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R&D Tax Farming Claims: When you can Reap What you Sow

The recent publication of Specific Issue Guidance and a summarised R&D Finding by AusIndustry has placed renewed focus on concerns about invalid claims being made in the agriculture sector.

One matter that AusIndustry is particularly concerned about is what is referred to as ‘whole of farm’ claims. In short, this is where an experimental program to develop, say,  a new treatment for pest management is claimed with respect to an area of land well beyond what is necessary to scientifically validate the work and one which is lacking the appropriate controls to compare and validate experimental results.

In other words, the fact that an economic decision is made to apply an experimental treatment to a larger land area for cost and workload reasons than is necessary for the R&D is not enough to make the associated expenditure eligible. AusIndustry contends that the size of the land necessary will be determined by factors such as what is required to resolve the hypothesis and whether a significant purpose of new knowledge can be identified.

MJA agrees with this position. In fact, the new Specific Issue Guidance is a useful aid to assist taxpayers in correctly characterising eligible farming R&D claims.

However, we do have one reservation about the material produced by AusIndustry. As with the term ‘whole of mine’, we find the term ‘whole of farm’ completely misleading. When you examine the term closely, it really has no role to play in the assessment of R&D tax claims. The term, ‘farm’, can be applied at a number of levels – entire commercial agriculture operation, large separate field, stand-alone plot used for scientific purposes – so associating the entirety of a ‘farm’ with ineligible R&D tax claims is inappropriate.

As with the metaphoric piece of string, the size of the plot necessary for a claimed R&D project will be assessed against the words of the legislation. Assessing eligibility against some loose notion of a ‘whole of farm’ scenario will only cloud the issue in the minds of taxpayers, advisers and Auindustry assessors. Stick to the language of eligible and ineligible R&D and good claiming practices (and improved agricultural R&D outputs) will follow.

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