception
2: Despite subsection (1), if the person is a company, the remaining tax credit is extinguished and must not be carried forward and credited, unless the continuity rules in subsection (3) are met. Continuity rules
3: For a company, the remaining tax credit is carried forward and credited if a group of persons exists that has, for the continuity period,—
a: minimum voting interests in the company that total 49% or more; and
b: when a market value circumstance exists for the company in the continuity period, minimum market value interests in the company that total 49% or more. Some definitions
4: In this section,— continuity period minimum market value interest minimum voting interest Credits for earlier income years
5: Despite a breach of continuity under subsection (3), a person’s remaining research and development tax credit for an earlier tax year is carried forward to a tax year ( year A section LY 1(3)﻿(b)
a: the requirements for continuity of ownership would be met if the continuity period included only part of the income year of the company that corresponds to year A; and
b: the company provides the Commissioner with adequate financial statements relating to the continuity period, calculating the amount of the person’s income tax liability for the relevant part of the corresponding income year. Credits for year of breach
6: Despite a breach of continuity under subsection (3), a person’s remaining research and development tax credit is carried forward to the tax year ( year B section LY 1(3)﻿(b)
a: the requirements for continuity of ownership would be met if the continuity period included only part of the income year of the company that corresponds to year A; and
b: the company provides the Commissioner with adequate financial statements relating to the continuity period, calculating the amount of the person’s research and development tax credit for the relevant part of the corresponding income year. company, continuity period, corresponding income year, group of persons, income year, market value circumstance, market value interest, minimum market value interest, minimum voting interest, research and development tax credit, tax credit, tax year, voting interest
LY 9: Orders in Council
Purpose
1: The purpose of subsection (2) is to provide a power to maintain the intent of the research and development tax credit regime in accordance with its stated purpose in section LY 1(1). Order in Council
2: The Governor-General may, by Order in Council made on the joint recommendation of the Minister of Revenue and the Minister of Research, Science, and Innovation,—
a: add the description of an activity or of an expenditure or loss, as applicable, to—
i: schedule 21:
ii: schedule 21B:
b: remove the description of an activity or of an expenditure or loss, as applicable, from—
i: schedule 21:
ii: schedule 21B. Recommendation
3: Before making a recommendation referred to in subsection (2), the Ministers must be satisfied that—
a: they have consulted with persons they consider to be appropriate in light of the relevant addition or removal; and
b: they have had regard to—
i: the purpose in section LY 1(1)
ii: the effect of the recommendation on the creation of new scientific or technological knowledge; and
iii: the fiscal impact of the recommendation. Application for future tax years
4: An addition or removal by Order in Council under this section must apply for the income year corresponding to the tax year after the tax year in which it is made, and subsequent income years. Sunset
5: An Order in Council under this section expires on the date that is 3 years after the last day of the tax year that the Order first applies for. eligible research and development expenditure, income year, loss, research and development activity, research and development tax credits, tax year
LY 10: Evaluation
The Minister of Research, Science and Innovation will lay a report before the House of Representatives as soon as practicable after the end of the 2023–24 tax year, and every 5 years subsequent, objectively and independently evaluating the research and development tax credit regime in terms of all of the following:
a: the delivery of the policy intent of the regime:
b: the stimulation of spending on research and development activities:
c: the compliance costs of the regime:
d: the administration of the regime:
e: the compliance with the legal requirements of the regime by taxpayers:
f: any other criteria specified by the Minister of Research, Science and Innovation. research and development activities, research and development tax credits
11: Section OB 4 amended (ICA payment of tax)
1: After section OB 4(3)﻿(f)
fb: income tax paid by crediting a research and development tax credit against income tax liability; or
2: In section OB 4 research and development tax credit
12: New section OB 9C inserted (ICA credit for research and development tax credit)
After section OB 9B
OB 9C: ICA credit for research and development tax credit
Credit
1: An ICA company has an imputation credit for the amount of research and development tax credit it is entitled to. Table reference
2: The imputation credit in subsection (1) is referred to in table O1: imputation credits, row 7C Credit date
