Criteria and methodologies approval is Inland Revenue's approval of a significant performer's process rather than its activities. The criteria are the rules the business applies to decide which of its activities are core and supporting R&D activities; the methodologies are the methods it uses to measure the eligible expenditure on them. Once approved, the business applies the process through the year and files its supplementary return. This page covers the application and the obligations that follow. The significant performer page explains when to choose this route.
What it is
| Element | Rule |
|---|---|
| Who | Businesses expecting more than NZ$2 million of eligible R&D expenditure in the income year |
| What is approved | The criteria for identifying core and supporting activities and the methodologies for calculating eligible expenditure |
| Deadline | The last day of the 6th month before the end of the first income year the approval relates to: 30 September for a 31 March balance date |
| Duration | Up to 3 income years |
| Effect | Inland Revenue accepts activities identified and expenditure measured by applying the approved process, provided it was applied as approved |
| Obligations | Apply the process as approved and keep the evidence it generates |
| Variation and revocation | The business may apply to vary; Inland Revenue may revoke where the approval was based on incorrect information or the process was not followed |
| Legal basis | Tax Administration Act 1994, sections 68CC and 68CD |
Who it applies to
Significant performers who choose this route. In practice: research-intensive businesses with many concurrent activities, a technical governance process that already decides what counts as R&D, and finance systems that record time and cost by activity. The regime moves the compliance effort from describing activities to Inland Revenue to documenting and operating a process, and then evidencing that it was followed. Businesses that do not yet have such a process should build it before applying, because the application is in substance a description of it.
How it works
The criteria. The application sets out how the business will decide that an activity is a core activity: how it identifies scientific or technological uncertainty, how it tests that a competent professional could not deduce the answer, how it confirms a material purpose of creating new knowledge or new or improved processes, services or goods, how it establishes the systematic approach, and how it applies the schedule 21 exclusions. It then sets out how supporting activities are identified as required for and integral to a core activity. Inland Revenue expects the criteria to be operational, with named roles, decision points and records, rather than a restatement of the Act.
The methodologies. How time is captured and allocated to activities, how employee remuneration is derived, how contractors and approved research providers are identified and located, how depreciation and overheads are apportioned, how the overseas cap and the feedstock rule are applied, how government funding is treated, and how the figures reconcile to the accounts.
The application and decision. Submit in myIR before the income year ends. Inland Revenue reviews the documents, usually meets the R&D and finance leads and may test the process on sample activities before approving, approving with conditions or declining.
Worked example
Illustrative example. Dunedin Biosciences Limited, a hypothetical company with a 31 March balance date and NZ$6 million of expected eligible expenditure, applies in September 2025, before the 30 September deadline, for the 2026 to 2028 income years.
| Component | What Dunedin describes |
|---|---|
| Criteria: core activities | A monthly technical review board applies a written checklist: the uncertainty, the literature check by a named scientist, the hypothesis and experiment plan, the schedule 21 screen; decisions and reasons are minuted |
| Criteria: supporting activities | Each supporting activity is linked in the project system to a core activity with a one-line statement of why it is required for and integral to it |
| Methodologies: labour | Timesheets by activity, weekly, with remuneration and superannuation from payroll |
| Methodologies: other costs | Purchase coding by activity; depreciation by asset use log; overheads by floor area and headcount; overseas work flagged at engagement for the 10% cap; government funding reviewed by project |
| Evidence | A sample of ten activities each year traced from board minute to expenditure, kept for review |
Inland Revenue meets the board chair and the finance manager, tests two sample activities and approves in February 2026 for the 3 years. Dunedin files its 2026 supplementary return in April 2027.
Common questions
Is this quicker than general approval? The application takes longer to prepare, but it avoids approving dozens of activities each year.
Can Inland Revenue still challenge an activity? Yes, where the process was not applied as approved or the approval rested on incorrect information.
What if the process changes? Apply to vary the approval before relying on the changed process.
When exactly is the deadline? The last day of the 6th month before the end of the first income year the approval relates to, as Inland Revenue's due dates guidance sets out. For a 31 March balance date that is 30 September during the income year.
Related pages
Official sources
Educational content only, not tax advice. See the disclaimer.