It’s time for a food safety tax credit

Andrew Raphael is director of food and agricultural manufacturing with MNP

Farmers are often advised to add value to the livestock and crops they raise and that can mean looking at value-added food processing.

While it can be a profitable strategic move, there are a host of issues that must be considered when you begin producing prepared foods and, as we’ve seen with XL Foods, food safety is one of the most critical.

But with all the costs related to small-scale food processing, investing in food safety can be a challenge, particularly when the money could be used to adhere to new changes in federal packaging regulations, improve efficiencies, strengthen sales margins and increase market share.

Food safety should always be a priority; it’s the right thing to do. However, the reality is that consumers are often not aware of this investment and therefore it’s not always top of mind for food processors that may have many competing challenges requiring investment of scarce resources.

Under the Canadian Integrated Food Safety Initiative, the federal government has established programs to help national organizations. However, these programs do not directly help processors purchase the equipment they need, train staff or get certified against customer requirements.

Provincial programs vary greatly across the country in terms of scope and eligibility criteria. They are also administratively cumbersome for small businesses and offer minimal assistance.

Government and businesses need to work more closely to enact practical food safety regulatory oversight matched by industry investment in the infrastructure, equipment and technology required to meet the rising expectations of customers, regulators and consumers.

Implementing a time-limited federal food safety tax credit would provide a simple, uniform, national financial incentive for food processors of all sizes, in all commodity sectors and in all regions.


How would a Food Safety Tax Credit work?

Adopting the best aspects of the current Scientific Research and Experimental Development tax credit, (SR&ED) a food safety tax credit would allow eligible companies to earn a credit of 35 percent on the first $3 million of qualified expenditures for food safety investments, and 20 percent on any excess amount.

A food processor with a taxable income in the immediately preceding year that does not exceed the business limit ($500,000 in taxable income) would receive a portion of the Investment Tax Credits (ITCs) earned as a refund, after applying these tax credits against taxes payable. As with SR&ED, unused tax credits could be carried back for three years and forward for up to 20 years.

ITCs are an effective way to influence the economic choices of businesses and individuals in support of government policy objectives. This type of credit reduces the cost of investments without constraining the choice of technologies or services. It also applies regardless of which jurisdiction has regulatory responsibility for the plant, and doesn’t have the limiting and bureaucratic features of grant programs.

The cost in foregone taxes is difficult to determine because the program will be demand driven. However, using the costs of the SR&ED program as a guide, the 2004 government data shows that 19,600 corporations took advantage of SR&ED tax credits at a total cost of $3.4 billion. This suggests an average cost of about $170,000 for each participating firm. Based on this, if 2,000 firms took advantage of the program — and received 50 percent of the average SR&ED benefit — the annual cost would be about $170 million.

This proposed Food Safety Initiative could also help reduce government expenditures in health care costs associated with food-borne illnesses while assisting the Canadian Food Inspection Agency to streamline its operations.


It’s time for a Food Safety Tax Credit

Inspection will succeed only if matched by more investment by industry to prevent problems rather than react to them after the fact.

Canadian food processors of all sizes are under enormous financial pressure, urgently trying to comply with government regulations and to reduce operating costs to survive in the short-term while modernizing and scaling up operations to grow over the long term.

At this time, a food safety tax credit would provide a simple, uniform incentive to help them keep food safety a high priority as critical business decisions are made.

Trust is like a mirror. Once it’s broken you can never look at it the same again.

A food safety tax credit would help reinforce the sacred trust between the Canadian agri-food chain and consumers — a trust that processors need to think about every day.

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