The Research and Development Tax Incentive gives a credit equal to 15 percent of eligible R&D expenditure. Budget 2026 introduced in-year payments, which for a business burning cash on development is a more useful change than it sounds.
Why timing matters more than rate
Under the existing arrangement, a business incurs R&D expenditure through the year and receives the credit after filing. For a company with staff working on development and no revenue from it yet, that gap is funded from working capital or from investors.
Moving payment in-year converts the incentive from a retrospective benefit into something closer to a funding mechanism. For early-stage technology and hardware businesses, where cash is the binding constraint rather than the eventual amount, that changes what is possible.
Eligibility, and the misconceptions
The core test is whether the activity seeks to resolve scientific or technological uncertainty — uncertainty a competent professional in the field could not resolve without systematic investigation.
Three misconceptions cause most incorrect self-assessment:
- It does not require novelty to the world. The uncertainty must be genuine, not published knowledge you have not looked up. Solving a problem others have solved privately can still qualify.
- It is not commercial or market risk. Uncertainty about whether customers will buy is not technological uncertainty.
- It is not restricted to laboratories. Software development, manufacturing process improvement, agricultural technique development and engineering design all routinely qualify.
Budget 2026 also expanded eligibility to include expenditure incurred in the mining industry.
The minimum spend and its exception
There is a $50,000 minimum of eligible expenditure per year. Below that, no claim.
The exception matters and is under-known: expenditure with an approved research provider is not subject to the minimum threshold. A small business commissioning work from a university, Crown research institute or other approved provider can claim without meeting the floor.
That makes collaboration with a research institution more attractive than it first appears, particularly for businesses too small to run their own programme.
What counts as expenditure
Broadly the costs of performing eligible R&D — salary and wages for people conducting or directly supporting it, contractor costs, consumables used, depreciation on assets used, and overheads apportioned on a reasonable basis.
Common exclusions: acquiring land or buildings, most capital costs, professional fees for preparing the claim itself, and expenditure funded by certain government grants.
Where staff split time between R&D and ordinary work, apportionment must be reasonable and supportable. Timesheets or an equivalent contemporaneous record are the practical answer — reconstructing the split at year end is where claims weaken.
Records determine whether a claim survives
The recurring reason claims are reduced on review is not ineligibility. It is that the business cannot evidence what it did.
What should exist contemporaneously:
- A description of the uncertainty you were trying to resolve, written at the time.
- The hypothesis or approach taken, and why.
- Records of tests, iterations and results — including the failures, which are frequently the best evidence of genuine uncertainty.
- Time records allocating people to activities.
- Cost records tying expenditure to the activities claimed.
Engineering notebooks, version control history, test logs and project documentation all serve. The requirement is not extra paperwork so much as keeping what the work already generates.
The approval deadline is during the year
Most claimants need General Approval for their R&D activities, with deadlines running from balance date rather than from filing.
The practical implication: this is not a decision you can leave until you prepare your return. If you are doing eligible work this year, the approval process needs to start during the year.
Worth checking if you have never claimed
A large number of eligible businesses never claim because they do not think of what they do as research. If you are solving technical problems where the answer was not already known to you and not findable in a standard, it is worth an hour with someone who knows the regime.
The dedicated site at rdti.govt.nz publishes eligibility guidance, worked examples and the application process, and Inland Revenue publishes detailed technical guidance. Both free.
The in-year payment change and mining eligibility extension were announced in Budget 2026 and remain subject to legislation. Confirm current settings before relying on them. General information only, not tax advice.
