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Australia’s Agribusiness sector has experienced considerable challenges in recent years due to global supply chain disruptions, workforce recruitment and retention challenges, unpredictable weather conditions, and the increasing importance of biosecurity.
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Companies have also had to adjust product lines to address the shift in consumer preferences for sustainable and healthier product alternatives across the Food & Beverage sector.
Additionally, agribusinesses are required to reduce emissions in line with the Agriculture and Land plan set out by the Department of Agriculture, Fisheries and Foresty to support Australia’s net zero greenhouse gas emissions target by 2050.
The above factors, in combination with the transition to technology-driven farming methods, present an opportunity and need for companies in the Agribusiness sector to conduct product and process innovation.
To facilitate continued innovation, the Federal Government’s Research and Development Tax Incentive (RDTI) supports companies to undertake research and development (R&D) activities that meet the eligibility criteria.
RDTI Benefits
The RDTI has been in place for several years and can provide vital funding to support innovation and R&D by corporates. It has a clear eligibility criteria and it does not apply to all entities so it is important that you work through whether you can access the program. It has different levels of support depending on a company’s aggregated turnover (grouping rules apply).
Where turnover is less than $20m, the R&D tax offset is refundable and equal to the company’s corporate tax rate plus an 18.5 per cent premium on eligible expenditure. In some instances, this may result in a cash refund from the ATO.
Where turnover is greater than $20m, the offset is non-refundable and can be carried forward to offset future income tax obligations. The offset rate is equal to the company’s corporate tax rate plus 8.5 per cent or 16.5 per cent depending on the R&D intensity (spend) for the income year. The higher rate is available to companies that achieve a R&D intensity of greater than 2 per cent of their total expenses.
Given these benefits, the RDTI can be used to support and foster a business’ investment in product and process innovation. However, there are several specific eligibility considerations that companies in the Agribusiness sector should consider in assessing potential R&D activities.
Key R&D eligibility considerations for the Agribusiness sector – What you should consider before making a claim
From our experience in the Agribusiness sector, the regulators have provided some good guidance that you should consider before claiming the RDTI to help you determine whether you can access the support available under the program:
First, you need to ensure your activities are not general BAU activities and meet the definition requirements. Activities undertaken to improve productivity or sustainability in Agribusiness are not necessarily undertaken for a significant purpose of generating new knowledge and therefore, may not be eligible for the RDTI, as raised by Taxpayer Alert 2017/4. This may be because:
The activities are for operational purposes and therefore, the activities may be conducted for the purpose of production rather than generating new knowledge.
The outcome of the activities is well known in the Agribusiness sector.
Taxpayer Alert 2017/4 flags that activities claimed through the RDTI must follow a systematic progression of experimental work. Key considerations when determining whether experimental activities satisfy this requirement are as follows:
An experiment in a farming context must be hypothesis-driven.
It is important to clearly define the scale of the trial to distinguish the systematic progression of work from ordinary farming activities.
Trials must identify and control as many variables as possible to order to isolate and evaluate each of the interventions against a control plot and be documented.
Scientifically valid results will only be obtained from a well-designed experiment with sufficient trial plots that will provide statistically valid measurements.
All of these stages must be documented as evidence is always needed to support your claim and could be called upon in the event of a review by either regulator.
Activities claimed through the RDTI cannot rely on existing knowledge and expertise to obtain its outcomes, as noted by Taxpayer Alert 2017/4. It is generally not sufficient for a company claiming a core R&D activity to rely on new knowledge propositions such as:
An established product or practice has not been used before at a particular location or on a particular crop.
A combination of established products or practices has not been used before at a particular location or on a particular crop.
A particular focus area of the program announced in Taxpayer Alert 2015/3 is broadacre farming, which has been linked to the new knowledge, experimental, and established product/practice considerations noted above. This could be in relation to the use of soil improvers, including fertilisers, microbes, and other treatments.
Taxpayer Alert 2015/3 notes that if activities are being carried out across a whole farm (e.g. application of soil improvers), it is unlikely that the activity is being conducted for the significant purpose of generating new knowledge. Rather, it is more likely that a known technique or product is being used for a commercial purpose. This is broadly due to the following:
There was sufficient confidence to apply the activities to the entire farm and therefore, the activities do not risk the production of the whole farm.
The size of the land used in the trials was excessive in comparison to that which would be reasonably necessary to conduct an experiment to generate new knowledge.
The reasons for applying the activities to the entire farm were for efficiency and cost reasons, rather than being scientifically necessary to generate new knowledge.
Importance of good governance
In addition to the above common misconceptions, we often encounter companies that have claimed R&D in the past without having robust R&D governance documentation. This is key to showing that you have an effective and strong tax risk management and governance framework. The ATO has shown in their recent review activity that appropriate Tax Governance is a high priority, and any tax incentives claimed need to be considered as part of these governance processes.
Setting up the right governance and documentation processes from the outset will ensure a strong position in the event of an ATO or AusIndustry review.
As we have highlighted there is support available to undertake R&D activities in the agribusiness sector if you meet the criteria which is detailed and comprehensive. If you need assistance to navigate the RDTI our national specialist team can assist you in identifying your eligible R&D activities.
Learn more about how our Innovation Incentives services can help you
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