Artificial intelligence is now part of a growing number of product-development projects. For New Zealand businesses, this raises a practical tax question: could any of the development expenditure qualify for the Research and Development Tax Incentive (RDTI) or the R&D Tax Loss Credit (RDTLC)? The starting point is to identify the particular development activity, the scientific or technological uncertainty being addressed and the systematic process used to investigate it. Two forms of R&D tax support The RDTI generally provides a 15% tax credit for eligible R&D expenditure. It may assist established businesses undertaking R&D as well as earlier-stage companies, subject to the applicable eligibility, approval, expenditure and filing requirements. The RDTLC is directed at eligible loss-making companies. Broadly, it may allow a company to obtain the cashflow benefit of tax losses attributable to qualifying R&D expenditure rather than carrying all those losses forward. It has its own eligibility rules, calculations and future tax consequences. When might AI development qualify? The strongest starting point may be where a business is developing its own AI technology. This could include experimental work on a new model, algorithm, training method or technical architecture where it is not known at the outset whether the required capability or performance can be achieved. However, potential R&D is not limited to businesses creating the underlying AI model. It may also arise when an existing AI model is integrated into a new product and that integration creates technological problems that cannot readily be resolved using existing knowledge and established techniques. For example, experimental development may be required to determine whether an integrated system can: achieve the required level of accuracy and consistency; identify unreliable or fabricated outputs; validate results against trusted data; meet defined processing-speed, scale, security or privacy requirements; operate reliably when information is incomplete or unusual; or continue to perform when a third-party AI provider changes its model. The potentially eligible R&D is the systematic work undertaken to resolve those technical uncertainties. It is not simply the decision to include AI in a product. Using AI to undertake ordinary development Many businesses now use AI assistants to write code, design workflows, analyse data, prepare content or automate routine tasks. These tools may reduce the time and cost of development, but their use does not make the underlying work R&D. If a business uses an AI coding assistant to build a conventional customer portal, for example, the project does not qualify merely because AI generated some of the code. The development activity must independently satisfy the R&D requirements. This distinction is important when preparing a tax credit claim. The relevant question is not how the development team used AI. It is what scientific or technological uncertainty the team was seeking to resolve. Example: an AI-enabled equipment-monitoring system Consider a business developing a platform that monitors specialist industrial equipment. The system receives data from sensors operating under variable environmental conditions and is intended to identify emerging faults before the equipment fails. The business incorporates a third-party AI model but also develops its own analytical layer to interpret incomplete sensor data, distinguish genuine warning signs from background variation and decide when an alert should be escalated for human review. It is not known whether the AI model and the analytical layer can be combined to achieve the required accuracy without producing an unacceptable number of false alerts. Established methods do not provide the answer, so the development team designs and tests different technical approaches against defined performance measures. That experimental work may qualify as R&D. However, the whole platform would not necessarily qualify. Standard dashboard development, customer account functions, routine reporting, deployment and ongoing monitoring may fall outside the eligible core activity. Review eligibility before claiming the credit AI development can involve genuine R&D, including where a business builds its own technology or undertakes experimental work to integrate an external model into a new product. However, neither the use of AI nor the novelty of the finished product determines tax-credit eligibility. Before including expenditure in an RDTI or RDTLC claim, the business should establish: which activities may satisfy the relevant R&D definition; where those activities begin and end; which expenditure is eligible under the applicable regime; and what approvals, returns and supporting evidence are required. Need help with an R&D tax claim? If your business is developing an AI-enabled product and you would like to understand whether any of the work may qualify, contact us to discuss your R&D activities and the requirements of the RDTI or RDTLC regime. Disclaimer: This article provides general information only and does not constitute tax advice. The RDTI and RDTLC rules are detailed, and their application depends on the particular claimant, activities, expenditure, contractual arrangements and supporting evidence. The examples are illustrative and do not confirm that any specific project or cost is eligible. Businesses should obtain advice based on their own circumstances before making a claim.