As agriculture becomes increasingly competitive, farmers are under pressure to be more innovative in the way they conduct business.
Through tax credits, the federal government’s Scientific Research and Experimental Development (SR&ED) program rewards Canadian businesses that are forward thinking in their everyday businesses activities, and who develop new or improved technologically advanced products or processes through systematic experimentation.
Many farmers already take part in what could be considered qualifying research and development activities, including breeding, nutrition and feed projects, custom equipment development, energy research and general innovations.
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In order to obtain the tax benefits from this research and development, however, you must make a claim.
The main question when applying the SR&ED rules is determining whether a specific activity qualifies as scientific research or experimental development. You could be eligible for a tax credit if you are developing a new product or process, if you are improving an existing product or process, or if you are developing improvements that will lessen the environmental impact of your agricultural operation, such as reducing pollution or waste.
To better illustrate just how SR&ED tax credits may play a part in your farm, the following examples are drawn from actual Canadian farms which we are currently helping to obtain credits.
Example 1: Plant and livestock breeding Breeding to improve traits and characteristics of plants and livestock and their end products may qualify for SR&ED credits.
Farmers are keenly aware that ongoing genetic research and development is essential in order to improve yields and performance without compromising quality. They also know that when the goal is to enable the production of a superior product at the lowest
possible per-unit production cost, genetics are likely to be at least part of the answer.
However, genetic development takes effort and commitment, including testing together with detailed tracking and analysis of the environment and genetic performance.
Eligible costs through the SR&ED program would include the time taken to conduct the experiments, record data, analyze it and determine the next course of action.
Because genetic development is a dynamic, ongoing process, it is typical that this research and the resulting credits take place over long time frames.
Example 2: Farm production
You may be eligible for tax credits through your SR&ED work if you are trying to develop:
Environmentally friendly alternative pest control management regimes, and testing their efficacy instead of using environmentally hazardous chemicals and pesticides; or
Alternative growing regimes and protocols to manipulate crops or significantly shorten their growth period (i. e. quicker to mature and be ready for market) without affecting the quality of the plants
In greenhouse operations, you may also qualify if you are developing optimal growing regimes and protocols to manipulate the growth of plants that naturally grow in southern or tropical conditions to grow and acclimatize in our Northern climate.
Example 3: Equipment modifications One example of this would be retrofitting an existing piece of equipment to use for a different function than it was originally intended for. For instance, if you had a combine that was built for harvesting mature crops and you redesigned it so it could harvest the crops at an earlier stage, you may qualify for SR&ED credits for the work.
Example 4: Environmental farming practices
If your farming operation has been investigating how to improve its environmental profile, you might also be eligible for SR&ED credits.
For example, you may qualify it you are looking into decreasing the amount of methane produced by your farm. Research and development costs associated with biodigesters, for instance, may qualify because they combine environmental responsibility with the creation of the byproduct, biogas, which then produces future savings opportunities by replacing natural gas or propane.
Another SR&ED-qualifying activity may include the use of wind turbines on the farm. These convert the kinetic energy in wind into mechanical energy, which can be used to power your farm or be sold back into the power grid.
While you may incur a significant cost in the beginning, the SR&ED credits coupled with power or gas savings over time will ultimately pay for themselves.
Checkoffs
Because of the specific legislative provisions governing the program, farmers haven’t been able to claim tax credits for the portion of their checkoffs that their organizations spend to fund research and development that would otherwise qualify for SR&ED support.
That has changed. Now, the Canada Revenue Agency has set up a process within the current legislative framework so that farmers may access credits earned through contributions made to agricultural organizations that fund SR&ED.
These third party payments must be made to approved associations of which farmers are members, where the associations act as agents for the producers in matters relating to SR&ED. In effect, all SRED transactions by agricultural organizations will constitute a transaction made by producers. Contributions will then be considered as a payment directly from the producers to the actual performers of the SRED. CG
