Little Known Sectors that Qualify for SR&ED Part One: Agriculture

June 8, 2021 SRED

Updated to Reflect New Policies (2022)

* Some of the policies referenced were updated 2021-08-13. This article has been updated and is accurate as of 2022. *

Uncovering the little-known sectors, like agriculture, that qualify for SR&ED.

When most people think of the Scientific Research & Experimental Development (SR&ED) tax credit, their minds may turn to technology companies developing groundbreaking products or individuals working on scientific breakthroughs in lab coats. However, SR&ED is not just limited to the technological industry.

Little known SR&ED sectors: Agriculture

Agriculture may not strike you as a typical SR&ED activity. However, SR&ED is not just limited to one specific industry. According to Appendix 1 of the Guide to Form T661, the following industries can apply for the SR&ED tax credit:

Natural and formal sciences, including physical and chemical sciences.

Engineering and technology, including civil engineering and mechanical engineering.

Medical and health sciences, including basic medicine and clinical medicine.

Agricultural sciences, including animal and dairy science, and biotechnology.¹

Please do not be fooled into thinking you are ineligible for an SR&ED tax credit. Firstly, any business of any size can qualify. Also, SR&ED does not strictly require laboratory research. SR&ED requires advancement in the knowledge base or overcoming technological uncertainty in some way.

The Canada Revenue Agency’s SR&ED Glossary defines “advancement” as:

Scientific or technological advancement is the generation or discovery of knowledge that advances the understanding of science or technology. ²

The glossary also defines “uncertainty” as:

Scientific or technological uncertainty means whether a given result or objective can be achieved, or how to achieve it, is unknown or uncertain due to an insufficiency of scientific or technological knowledge.³

Fields of Science or Technology for Agriculture in the T4088

Some codes related to agriculture and agri-foods are as follows:

Other engineering and technologies

2.11.01 – Food and beverages

Agriculture, forestry, and fisheries

4.01.01 – Agriculture

4.01.02 – Forestry

4.01.03 – Fisheries and aquaculture

4.01.04 – Soil science

4.01.05 – Horticulture

4.01.06 – Viticulture

4.01.07 – Agronomy

4.01.08 – Plant breeding and plant protection (agricultural biotechnology under 4.04.01)

Animal and dairy science

4.02.01 – Animal and dairy science

4.02.02 – Animal husbandry (animal biotechnology under 4.04.01)

Veterinary science

4.03.01 – Veterinary science (all)

Agricultural biotechnology

4.04.01 – Agricultural biotechnology and food biotechnology

4.04.02 – Genetically modified (GM) organism technology and livestock cloning

4.04.03 – Diagnostics (DNA chips and biosensing devices)

4.04.04 – Biomass feedstock production technologies

4.04.05 – Biopharming

Other agricultural sciences

4.05.01 – Other agricultural sciences.⁴

More codes can be found in the appendix for the T4088 Scientific Research and Experimental Development (SR&ED) Expenditures Claim – Guide to Form T661. You will need to select the field of science or technology that best describes the primary field in which the SR&ED project was attempting to overcome uncertainty and insert this code into line 206 of the T661 form. The project qualifying for a tax credit may be in a different field of science or technology than your company’s typical business.

How Agriculture and Agri-Foods can Qualify for an SR&ED Tax Credit?

Most farming operations are fairly standard and would not qualify for the SR&ED tax credit. However, the solutions or processes may not be immediately apparent in some cases, making those activities eligible. Some examples of such activities are listed below:

A new cattle breeding process.
A new way of increasing the yield of food.
A new way to store food.
Development of new or customized farm equipment.
Making modifications to pest control measures.
Reducing pollution and waste.
Trials to improve livestock health.
Trials based around livestock feed.

As long as there is new information / new knowledge in a field of science or technology, by means of experiment and/or analysis, it does not matter if the project was a success – you have addressed an uncertainty.

Also, if you are a farmer and contribute to organizations that fund research and development in agriculture, you may be eligible for an SR&ED Investment Tax Credit. Sectors that have qualified in the past have included those related to the production of wheat, barley, and canola. If you would like to learn more please see our page on SR&ED and Agriculture: Hidden Tax Credits from Levys and Check-offs!

How can I qualify?

Who can qualify? A wide range of agriculture and agri-food industries, such as (but not limited to):

Seafood producers.
Poultry producers.
Dairy and egg producers.
Fruit producers.
Meat processing and slaughtering operations.
Wineries and hops farms.
Pet and animal food manufacturers.

A number of activities in those sectors may qualify for the SR&ED tax incentive by:

Meeting consumer needs, such as developing gluten-free food.
Improving the nutritional profile of a product, such as fortifying a food or beverage with vitamins and minerals.
Increasing preservation and flavour, such as increasing the shelf life of food products.
Improving packaging or production by altering manufacturing processes or machinery.

Just be sure that, in making your claim, you consider the following eligibility criteria established in the Guidelines on the eligibility of work for scientific research and experimental development (SR&ED) tax incentives:

The “Why” requirement

Work must be conducted for the advancement of scientific knowledge or for the purpose of achieving technological advancement (contained in paragraphs (a) to (c) of the definition). The key to both is the generation or discovery of knowledge that advances the understanding of science or technology.

The “How” requirement

Work must be a systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis (contained in the beginning of the definition).⁵

A court case to consider…

The Tax Court of Canada has settled disputes over what constitutes a successful SR&ED claim in the agriculture and agri-food sector. For instance, in Feedlot Health Management Services Ltd. v. The Queen (2015), the judge allowed the costs associated with using cattle owned by a third party in research projects as SR&ED eligible expenses.⁶

As you can see, you may be surprised by what constitutes qualification for SR&ED tax credits. As long as you can prove that the expense is related to SR&ED, you should be able to qualify for SR&ED.

Conclusion

While many agriculture and agri-food businesses do not claim SR&ED tax credits, there are a lot of activities that are eligible for SR&ED. You do not have to be a big, multi-national business to claim them, either. Also, it is not necessary for your experimentation and development to be a perfect success. If you advanced the current knowledge base and have the proper documentation proving your work, you have the right ingredients for an SR&ED tax credit claim. Additionally, we have an entire page devoted to agriculture levies and check-offs SR&ED and Agriculture: Hidden Tax Credits from Levy and Check-Off.