Using the R&D tax incentive

For many Australian farmers, innovation has always been part of the job. 

Whether experimenting with soil treatments or designing machinery that can handle the realities of rugged terrain, “tinkering” is part of farm life.

While the IT, biotech and life science industries have long leveraged the R&D Tax Incentive, Larissa Lai,  Partner, R&D Tax and Government Incentives at RSM, says agriculture has lagged behind.

But she has found awareness of the tax break surprisingly low in the agribusiness sector, particularly among family-owned businesses. 

The registration of R& D activities under the tax incentive program must be submitted within 10 months of the end of each financial year – once that window passes, so does the opportunity for an R&D tax offset or a refund.

“The R&D Tax Incentive benefits depend on the company’s size. For businesses with an aggregated turnover under $20m, a refundable tax offset of either 43.5 or 48.5% of eligible R&D expenditure is available, which is often paid in cash if the company is in sufficient tax losses. For larger companies, a non-refundable offset reduces tax payable, with the rate linked to the intensity of R&D activity within the business.

For cash-strapped family farms, this can be transformative. “They often think they can’t afford to innovate this year but once they understand the incentive, they realise they can fund those improvements now, not ‘some day’.”

 

One of the biggest misconceptions in agribusiness is that R&D only applies to lab-based science or brand-new inventions.

In fact, the definition is really broad,” Lai says. “You don’t have to be creating the next iPhone; you just need to be developing or testing a hypothesis in a systematic way where you’re generating new knowledge and the outcome isn’t known in advance.”
 

Eligibility for the R&D Tax Incentive is divided into two categories:

1. Core R&D activities – “You need a hypothesis or objective you’re testing through a series of experiments,” Lai says. “The results can’t be known in advance, and you must be generating new knowledge, maybe a new process, a new device, or a new way of doing something on-farm.”

2. Supporting R&D activities – These enable or directly assist the experimentation, such as project management, background research, or prototype fabrication.

“If you’re improving a process, developing equipment, or testing a new method, chances are, you’re already doing R&D – you just need to capture it,” Lai says.

Provided a business meets the criteria, registering for the incentive is relatively straightforward. Businesses register their R&D activities via the government portal, receive a registration number and then claim the offset in their annual tax return.

Because the program is self-assessed, those applicants who are eligible for the refundable R&D tax offset receive their benefit within four to six weeks of lodging their tax return.
 

 

 The biggest challenge for many farmers isn’t eligibility. It’s record keeping.

 “Ag businesses aren’t known for daily timesheets,” Lai says. “But keeping at least weekly or monthly records of who’s working on R&D projects, what they’ve done and how much time they spend is crucial.”