Approving every activity in advance works for a business with a few projects. It does not scale to a research-intensive company running dozens of activities that change through the year. New Zealand's answer is the significant performer regime: a business expecting more than NZ$2 million of eligible R&D expenditure in the income year may choose criteria and methodologies approval instead of general approval. Inland Revenue approves the business's process for identifying eligible activities and expenditure rather than each activity. This page explains the choice; the criteria and methodologies page covers the application itself.
What it is
| Element | General approval | Criteria and methodologies approval |
|---|---|---|
| Available to | Any claimant | Significant performers: eligible expenditure expected to exceed NZ$2 million in the year |
| What Inland Revenue approves | Each core and supporting activity | The criteria the business uses to decide which activities are core and supporting, and the methodologies it uses to measure eligible expenditure |
| Deadline | Last day of the 3rd month after the end of the income year | The last day of the 6th month before the end of the first income year it relates to |
| Duration | Up to 3 income years | Up to 3 income years |
| Review | Inland Revenue reviews the supplementary return as it sees fit | Inland Revenue reviews how the approved criteria and methodologies were applied |
| Certainty | High for the approved activities | High on process; the activities themselves are assessed on review |
Who it applies to
Businesses whose eligible R&D expenditure for the year is expected to exceed NZ$2 million. The threshold is tested on expected expenditure at the time of the application, so a business that grows past it mid-year can apply for the following year. Typical candidates are software companies with large engineering teams running many parallel streams, manufacturers with continuous process development, and agritech and life sciences companies with research pipelines. A significant performer may still choose general approval; the regime is an option, not an obligation.
The regime suits businesses with mature internal processes: a documented way of deciding what is R&D, time recording by activity, and finance systems that can produce eligible expenditure by activity. Businesses without those systems find the process obligations heavier than the activity-by-activity application they were trying to avoid.
How it works
- Forecast the year's eligible expenditure and confirm it exceeds NZ$2 million.
- Choose the route. Criteria and methodologies approval where activities are many and fluid and internal processes are strong; general approval where projects are few and distinct, or where certainty on a particular large activity matters.
- Document the criteria. How the business decides that an activity has a material purpose of resolving scientific or technological uncertainty, how it identifies supporting activities, and how it applies the schedule 21 exclusions. The criteria must reflect the statutory definition, not restate it.
- Document the methodologies. How time is recorded and allocated, how overheads are apportioned, how contractors, overseas work, feedstock and government funding are handled.
- Apply before the income year ends, and respond to Inland Revenue's questions, which typically involve a meeting with the R&D and finance leads.
- Apply the approved process through the year, keep the evidence it generates, and file the supplementary return.
- Expect review. Inland Revenue tests whether the process was applied as approved and whether the resulting activities meet the definition.
Worked example
Illustrative example. Two hypothetical companies decide the route.
| Auckland Platforms Limited | Christchurch Composites Limited | |
|---|---|---|
| Expected eligible expenditure | NZ$9 million across 40 engineering streams that change quarterly | NZ$3 million across three multi-year development programmes |
| Internal processes | Mature: ticket-level R&D tagging, timesheets by stream, a technical review board | Good project records, but time recording at programme level only |
| Route chosen | Criteria and methodologies approval, applied for in month 4 of the year | General approval of the three programmes, applied for in month 10 |
| Why | Approving 40 changing activities each year is impractical; the review board already applies documented criteria | Three stable programmes are easy to describe; certainty on each is worth more than process approval |
| Evidence | Records showing the criteria and methodologies being applied, with sampled activities traceable from decision to expenditure | Supplementary return and records |
Common questions
Can we switch between the routes? Yes, from one income year to the next, within each route's deadline.
Does criteria and methodologies approval mean our activities are approved? No. The process is approved; the activities identified by applying it are assessed on review.
What if expenditure falls below NZ$2 million? The approval was validly obtained on the expectation; speak to Inland Revenue about the following year.
Can a group apply once for all its companies? Each entity is a separate claimant with its own approval; a group can apply with common criteria and methodologies but files per entity.
Does the regime change the 15% rate or the caps? No. The rate, the NZ$50,000 minimum and the NZ$120 million maximum apply as for every claimant.
Related pages
Official sources
Educational content only, not tax advice. See the disclaimer.