SR&ED Tax Incentive for Farmers

SR&ED Tax Incentive for Farmers

June 5, 2024
Field crop

Farming can be a passion project. To be a farmer, there are years when you have to do it because you love the lifestyle. After all, as a famer, there can be some very lean years. Recently in BC, many farmers have been experiencing just that. Between forest fires, flash freezes, crop losses, and the reality of climate change, many within the industry are looking for funds that will help them ride the rough years. SR&ED is a program designed to help farmers do exactly that.

What is It?

Scientific Research and Experimental Development (SR&ED) is a federal tax incentive plan that is available to science and technology industries – including agriculture. The Canadian Federal Government offers SR&ED tax incentives so that businesses will involve themselves in research and development within Canada.

SR&ED is designed to provide funding for experimental development. The funds are earmarked for these types of situations, but on average less than 2% of eligible farms put in a SR&ED claim. This is because while the government has built the program, they do not advertise it. 

SR&ED is definitely worth learning about and where applicable, applying for. For one thing, with SR&ED, you receive real cash refunds – even if your farm is not profitable. As well, the average payout with SR&ED is $25,000 - $100,000. Some larger enterprises have even received as much as $500,000. 

Who/What is Eligible?

This rebate is for Scientific Research and Experimental Development (SR&ED). 

Agriculture is a science – everything from botany, soil science, and even animal husbandry. Farming operators are always innovating simply to survive, so you can pretty much guarantee that if you think about what you have been doing on your farm, some of it will fit inside the experimental banner. The key is to consider the difference between routine work and non-routine work. 

To be eligible, your farm must be incorporated and not be a sole proprietorship. Professional SR&ED specialists can assist you with the process of becoming incorporated.

What does Scientific and Technological Research Look like?

The first thing to know is this can be informal research. This means that the research qualifying your farm for SR&ED tax incentives can be:

  • Done in the field rather than a lab.
  • Doesn’t have to be profitable.
  • Involves a scientific or technological uncertainty onsite at your farm.
  • Is intended to explore scientific or technological advancements.
  • It is about the advancement of knowledge. Ask yourself, is there a void of knowledge on this topic? Is there technological uncertainty? 
  • Examples: New varieties of strawberries. Studying alternative pesticides. How to make more trees grow in a given area. Greenhouse climate control.

The research conducted must be done as systematic investigations. Your findings don’t have to be published, but you do need to treat your project like an experiment. This means, you must have a process for tracking any knowledge that has been gained. You must be able to articulate what you have learned.

How is SR&ED different than a grant, and can you claim both?

  • SR&ED is not a grant.
  • Grants are proactive. You come up with an idea and then pursue the funding.
  • SR&ED is retroactive. You did the project already and are looking to be reimbursed.

Grants are: 

  • Discretionary
  • They come and go.
  • Criteria changes.
  • There are budget limits.
  • There is no appeal process.

SR&ED is:

  • Entitlement Program (it’s in the tax law).
  • Stable program.
  • Fixed criteria
  • No budget limit.
  • There is an appeals process.

A misconception is that SR&ED leads to audits, but SR&ED is a separate tax division from CRA, so it does not prompt audits. 

You can apply for SR&ED even if you have partially qualified for a grant or have third party contributions. You just can’t duplicate the contributions. They are cascaded and distributed. In addition, you can also qualify for the Provincial Tax credit. In BC, this is an extra 10 percent, although it varies by province.

Qualifying Expenditures:

The items on this list qualify for SR&ED funding:

  • Labour costs
  • Wages
  • Subcontractors
  • Materials
  • Overhead
  • Lost crops (as a result of experimentation).

The payouts are embedded into the Income Tax Act. The calculations are not subjective. For example, you get more for wages than for contractors, as they consider that there is a level of profit inside contractor wages. 

When and How do I Apply?

Claims can go back 18 months retroactively. (There is an 18-month deadline to apply). 

This means, to apply now (May of 2024), you can claim as far back as November 2022. You can file anytime within those 18 months.

If December 31 was year-end, the deadline to apply this year is June 30, 2024.

When preparing to apply:

  • Think about knowledge gaps. Be able to articulate what you wanted to do at your farm and that there was no clear existing knowledge prior to your experiment, and also be prepared to explain what the outcome was and what you learned. Farmers are not expected to keep records like scientists would, but you will need to supply some general information.
  • Fail forward. If your idea fails, you have a higher chance of qualifying for SR&ED than if it succeeds. In fact, you must show that there is a chance of failure. 
  • You must show there is an advancement of knowledge. This knowledge can be distributed (published) or can simply be used yourself for your own farm. This is true even if the knowledge involves a failed experiment. 

SR&ED Consultants

There are organizations that specialize in SR&ED consulting. It is highly recommended that if you are applying for SR&ED you use a professional, as the application can be quite complex. Some of these groups will not require payment up front but will take a percentage of your claim once it is disbursed. If you don’t get paid, neither do they. As well, if you do find yourself audited, consultants can help you through that process. If errors have been made, they know the best ways to approach auditors. 

You can find a SR&ED consultant through a basic Google search, although word of mouth from other farmers might be a stronger way to choose a representative. Consultants should be able to provide you with reviews and recommendations, so do ask for both before you choose a company. You want to find a reputable company with reasonable rates and a turnaround time that works for your farm. 

If you do choose to apply on your own, you will fill out form T661. Be sure to mention SR&ED to your tax accountant, too, and do not assume that your accountant will make a claim automatically on your behalf.