Tax Exemption for Scientific or Industrial Research Organisations

One of the roles undertaken by the Royal Society of New Zealand, under New Zealand’s Income Tax Act of 2007, is to assist scientific or industrial research organisations wishing to apply for tax exemption.

Section CW49 of the Act states, in part:

An amount of income derived by a society or association established mainly to promote or encourage scientific or industrial research is exempt income if—

    1. the society or association is approved by the Royal Society of New Zealand; and
    2. none of its funds is used or available to be used for the private pecuniary profit of a member, proprietor, shareholder, or associate of any of them.

Exclusion

This section does not apply to a Crown Research Institute.

Defined in this Act: amount, associated person, Crown Research Institute, exempt income, income

Cf 2004 No 35s, CW41

Tax exemptions are granted by Inland Revenue

Section CW49 of the Income Tax Act 2007 sets out the criteria for eligibility. There are guidelines established to assist applicants – these  are set out below for information purposes.

  1. Criteria for eligibility:
    1. Applicant must be an organisation, not an individual, but need not be incorporated.
    2. The organisation must be established substantially or primarily to promote or encourage scientific or industrial research.
    3. It must be demonstrated to the satisfaction of the Royal Society of New Zealand that such research falls within the definition set out in the attached definition.
    4.  All organisations must have either a constitution, charter, trust deed, rules, or memorandum and articles of association which must include clauses to the effect that:
      1. No part of any income or other funds of the organisation may be used or be available to be used for the private pecuniary profit of any proprietor, member or shareholder.
      2. In the event of the winding up of the organisation, any surplus funds are to be transferred to a similarly tax exempt organisation having similar aims and objects.
      3. No alteration to the rules is permitted which would have the effect of:
        • amending the primary object of the organisation which enabled it to qualify for tax exempt status (1.b), or
        • amending or deleting the clauses relating to (1.d.i) and (1.d.ii) above, or
        • amending this provision in the rules relating to the amendment of rules (i.e. the entrenched provisions may not be amended).

The Royal Society of New Zealand can assist applicants for tax exempt status by confirming in writing, (1.b) and (1.c) of the criteria.

Procedure

Applications in writing should be addressed to:

Chief Executive Officer
Royal Society of New Zealand
PO Box 598
Wellington 6140

and contain documentation which demonstrates how the criteria in (1.b) and (1.c) above have been met. Each application shall be accompanied by a non-refundable fee of $450, including GST.

Assistance

The Royal Society of New Zealand will be pleased to assist applicants who may need additional information to enable them to complete their application.

A definition of “Scientific or Industrial Research” has been prepared by the Royal Society of New Zealand to assist in considering applications.

Scientific or Industrial Research comprises creative work undertaken on a systematic basis in order to increase knowledge, including that of mankind, culture and society and the use of knowledge to devise new applications, as follows:

  1. It is characterised by originality; it should have investigation as a primary objective, the outcome of which is new knowledge, with or without a specific practical application or it may involve new or improved materials, products, devices, processes, methods or services.
  2. The research ends when the work is no longer primarily investigative.
  3. Research can be distinguished from experimental development if the four elements of:  
    • creativity
    • novelty or innovation
    • the use of scientific methods
    • the generation of new knowledge

are given and are capable of being defended:

Research excludes

The following are excluded from the definition of Scientific or Industrial Research:

  • The commercial, legal and administration aspects of patenting, copywriting or
  • Specialised routine medical care
  • Feasibility studies (except into research and development projects)
  • Routine quality control and routine testing
  • Operations research and mathematical or statistical analysis
  • General purpose or routine data collection
  • Scientific and technical information services
  • Engineering and technical services
  • Licensing activies:
    • Routine computer programming, systems work or software maintenance