3: The credit date is the date the company files its return of income for the income year. amount, ICA company, imputation credit, research and development tax credit
13: Table O1 amended (Imputation credits)
After table O1, row 7B Row 7C inserted into table O1. 7C Research and development tax credits day on which return of income for income year is filed section OB 9C
14: Section OK 2 amended (MACA payment of tax)
1: After section OK 2(3)﻿(c)
cb: income tax paid by crediting a research and development tax credit against income tax liability; or
2: In section OK 2 research and development tax credit
15: New section OK 6C inserted (MACA research and development tax credit)
After section OK 6B
OK 6C: MACA research and development tax credit
Credit
1: A Maori authority has a Maori authority credit for the amount of research and development tax credit it is entitled to. Table reference
2: The Maori authority credit in subsection (1) is referred to in table O17: Maori authority credits, row 6C Credit date
3: The credit date is the date the Maori authority files its return of income for the income year. amount, ICA company, imputation credit, research and development tax credit
16: Table O17 amended (Maori authority credits)
After table O17, row 6B, insert: Row 6C inserted into table O17. 6C Research and development tax credits day on which return of income for income year is filed section OK 6C
17: Section OP 5 amended (When credits and debits arise only in consolidated imputation group accounts)
Replace section OP 5(2)﻿(bb)
bb: section OP 11C, row 6C
18: Section OP 7 amended (Consolidated ICA payment of tax)
1: After section OP 7(3)﻿(g)
gb: income tax paid by crediting a research and development tax credit against income tax liability; or
2: In section OP 7 research and development tax credit
19: New section OP 11C inserted (Consolidated ICA credit for research and development tax credit)
Before section OP 12
OP 11C: Consolidated ICA credit for research and development tax credit
Credit
1: A consolidated imputation group has an imputation credit for the amount of research and development tax credit that a group company is entitled to. Table reference
2: The imputation credit in subsection (1) is referred to in table O19: imputation credits of consolidated imputation groups, row 6C Credit date
3: The credit date is the date the group company files its return of income for the income year. amount, company, consolidated imputation group, imputation credit, research and development tax credit
20: Table O19 amended (Imputation credits of consolidated imputation groups)
Before table O19, row 7, insert: Row 6C inserted into table O19. 6C Research and development tax credits day on which return of income for income year is filed section OP 11C
21: Section YA 1 amended (Definitions)
1: This section amends section YA 1
2: Insert, in appropriate alphabetical order: approved research and development cap section 3(1)
3: Insert, in appropriate alphabetical order: approved research provider section 3(1)
4: In the definition of continuity period
c: is defined in section LY 8(4) (Carry forward for remaining research and development tax credits) for the purposes of that section
5: In the definition of continuity provisions
fba: section LY 8 (Carry forward for remaining research and development tax credits); and
6: Insert, in appropriate alphabetical order: core research and development activity section LY 2
7: Insert, in appropriate alphabetical order: eligible research and development expenditure section LY 5
8: In the definition of goods
a: replace in subpart MX (Tax credits for R&D tax losses) in subparts LY
b: replace EA 3 (Prepayments) EA 3 (Prepayments), GB 56 (Arrangements involving research and development tax credits)
9: Insert, in appropriate alphabetical order: ineligible internal software development
a: means software development for the purpose of the internal administration of a person’s business or an associate’s business; but
b: does not include software development if and to the extent to which—
i: the software development is for the main purpose of disposing of the software or a right to use the software to recipients who are not associated with the person:
ii: the software is an integral part of goods that the person disposes of in the ordinary course of business:
iii: the software is developed for the purpose of providing services, and the main reason why the recipients of the services use the services is not the use of the person’s computer technology or software itself, but rather the services themselves
10: Insert, in appropriate alphabetical order: ineligible technology expenditure
a: means, for a person, expenditure or loss that is incurred to acquire the right to use technology upon which a core research and development activity is based:
b: includes expenditure or loss that is incurred to acquire the right to use technology, if the relevant research and development activities to which the technology relates are an extension, continuation, development, or completion of the activities that produced that technology
11: Insert, in appropriate alphabetical order: internal software development expenditure
