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Disclaimer

The information provided in this guidance is general in nature and is intended to help you to self-assess the eligibility of your R&D activities. If the Department of Industry, Science and Resources undertakes a formal review, we will assess your activities against the legislative criteria set out in sections 355-25 and 355-30 of the Income Tax Assessment Act 1997. 

Common risk areas in the agrifood sector

When self-assessing your eligibility for the R&DTI, there are some common risk areas to be aware of if you are conducting agrifood-related activities.

Some agrifood activities incorporate software or artificial intelligence (AI). For information on software and AI-related activities, please refer to the software development sector guide.

Using a new ingredient to develop your product does not mean the activity meets the requirements of a core R&D activity. If the outcome is already known or can be determined in advance from existing information, then this is not an eligible core R&D activity.

You are expected to review the available product information file (PIF) from the ingredient manufacturer and consult relevant professionals, including external experts. If this information is enough to understand how to use the ingredient and its effects, the outcome of the activity will likely be known. This applies regardless of whether the PIF specifies a single value or a range of values for use (for example, 100–150g of an ingredient).

When claiming this type of activity as a core R&D activity, your application should explain why:

  • using a new ingredient creates a technical uncertainty
  • the technical uncertainty cannot be resolved using existing knowledge or experience
  • the only way to resolve the uncertainty is by conducting hypothesis-led experiments.

Developing a product or process that is not currently available does not mean the activity meets the requirements of a core R&D activity. More often, developing new products and processes uses existing knowledge or experience where the outcome can be reasonably predicted in advance.

When claiming this type of R&D activity, your application should explain:

  • the specific technical uncertainty in developing the product or process, and
  • why the only way to resolve the uncertainty is by conducting experimental activities.

Simply stating that the product is new will not meet the requirements of a core R&D activity.

Routine testing in the agrifood sector includes activities conducted to support production, check compliance or monitor quality. Routine testing does not meet the requirements of a core R&D activity because:

  • it does not aim to resolve a technical uncertainty
  • it does not involve conducting hypothesis-led experiments.

For example, shelf-life testing that involves monitoring a product under expected storage conditions and observing how its quality changes over time will not meet the requirements of a core R&D activity.

Other examples of routine testing in the agrifood sector include:

  • nutritional testing
  • contaminant testing
  • feed composition analysis
  • salinity and moisture content testing
  • pesticide residue testing.

Routine testing may be eligible for the R&DTI if it is part of a core R&D activity or meets the requirements of a supporting R&D activity.

Activities in the agrifood sector which generally do not meet the requirements of the program are outlined in the Australia Taxation Office’s taxpayer alerts: TA 2017/4 and TA 2015/3.

In the agrifood sector, activities often either produce or are directly related to producing goods or services. When assessing these as supporting R&D activities, you must consider whether the dominant purpose of conducting the activity is to support a core R&D activity rather than support production or a broader commercial goal.

For example, if you claim commissioning of food manufacturing equipment as a supporting R&D activity, your application must:

  • explain how it supports a core R&D activity, and
  • demonstrate that its dominant purpose is to support that activity.

Agrifood activity exclusions

Certain activities are not eligible to be registered as core R&D activities under the R&DTI program. Find a list and detailed explanation of excluded activities on the Excluded R&D activities under the R&DTI page.

The exclusions that commonly apply to the agrifood sector are:

  • market research, market testing or market development, or sales promotion (including consumer surveys)
  • management studies or efficiency surveys
  • reproducing a commercial product or process from examination of an existing system or information.

Activities excluded from being core R&D activities may still qualify as supporting R&D activities.

Record keeping for agrifood activities

You must keep records to demonstrate the eligibility of your activities and expenditure for the R&DTI. The Record keeping for the R&DTI page provides more information about recommended practices.

The following are examples of records that may demonstrate the eligibility of agrifood-specific R&D activities. Remember, it is the content contained in the records, rather than the format in which they are kept, that is important when demonstrating eligibility.

