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R&D Tax Incentive For Farming

Investing in R&D is crucial to Australia’s agricultural future. The R&D Tax Incentive encourages companies to participate in experimental activities that may not have been undertaken otherwise.

The farming sector must innovate to tackle issues arising from fast-increasing global populations and the impact of climate change. Professor Kingwell from the University of Western Australia has stated that Australian farmers are well placed to benefit from growing markets in Asia and India, who will have increasingly higher demand for grain, meat and dairy.

Other challenges for Australian farmers include aging farm populations and declining productivity growth. Kingwell says that “we need a capacity to grow productivity through new technology. Unfortunately in Australia, public expenditure in agricultural R&D has slowed.”

R&D allows farmers to compete with lower cost nations by increasing productivity. It also helps protect the environment with developments such as genetic modifications that reduce herbicide usage.

Eligibility

Agricultural activities are assessed for the R&D Tax Incentive according to the same criteria as any other industry. To assess your eligibility, take our free eligibility wizard.

Eligible R&D can include companies developing new technology, experimenting with new products or developing more effective manufacturing processes. Essentially, they include time spent solving a problem where the outcome is unknown and that requires research, experimentation and evaluation.

Eligible activities do not include using products, techniques or technologies in the manner they are designed to be used. Furthermore, an activity is not eligible if it is an established practice that is simply new to a particular location.

In general, ‘whole-of-farm’ activities are not eligible for the R&D Tax Incentive as they are unlikely to be carried out in order to generate new knowledge. Technology applied to a whole farm is generally applied with confidence and without technical risk. If the reason for undertaking the activities is not because it was scientifically necessary for creating new knowledge, it is not eligible.

Core and Supporting Activities

Activities fall under two categories: core and supporting. A core activity involve systematic experimentation that attempts to solve a problem, for instance developing and testing new or improved irrigation systems. A problem statement called a hypothesis must be constructed for each core activity.

Supporting activities are directly related to the core R&D activity, for instance the application of fertilizer or harvesting of an experimental plot.

Record Keeping

Companies will need to clearly explain their R&D activities and provide evidence of experimentation and trials. Documentation of the activities must be kept, such as invoices, and must demonstrate that all eligibility requirements are met. They must show how the company assessed that the outcome of the activities could not be known in advance and also show how the experiments were undertaken. If there is no evidence, then the activity is ineligible.

The R&D Tax Incentive allows a company with turnover under $20 million to claim 43.5% of eligible R&D expenditure  and 38.5% for companies over $20 million. To claim, you must register your projects with AusIndustry. If you need guidance on claiming, please contact Swanson Reed R&D Tax Consultants for a free assessment.