Tax Incentives for Primary Producers (R&D)
R&D Tax Incentive for primary production in Australia.
Aussie farmers have been at the forefront of developing new, innovative farming techniques and technology that enable more efficient production. The Government provides access to the Research and Development Tax Incentive for the companies that undertake these types of activities.
Can I claim the R&D Tax Incentive for farming activities?
Yes. There are several things you need to consider. In a nutshell, the outcome of your experiment cannot be known. The only way to find out if your plan is going to work is by running trials. For example, you think by cross breeding seed A with seed D the resulting hybrid will grow faster and require less water. You don’t know with certainty until you run the experiment.
Can your problem be solved with information in the public domain? For example, if you search the internet and find a solution that solves your problem, then it’s unlikely you have a claim. If, on the other hand, you could not solve your problem from publicly available information, then you may have a claim. Here are some examples of eligible activities.
Attempting to formulate and grow a new type of fruit or vegetable
Developing new Breeds of livestock
Testing new watering or feeding methods that you have hypothesised (this does not include the adoption of an existing farming method)
Engineering new/customised equipment to increase efficiency
Application of an existing product in a new way
Development and trial of AgriTech products and services (software and/or hardware).
We recommend you speak to your industry regulator to understand the current state of the art and what current technologies are in the marketplace.
What are ineligible R&D activities (primary production)?
an established product or practice has not been used before at a particular location or crop
the nutrient composition of the soil at a particular site is unknown
it was cost effective to apply an experimental treatment to the whole farm (or orchard, plantation, vineyard, etc) while testing it on an experimental plot.
Just because an activity is new to a location does not mean that the activity is necessarily experimental within the meaning of the R&D Tax Incentive legislation.
What expenses can be claimed (primary production)?
Eligible expenses may include:
Water usage
Land lease
Depreciation of machinery
Input materials (herbicides, pesticides, fertilizers, insecticides, etc.)
Labour (irrigating, planting, pruning, picking, feeding, general management, and more)
RDTI (R&D Tax Incentive) Jargon
There’s Jargon specific to the RDTI that you will need to familiarise yourself with. These are:
Core activity. This is your experimental activity. For example, the process of cross breeding two seeds to create the Hybrid.
Supporting activities. Activities that are required to conduct the experiment. For example, ploughing planting, feeding, watering, and crop management.
How the R&DTI refund is calculated
Example #1: A base rate entity (25% tax rate) with a $700,000 loss and $500,000 R&D Expenditure
Accounting profit / (loss) $(700,000)
Add back R&D expense $500,000
Taxable income / (loss) $(200,000)
Tax on taxable income $0
Refundable Tax offset $217,500
Tax Payable/(Refundable) $(217,500)
If No R&D, Tax Payable $0
Immediate benefit $217,500
Benefit (%) 43.5%
In example #1, without claiming RDTI the company would carry forward a $700,000 loss. By claiming $500,000 of R&D expenditure, that company could receive $217,500 cash refund for the financial year and carry forward a $200,000 loss.
If you have a project you’d like to discuss, call Nick at International Technology Group (ITG) on 0429 885 227 for a free consultation.
