Producers often look for innovative ways to achieve better results. Fortunately, with technological advancements and the innovative spirit, there are many improvements that can be made to your operations that could not only benefit your operations, but could also make you eligible for tax credits.
As innovation and advancement can be costly, which may be a deterrent, the provincial and federal governments have created programs to assist producers. One of these programs is the Scientific Research and Experimental Development Program (SR&ED), where you could get tax credits for projects that help move the industry forward.
SR&ED is a tax incentive program that encourages farmers to be proactive in improving their operational processes through research and development. You are likely not aware of the number of activities you have undertaken that could be eligible.
It could be something as simple as finding ways to improve your yields, or improving your storage system to reduce spoilage. It could be making alterations to your equipment that will allow it to be more efficient, or innovations you use to reduce pollution or lessen the environmental impact on the land.
Engaging in SR&ED can double the benefit of your expenses. First off, your SR&ED expenditures are deducted from your farm’s income for tax purposes. This will reduce the overall taxes payable. SR&ED then creates an additional benefit as the eligible expenses become a tax credit that reduce your taxes owing.
The federal tax credit is up to 35 percent of project costs for your farming corporation. The provincial tax credit rate for Alberta and Saskatchewan is 10 percent, while Manitoba’s is 15 percent.
There is detailed criteria on what can and cannot be claimed as an eligible SR&ED expense. The general rule is that the expenses must be incurred in the tax year in question and be directly related to the development, construction and application of the innovation. Some examples of eligible expenses are salaries and wages, overhead costs, interest on borrowed money, and materials consumed.
For your claim to be eligible, it must be filed within 12 months from your income tax return due date. The process to support your claim will require supporting information that could take time to acquire.
The best approach is to keep track of this information and relevant supporting documents throughout the year. This supporting information is critical to your claim as many SR&ED claims are denied because of insufficient documentation or misclassified expenses.
If you have any questions regarding your project’s qualifications, application or supporting documentation, contact your adviser.