NEW ZEALAND GAZETTE, No. 132 — 3 DECEMBER 2015

ineligible to reapply for another R&D Growth Grant for two years.

Definition of Eligible Research and Development Expenditure for R&D Project Grants

Eligible R&D expenditure is defined as those meeting the New Zealand Equivalent to International Accounting Standard 38 (NZ IAS 38) definition of research and development and expensed under that standard.

The NZ IAS 38 definitions of R&D are:

• Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.

• Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.

Clarifying Principle

If necessary, when seeking to distinguish R&D from non-R&D, the further advice provided by the New Zealand Financial Reporting Standard 13 (NZ FRS 13) should be applied:

• R&D is distinguished from non-R&D by the presence or absence of an appreciable element of innovation. If the activity departs from routine and breaks new ground it is normally R&D; if it follows an established pattern it is normally not R&D.

General Exclusions

The following types of expenditure are not eligible for the R&D Growth Grants initiative:

• any expenditure that is capitalised as an intangible asset under NZ IAS 38;
• R&D undertaken outside of New Zealand;
• R&D funded through an enforceable levy paid by another entity;
• enforceable levies for R&D paid to another entity; and
• any R&D funded by a grant or other payment provided by an entity that is not part of the same consolidated group of entities as the applicant. However, R&D funded by the R&D Growth Grant, an R&D Project Grant that the business receives for a collaborative R&D Project or an R&D Student Grant is eligible. Expensed funding for R&D contracted out by the applicant to another entity is also eligible.

Specific Exclusions

To provide further clarification on the definition, some specific activities are excluded. This list is not exhaustive. Activities not specifically excluded are only eligible provided they meet all other features of the definition. Specific activities excluded are:

• Engineering follow-through in an early phase of commercial production.
• Activities related to the construction, relocation, rearrangement or start-up of facilities or equipment other than facilities or equipment solely used for the businesses’ R&D (which may be included).
• Routine, on-going efforts to refine, enrich, or otherwise improve on the qualities of an existing product or process, or to make cosmetic or stylistic changes to it.
• Routine design of tools, jigs, moulds and dies, or seasonal or other periodic design changes to existing products. However, expensed design activities involved in developing a new product or process are eligible.
• Activities involved in ensuring that existing products or processes comply with statutory requirements or standards, and quality control, routine testing or trouble-shooting during commercial production. However, testing in search of significant product or process improvements is eligible.
• Adapting an existing product or process to a particular customer’s need or site.
• Supporting, de-bugging or making minor improvements to existing computer software.
• Market research or surveys, market testing, market development or sales promotion, management studies, efficiency surveys or the routine collection of information.
• Any costs involved in protecting, licensing, selling or defending intellectual property or of acquiring or using

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