Approval comes before the claim. Keep records that show each core activity, the uncertainty it addresses and the systematic approach taken, and link expenditure to it. New Zealand's approval model changes what the records are for. The eligibility question is largely settled when Inland Revenue approves the activities, so the records have two later jobs: to show that the approved activities were actually carried out as described, and to show what they cost. This page sets out what Inland Revenue expects, what to keep, how to tie records to the approved activities and where claims fall short.
What the tax authority expects
The general rule is that business records sufficient to support the return must be kept for 7 years. For the RDTI, Inland Revenue's guidance asks for records that show, for each approved activity, that the activity was performed in the income year, that it followed the systematic approach described in the application, what the results were, and which expenditure related to it. Where the activities carried out differ materially from those approved, the approval does not cover them and the application should have been varied.
Two features shape the records. First, because approval is granted on the description, the description becomes the benchmark: the records should use the same activity names and address the same uncertainty. Second, Inland Revenue's reviews of supplementary returns are mostly financial, so the expenditure records are tested closely: time allocation, the overseas cap, the feedstock rule and grant funding.
Records to keep during the year
| Record | Shows | Kept by | When |
|---|---|---|---|
| The approval and the application text | The benchmark description of each activity | Finance | On approval |
| Activity plans and hypotheses | The systematic approach | Technical lead | At the start and before each iteration |
| Experiment records, test logs, prototypes, version control | The activity being performed and its results | Scientists and engineers | As the work happens |
| Progress and closing notes | What was learned; when the uncertainty was resolved | Technical lead | At milestones and at the end |
| Timesheets by activity | Employee time on each core and supporting activity | All R&D staff | Weekly |
| Payroll records | Remuneration and employer superannuation | Payroll | Monthly |
| Contractor and research provider contracts and invoices | Who did what, where, and who owns the results | Finance | On engagement and payment |
| Location records | Where each activity was performed, for the 10% overseas cap | Project manager | Through the year |
| Grant agreements | Government funding received for the R&D, to be reviewed against the expenditure claimed | Finance | On signing |
| Sales records for goods from R&D | The feedstock adjustment | Finance | On sale |
Agile and iterative teams meet the standard by tagging tickets and commits to the approved activity and recording what each sprint learned. A note at the start of the year mapping the team's work to the approved activities saves most of the effort later.
Keep the records in a form the finance team can hand to Inland Revenue without the engineers' help. A shared folder per approved activity, with the application text at the top, the technical records in dated order and the expenditure workpaper alongside, answers most reviews in a single response. Where the business has criteria and methodologies approval, the records should also show the approved process being applied: the review board minutes, the checklist for each activity and the time allocation outputs.
Linking records to projects and costs
The approved activity is the unit, and the supplementary return reports expenditure by activity. A workpaper per activity should hold:
| Item | Content |
|---|---|
| Activity | Name and reference as approved; core or supporting; the core activity a supporting activity serves |
| Evidence index | Pointers to the records showing the activity was performed and its results |
| Employee costs | Employee, hours or percentage, remuneration, source of the allocation |
| Contractors and research providers | Provider, contract, location, amount, approved research provider status |
| Consumables, depreciation and overheads | Items, apportionment method |
| Adjustments | Overseas cap, feedstock, ineligible items removed, government funding reviewed |
| Reconciliation | Activity totals to the supplementary return and to the accounts |
Common gaps
- Activities drifted from the approval. The work done no longer matches the description, and no variation was sought.
- No evidence the activity was performed. Approval exists but the year's records do not show the experiments happening.
- Time allocations without timesheets. Round percentages set when the supplementary return is prepared.
- Overseas work untracked. Contractors abroad claimed without checking the 10% cap.
- Feedstock ignored. Prototypes or trial production sold without the adjustment.
Illustrative example
Illustrative example. Canterbury Foods Limited, a hypothetical company, has general approval for a core activity to develop a shelf-stable plant protein with a specified texture. Its food technologist keeps a trial log for each formulation with texture measurements against the target; engineers' timesheets code 60% of their time to the activity; finance codes ingredients and the Crown research institute's invoice to it. When Inland Revenue reviews the supplementary return and asks how the NZ$320,000 of expenditure was arrived at, Canterbury produces the activity workpaper and the trial log, and the return is accepted as filed.
Related pages
Official sources
Educational content only, not tax advice. See the disclaimer.