Money to Be Had – forgotten government tax programs

There has been a push in the industry for new technology to help improve the well-being of our environment, our crops, and our livestock. The development of these projects can be costly and that may have you wondering “what’s in it for me?”

The Provincial and Federal Government recognize that without an incentive, the Ag industry will remain static. Through the Scientific Research and Experimental Development Program (“SR&ED”), you may be able to get money back or tax credits for projects that could help move the industry forward.

What is SR&ED?

SR&ED is a tax incentive program that encourages farmers and ranchers to improve their meat and dairy production, supplements, and operational processes.

Typically, producers come up with innovative ways to create more output from less input.  We are motivated to pay for these costs just to improve our own operation, but do you realize the impact you’re having on the industry?  

You are likely not even aware of the number of activities you have undertaken that could be eligible for tax incentives. As a result, much of your potential for tax savings remains untapped.

Government grants and tax credits come with the reputation of being complicated application forms that require many man hours to produce little monetary result. Ranchers are often so overwhelmed with the process, they are discouraged to even consider the benefits of the program.

So how do you make the application process easier and increase your success rate? Making sure you qualify for the credit is a great place to start.

Depending on your operation, the rates used to determine the benefit will vary. Generally, any ranch can qualify for SR&ED, including Canadian, foreign, and non-incorporated businesses. This includes poultry producers, dairy and egg producers, meat processing operations, dry and irrigated land, and feedlots.

Knowing what types of activities are applicable will help identify what you are doing in your operations that qualify for SR&ED. We have found eligible tax incentives for producers who improve their yields and/or storage, make alterations to existing equipment, pollution reduction, and waste reduction.

Knowing the nature of your expenditures will help you identify eligible expenses, as not all expenses can be claimed for SR&ED.

Eligible expenditures related to the project may include salaries and wages, including benefits, sick pay, bonuses, holiday pay, and commissions.

Materials that are consumed in the process of carrying out the project is another commonly claimed expenditure.  However, you need to make sure you don’t include items that are capital in nature, such as new equipment, as a materials expense.

Overhead costs, such as internet, telephone, utilities, waste disposal, and interest costs on borrowed money may also be able to be claimed.

The key takeaway here is that an expenditure must be directly related to the development and construction of the project.

Expenditures would have to be incurred in the year of the claim. If the claim is for your December 31, 2018 year end, these expenditures need to be incurred between January 1, 2018 and December 31, 2018.

Keep in mind, if you make an attempt to create something, and it is not successful, you can still qualify for the SR&ED program. There is no requirement for the project to actually work.

How does this save me money?

SR&ED actually doubles the benefit of your expenses. Your SR&ED expenditures are first deducted directly from your ranch’s income for tax purposes. Then the eligible expenses creates a tax credit that directly reduces your ranch’s taxes.

The Federal Government gives Canadian Controlled Private Corporations (“CCPC”) a tax credit of up to 35% of the project costs.  This amount is 15% on non-incorporated and foreign operations.

In Alberta, the maximum credit to be claimed is 55%.

What’s the deadline?

Filing your claim should be done within 12 months from your income tax returns due date. The process to support your claim and provide sufficient information can take a while. We recommend that you be proactive with your expenses and summarize the project costs when you get your information into your accountant.

So how do I apply?

If you think that you could benefit from this, talk to your trusted advisor.  The SR&ED process is very complex and it’s important that you seek professional assistance prior to completing and submitting your claim.

Supporting your claim

It is important that you have an understanding for the support needed. Most SR&ED claims are denied because of insufficient documentation and misclassification of expenses.

Some documents that may be relevant to your claim are drawings, charting, and scheduling of resources; documenting specified dates and times for trial runs of your project; photos and videos; prototypes; contracts with developers and contractors who have worked on your project; invoices; and accounting records.

Government funding

Because the SR&ED program does not cover all of the expenses related to projects or activities, consider identifying other funding programs in the form of grants, repayable contributions, and non-repayable contributions.

The Federal and Provincial governments have rolled out programs that are specifically focused on the Canadian Agriculture Industry, such as those under the Canadian Agricultural Partnership or the Capital Investment Tax Credit for example.

   

If you have any questions regarding your project’s qualifications, application, or supporting documents needed, it’s important that you contact your advisor to help increase your chance of success.

Ebony Verbonac is a Chartered Professional Accountant and Partner in KPMG’s tax practice in Lethbridge, Alberta. She can be reached at (403) 380-5700 or by email at everbonac@kpmg.ca. She would like to thank Rebecca Sanford and Craig Lyon of KPMG for their assistance with writing this article.