a: means, for a person, expenditure or loss that is incurred on developing software for the purpose of providing services, and the main reason why the recipients of the services use the services is not the use of the person’s computer technology or software itself, but rather the services themselves; but
b: does not include expenditure or loss that is incurred for the purpose of developing software, if—
i: the person’s main purpose is disposing of the software or a right to use the software to recipients who are not associated with the person:
ii: the software is an integral part of goods that the person disposes of in the ordinary course of business
12: In the definition of minimum market value interest
c: is defined in section LY 8(4) (Carry forward for remaining research and development tax credits) for the purposes of that section
13: In the definition of minimum voting interest
c: is defined in section LY 8(4) (Carry forward for remaining research and development tax credits) for the purposes of that section
14: Insert, in appropriate alphabetical order: non-business researcher
a: a tax charity:
b: an industry organisation to which a levy is payable under New Zealand statute
15: Insert, in appropriate alphabetical order: research and development activity section LY 2
16: Insert, in appropriate alphabetical order: research and development contractor
a: means, for a research and development activity and a person ( person A contractor
b: does not include a non-business researcher described in the definition of non-business researcher paragraph (b)
17: Insert, in appropriate alphabetical order: research and development tax credit section LY 1
18: In the definition of residual income tax
x: section LY 1
19: In the definition of services
a: in paragraph (a), delete , and subpart MX (Tax credits for R&D tax losses),
b: in paragraph (b), replace in subpart MX, in GB 56 subparts LY
20: Insert, in appropriate alphabetical order: supporting research and development activity section LY 2
22: New schedules 21 and 21B inserted
After schedule 20 schedule 1 schedules 21 and 21B Amendments to Tax Administration Act 1994
23: Tax Administration Act 1994 amended
Sections 24 to 37 Tax Administration Act 1994 2019-04-01 Tax Administration Act 1994 applies for the 2019–20 and later income years. See section 3.
24: Section 3 amended (Interpretation)
1: This section amends section 3(1)
2: Insert, in appropriate alphabetical order: approved research and development cap section 68CD
3: Insert, in appropriate alphabetical order: approved research provider section 124ZH
4: In the definition of proscribed question
e: a question related to research and development tax credits under subpart LY
25: New heading and section 124ZH inserted
Before section 125A Research and development
124ZH: Approved research providers
1: A person is an approved research provider section 22(2)﻿(kd)
2: The Commissioner may, in accordance with this section, approve a person, if the person makes an application in accordance with subsection (3).
3: A person must apply to the Commissioner for approval in the form prescribed by the Commissioner.
4: The Commissioner may only approve a person if, in the opinion of the Commissioner, the person—
a: is capable of performing research and development activities on behalf of other persons; and
b: has in New Zealand the facilities needed to perform research and development activities; and
c: is available to perform research and development activities on behalf of other persons not associated with them; and
d: performs or will perform research and development activities on behalf of other persons for market value consideration.
5: A person may apply for approval as an approved research provider by providing information to the Commissioner in the prescribed form. They may also apply for a revocation of approval.
6: If the Commissioner approves a person, the Commissioner must notify the person and publish the approval, in a publication chosen by the Commissioner.
7: The Commissioner may, at the Commissioner’s discretion, revoke approval as an approved research provider. The Commissioner must give the person reasons for the exercise of the Commissioner’s discretion, and specify the date from which the revocation takes effect.
26: Section 22 amended (Keeping of business and other records)
1: In section 22(2)﻿(eb) section LH 2 subpart LY
2: Replace section 22(2)﻿(ec)
ec: is an approved research provider:
3: In section 22(2)﻿(kc) section LH 2 subpart LY
4: Replace section 22(2)﻿(kd)
kd: if the person is an approved research provider, the following matters:
i: ongoing compliance with section 124ZH(4)
ii: amounts derived and incurred by the person performing research and development activities on behalf of other persons; and
27: New section 33E inserted (Research and development tax credits: supplementary return)
After section 33D
33E: Research and development tax credits: supplementary return
A person who is entitled to a research and development tax credit must file a research and development supplementary return for a tax year in an electronic format prescribed by the Commissioner on or before the day that is 30 days after—
a: the due date on which they are required to file a return of income for the tax year under section 37; or
b: the due date on which they would be required to file a return under section 37, if they had assessable income.
