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

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 of information or the discovery of knowledge that advances the understanding of scientific relations or technology. This definition encompasses the definition of scientific advancement, advancement of scientific knowledge and technological advancement. The only difference is that scientific advancement and advancement of scientific knowledge relate to science whereas technological advancement relates to 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 not known or determined on the basis of generally available scientific or technological knowledge or experience. This definition encompasses the definition of scientific uncertainty, technological uncertainty and technological obstacle. The only difference is that scientific uncertainty relates to science whereas technological uncertainty and technological obstacle relate to technology.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 a 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 Eligibility of Work for SR&ED Investment Tax Credits Policy:

  1. Was there a scientific or a technological uncertainty?
  2. Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty?
  3. Was the overall approach adopted consistent with a systematic investigation or search, including formulating and testing the hypotheses by means of experiment or analysis?
  4. Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement?
  5. Was a record of the hypotheses tested and the results kept as the work progressed?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.

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      Show 6 footnotes

      1. Canada Revenue Agency. (December 14, 2020.) T4088 – Scientific Research and Experimental Development (SR&ED) Expenditures Claim – Guide to Form T661. Retrieved December 23, 2020 from https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4088/guide-form-t661-scientific-research-experimental-development-expenditures-claim-guide-form-t661.html.
      2. Canada Revenue Agency. “SR&ED Glossary.” July 15, 2015. Retrieved December 23, 2020 from https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/glossary.html#dvncmnt.
      3. Canada Revenue Agency. “SR&ED Glossary.” July 15, 2015. Retrieved December 23, 2020 from https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/glossary.html#ncrtnty.
      4. Canada Revenue Agency. (December 14, 2020.) T4088 – Scientific Research and Experimental Development (SR&ED) Expenditures Claim – Guide to Form T661. Retrieved December 23, 2020 from https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4088/guide-form-t661-scientific-research-experimental-development-expenditures-claim-guide-form-t661.html.
      5. Canada Revenue Agency. (2015, April 24). Eligibility of Work for SR&ED Investment Tax Credits Policy. https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/eligibility-work-investment-tax-credits.html
      6. Feedlot Health Management Services Ltd. v. The Queen, 2015 TCC 32 (CanLII). (2015). https://www.canlii.org/en/ca/tcc/doc/2015/2015tcc32/2015tcc32.html

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