28: New section 36BE inserted (Research and development tax credits: electronic formats)
After section 36BD
36BE: Research and development tax credits: electronic formats
1: The Commissioner must prescribe 1 or more electronic formats in which a research and development supplementary return under section 33E
2: The Commissioner may, from time to time, set specifications for software for use in populating the research and development supplementary return, and related criteria for the use of specified software.
29: Section 36C amended (Particulars furnished in electronic format)
In section 36C(1) 35, 36, 36A, 36AB, 36B, 36BB, 36BC, or 36BD, 33E, 35, 36, 36A, 36AB, 36B, 36BB, 36BC, 36BD, or 36BE
30: New heading and sections 68CB, 68CC, 68CD, and 68CE inserted
After section 68C Research and development
68CB: Research and development tax credits: general approval 2019–20 income year pilot
1: This section applies in accordance with section LY 3(1)﻿(d)
2: A person’s research and development activities are approved for the income year, if the Commissioner approves the activities, as provided by subsections (3) to (7), and—
a: the person’s application for approval does not contain a material omission or misrepresentation; and
b: the person complies with any conditions in the Commissioner’s approval; and
c: there is no material change in the provisions in subpart LY of that Act and any associated provisions.
3: The Commissioner may, in accordance with this section, approve a person’s research and development activities for the 2019–20 income year, if the person makes an application in accordance with subsection (4) on or before the date prescribed by the Commissioner for the purpose of the pilot approval scheme.
4: A person must apply to the Commissioner for approval in the form prescribed by the Commissioner, including—
a: the activities the person wants the Commissioner to approve; and
b: any other information required by the Commissioner.
5: The Commissioner may only approve a person’s activities to the extent to which, in the opinion of the Commissioner, the relevant activity is a core research and development activity or a supporting research and development activity.
6: If the Commissioner approves a person’s activities for the income year, the Commissioner must notify the person what activities of the person the Commissioner approves of as core research and development activities or supporting research and development activities, and any conditions upon which the approval is made.
7: The Commissioner must notify the person of the intention to decline the application before the application is declined.
68CC: Research and development tax credits: greater than $2 million approval 2019–20 income year pilot
1: This section applies in accordance with section LY 3(1)﻿(d)
2: This section applies ignoring, for purposes of this subsection only, sections HB 1 and HG 2 of the Income Tax Act 2007 (which relate to entity transparency) and substituting as the relevant person the person’s partnership or look-through company, if a person chooses to apply this section, and—
a: has, or reasonably estimates that the person, together with any joint venture of which the person is a member, will have eligible research and development expenditure greater than $2 million for an income year; or
b: is a member of a group of companies that has, or reasonably estimates that they will have, eligible research and development expenditure greater than $2 million for an income year.
3: A person is approved for the income year to the extent to which the Commissioner approves the person’s criteria and methodologies, as provided by subsections (4) to (8), and—
a: the person’s application for approval does not contain a material omission or misrepresentation; and
b: the person complies with any conditions in the Commissioner’s approval; and
c: there is no material change in the provisions in subpart LY of the Income Tax Act 2007 and any associated provisions.
4: The Commissioner may, in accordance with this section, approve a person’s criteria and methodologies for the 2019–20 income year, if the person makes an application in accordance with subsection (5) on or before the date prescribed by the Commissioner for the purposes of the pilot.
5: A person must apply to the Commissioner for approval in the form prescribed by the Commissioner, including—
a: the criteria and methodologies the person wants the Commissioner to approve; and
b: any other information required by the Commissioner.
6: The Commissioner may approve—
a: appropriate criteria and methodologies for determining whether an activity is a core research and development activity, a supporting research and development activity, or not a research and development activity at all:
b: appropriate criteria and methodologies for determining whether an amount of expenditure or loss is or is not an amount of eligible research and development expenditure.
7: If the Commissioner approves a person’s criteria and methodologies for the income year, the Commissioner must notify to the person those criteria and methodologies of the person that the Commissioner approves of, and any conditions upon which the approval is made.
8: The Commissioner must notify the person of the intention to decline the application before the application is declined.
9: The Commissioner may revoke an approval, with effect from the beginning of the income year in which the revocation is made, if the Commissioner considers that the person has classified an activity, or an expenditure or loss, in such a way so as to defeat the purpose and application of subpart LY of the Income Tax Act 2007.
68CD: Research and development tax credits: approved research and development cap
1: For the purposes of section LY 4 approved research and development cap
2: A person may request approval for an approved research and development cap by providing information to the Commissioner in the prescribed form on or before the 7th day of the 2nd month after the end of the income year.
3: The Commissioner must not approve an approved research and development cap for a person unless—
a: the relevant research and development activities give rise to substantial net benefit for New Zealand; and
b: the Commissioner has first consulted with the chief executive of the Ministry of Business, Innovation and Employment.
68CE: Research and development tax credits: publication of details
1: The Commissioner must publish, in a publication chosen by the Commissioner, the names of people who have received a research and development tax credit under subpart LY
2: The names and bands must not be published before 2 years elapse after the end of the tax year to which the relevant tax credit relates.
31: Section 89DA amended (Taxpayer may issue notice of proposed adjustment for taxpayer assessment)
After section 89DA(1)﻿(a)
ab: to the extent to which the assessment relates to an amount of research and development tax credit and the taxpayer has not filed a research and development supplementary return in relation to the credit within the time allowed under section 33E
32: Section 108 amended (Time bar for amendment of income tax assessment)
1: Repeal section 108(1B)
2: After section 108(1D)
1E: Despite subsection (1), the Commissioner may not amend an assessment so as to increase an amount of research and development tax credit if 1 year has passed from the latest date to provide a return of income for the relevant tax year.
33: Section 113D repealed (Amended assessments for research and development tax credits)
Repeal section 113D
34: New section 113E inserted (Amended assessments: research and development tax credits)
Before section 114
113E: Amended assessments: research and development tax credits
1: A person may only—
a: issue 1 notice of proposed adjustment in relation to an increase in the amount of a person’s research and development tax credit for a tax year within 1 year after the due date to provide a return of income for the tax year; or
b: make 1 request under section 113 in relation to an increase in the amount of a person’s research and development tax credit for a tax year within 1 year after the due date to provide a return of income for the tax year.
2: A person must not make a request under section 113 in relation to research and development tax credits for a tax year unless they have filed a research and development supplementary return under section 33E
35: Section 138E amended (Certain rights of challenge not conferred)
In section 138E(1)﻿(e)﻿(iv) 120U, 120U, 124ZH
36: Section 141EC amended (Definition of promoter)
1: In section 141EC(1)﻿(a)
a: replace a plan a plan, software,
b: replace ; or :
2: In section 141EC(1)﻿(b) . :
c: a person who provides services on a contingency fee basis in relation to research and development tax credit claims.
37: Schedule 7 amended (Disclosure rules)
Replace schedule 7, clause 39
39: Agencies for research and development
1: Section 18 does not prevent the Commissioner communicating to an officer, employee, or agent of the Treasury (as defined in section 2 of the Public Finance Act 1989), of Callaghan Innovation, of the Ministry of Business, Innovation and Employment, or of a state sector entity responsible for any function related to research and development advice or incentives, information reasonably necessary for that person to perform their work in relation to evaluating (in accordance with section LY 10 subparts LY and MX
2: Section 18 does not prevent the Commissioner communicating to an officer, employee, or agent of Callaghan Innovation or of the Ministry of Business, Innovation and Employment, information reasonably necessary for that person to perform their work in relation to offering research and development advice and incentives.
3: Section 18 does not prevent the Commissioner allowing an officer, employee, or agent of Callaghan Innovation access to information reasonably necessary for that person to perform their work in relation to administering tax credits provided in subparts LY and MX
2: Research and development tax credits: year 2 and subsequent years
38: Application
This Part applies for the 2020–21 and later income years. Amendments to Income Tax Act 2007
39: Income Tax Act 2007 amended
Sections 40 and 41 Income Tax Act 2007 2020-04-01 Income Tax Act 2007 applies for the 2020–21 and later income years. See section 38.
40: Section LY 3 amended (When this subpart applies)
1: Replace section LY 3(1)﻿(d)
d: the relevant research and development activity and the person, as applicable, are approved under section 68CB 68CC
2: After section LY 3(4) Relationship with subject matter
5: Section LY 13 subsection (2)﻿(c)
41: New heading and section LZ 13 inserted
After section LZ 8 Research and development tax credits
LZ 13: Part-year override of section LY 3(2)﻿(b)
When this section applies
1: This section applies for a person’s 2020–21 income year if—
a: the person’s 2020–21 income year starts after 1 April 2020; and
b: the person receives a Callaghan Innovation Growth Grant for only part of the 2020–21 income year. Part-year override of section LY 3(2)﻿(b)
2: Despite section LY 3(2)﻿(b) eligible research and development expenditure, income year, research and development tax credit Amendments to Tax Administration Act 1994
42: Tax Administration Act 1994 amended
Sections 43 to 46 Tax Administration Act 1994 2020-04-01 Tax Administration Act 1994 applies for the 2020–21 and later income years. See section 38.
43: Section 3 amended (Interpretation)
1: This section amends section 3(1)
2: Insert, in appropriate alphabetical order: research and development certificate 124ZI
44: New section 124ZI inserted (Certificates for research and development)
After section 124ZH
124ZI: Certificates for research and development
1: For the purposes of section 68CC research and development certificate
2: For the purposes of this section, an accepted research and development certifier
a: that the person is competent in applying appropriate accounting and legal standards in relation to research and development tax credits; and
b: declaring any other matters required by the Commissioner to be declared for the purposes of assuring the Commissioner that the person has the legal, accounting, and scientific or technical expertise to complete a research and development certificate.
3: A person may request approval as an accepted research and development certifier by providing information to the Commissioner in the prescribed form. They may also surrender approval.
4: The Commissioner must not approve a person whose approval the Commissioner has revoked under subsection (7) in the last 2 years. Also, the Commissioner must not approve a person who has surrendered their approval in the last 2 years, if the surrender was in anticipation of a revocation.
5: If the Commissioner approves a person, the Commissioner must notify the person, and publish the approval in a publication chosen by the Commissioner. The approval starts from the date that the person requests approval.
6: The Commissioner may, at the Commissioner’s discretion, revoke approval as an accepted research and development certifier. If the Commissioner revokes a person’s approval, the Commissioner must notify the person, and publish the revocation in a publication chosen by the Commissioner. The revocation starts from the date that the revocation is published.
7: The Commissioner must revoke a person’s approval if—
a: the person is liable for a promoter penalty under section 141EB:
b: the person has given a research and development certificate to another person who has, in the 2 years before the income year, been liable to a shortfall penalty under section 141D or 141E in relation to research and development tax credits.
45: Sections 68CB and 68CC replaced
Replace sections 68CB and 68CC
68CB: Research and development tax credits: general approval
1: For the purposes of section LY 3(1)﻿(d)
a: the person’s application for approval does not contain a material omission or misrepresentation; and
b: the person complies with any conditions in the Commissioner’s approval; and
c: there is no material change in the provisions in subpart LY
d: if the Commissioner approves a person and their activities for more than 1 income year, the person has given the Commissioner, on or before the 7th day of the 2nd month after the end of the relevant income year, notice that there have been no material changes for their business for the relevant income year.
2: The Commissioner may, in accordance with this section, approve a person’s research and development activities for an income year (the first income year
3: A person must apply to the Commissioner for approval in the form prescribed by the Commissioner, including—
a: the activities the person wants the Commissioner to approve; and
b: the income years for which approval is sought; and
c: any other information required by the Commissioner.
4: The Commissioner may only approve a person’s activities to the extent to which, in the opinion of the Commissioner, the relevant activity is a core research and development activity or a supporting research and development activity.
5: If the Commissioner approves a person’s activities for an income year, the Commissioner must notify the person what activities of the person the Commissioner approves of as core research and development activities or supporting research and development activities, for which income years, and any conditions upon which the approval is made.
6: The Commissioner must notify the person of the intention to decline the application before the application is declined.
7: The Commissioner may vary an approval, upon application, if the variation application meets the requirements in subsection (1)﻿(a), the variation applied for meets the requirements of subsection (4), and the application is made on or before the 7th day of the 2nd month after the end of the relevant income year. If the Commissioner accepts the variation, then the Commissioner must notify the person in accordance with subsection (5).
68CC: Research and development tax credits: greater than $2 million approval
1: This section applies ignoring, for purposes of this subsection only, sections HB 1 and HG 2 of the Income Tax Act 2007 (which relate to entity transparency) and substituting as the relevant person the person’s partnership or look-through company, if a person chooses to apply this section, and—
a: has, or reasonably estimates that the person, together with any joint venture of which the person is a member, will have eligible research and development expenditure greater than $2 million for an income year; or
b: is a member of a group of companies that has or reasonably estimates that they will have eligible research and development expenditure greater than $2 million for an income year.
2: For the purposes of section LY 3(1)﻿(d)
a: the person and the relevant members of the group under subsection (1)﻿(b), if applicable, have,—
i: on or before the 7th day of the 2nd month after the end of the income year, notified the Commissioner that they elect to use this section and, in the case of an estimate under subsection (1), further notified the amount of the estimate; and
ii: for the income year, given to the Commissioner a research and development certificate with their research and development supplementary returns ( see: sections 33E and 124ZI
b: the Commissioner approves the person’s criteria and methodologies, as provided by subsections (3) to (8), and—
i: the person’s application for approval does not contain a material omission or misrepresentation; and
ii: the person complies with any conditions in the Commissioner’s approval; and
iii: there is no material change in the provisions in subpart LY
iv: has, for the income year, given to the Commissioner a research and development certificate with the person’s research and development supplementary return ( see: sections 33E and 124ZI
3: The Commissioner may, in accordance with this section, approve a person’s criteria and methodologies for an income year (the first income year
4: A person must apply to the Commissioner for approval in the form prescribed by the Commissioner, including—
a: the criteria and methodologies the person wants the Commissioner to approve; and
b: the income years for which approval of a criterion or methodology is sought; and
c: any other information required by the Commissioner.
5: The Commissioner may approve—
a: appropriate criteria and methodologies for determining whether an activity is a core research and development activity, a supporting research and development activity, or not a research and development activity at all:
b: appropriate criteria and methodologies for determining whether an amount of expenditure or loss is or is not an amount of eligible research and development expenditure.
6: If the Commissioner approves a person’s criteria and methodologies for an income year, the Commissioner must notify to the person those criteria and methodologies of the person that the Commissioner approves of, for which income years, and any conditions upon which the approval is made.
7: The Commissioner must notify the person of the intention to decline the application before the application is declined.
8: The Commissioner may vary an approval, upon application, if the variation application meets the requirements in subsection (2)﻿(b), the variation applied for meets the requirements of subsection (5), and the application is made on or before the 7th day of the 2nd month after the end of the relevant income year. If the Commissioner accepts the variation, then the Commissioner must notify the person in accordance with subsection (6).
9: The Commissioner may revoke an approval, with effect from the beginning of the income year in which the revocation is made, if the Commissioner considers that the person has classified an activity, or an expenditure or loss in such a way so as to defeat the purpose and application of subpart LY
46: Section 138E amended (Certain rights of challenge not conferred)
1: In section 138E(1)﻿(e)﻿(iv) 124ZH 124ZH 124ZI
2: Section 46(2) repealed 1 April 2020 section 271 Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020