Eligibility requirement Example of records

Outcome that could not have been known or determined in advance

An unknown outcome generally occurs when a technical uncertainty exists that could not be solved using existing formulations, methods or processes. The records you keep should show:

  • the existence of a technical uncertainty, including details about the specific issue
  • the actions taken to overcome the technical uncertainty, including attempts that failed and why those actions were unsuccessful
  • the limitations of existing formulations, methods or processes, and why these could not resolve the technical uncertainty
  • the actions undertaken to identify and assess alternative solutions, including research, consultation, or preliminary testing
  • the proposed solution or approach, including the technical rationale for why it may overcome the technical uncertainty.

You may record this information in the form of bench testing results, preliminary trial or pilot field trial reports, emails or screenshots of chat messages, technical reports, research or meeting notes, and comparison tables or correspondence with experts.
Systematic progression of work (hypothesis, experiment, observation, evaluation and conclusion)

Your records should show how you undertook the hypothesis-led experiment to solve the technical uncertainty. For example, your records may show:

  • the planning and preparations for the experiments to resolve the technical uncertainty
  • the actions taken, including the description of what was tested and how the test was undertaken
  • the data and results collected, the assessment and analysis undertaken, and conclusions.

You may record this information in the form of lab reports, production or field notes, emails and chat messages, farm management or production records, food safety records, meeting minutes, data logs from sensors or digital trial management systems.

Conducted for the purpose of generating new knowledge

Your records should show the purpose of undertaking the activity. You may record this information in the form of meeting notes, research proposals, project plans, field trial plans, trial design documents, product development plans or feasibility studies.

Supporting R&D activities directly related to a core R&D activity

Your records should show how the activity supports refining the hypothesis, conducting the experiments, gathering and evaluating the results, and/or formulating conclusions.

Examples

The following hypothetical examples are designed to help you better understand the eligibility requirements of the R&DTI and identify which of your activities may qualify for the program. These examples provide general guidance only and do not replace the legislative definitions.

Example 1: feed formulation for dairy cattle

This example explains when comparative feed formulation trials do not meet the requirements for a core R&D activity. It shows how the outcome can be determined from existing knowledge, information or experience, rather than through hypothesis-led experimentation. The example also shows how these trials are not directly related to a core R&D activity.

Scenario

A company wishes to improve milk production in its early lactation dairy cattle. Its first step is to visit the dairy cattle industry organisation’s website for the latest advice and research about dairy cattle management. The company finds the industry organisation has published a fact sheet which explains that increasing crude protein from 12% - 13% to 16% - 17% (on dry matter basis) in early lactation cows typically increases milk production by 5% - 20%.

The activity

The company decides to increase the amount of crude protein in its cattle diet and aims for a 15% improvement in milk production. It sources feeding standards and nutritional requirement guidelines from the fact sheet. The guidelines outline the optimal nutrient balance and crude protein limits for increasing milk production.

In addition, the company contacts the industry organisation for more information. The organisation advises that research trials found that further increases beyond 16% - 17% do not result in additional milk production gains. Researchers also found that the precise milk production improvement will depend on physiological variables in individual cattle that cannot be controlled.

Based on this information, the company conducts medium scale comparative feed trials using 2 formulations and 20 early lactation dairy cattle per treatment group:

  • formulation A (control): contains the existing amount of 12% crude protein
  • formulation B: contains 16% crude protein.

The company aims to assess whether increasing the crude protein content of dairy cattle diets to 16% could result in a 15% increase in milk production.

The company conducts the trials over a 6-month period to compare milk yield in early lactation dairy cattle. The results show that the cattle consuming formulation B produced, on average, a 12% higher milk yield than cattle consuming formulation A.

Outcome could be known or determined in advance

This activity is not a core R&D activity because the outcome could be determined from current knowledge, information or experience, without needing to apply a systematic progression of work.

The relationship between crude protein levels and milk production in early lactation dairy cattle is well established. While the precise level of increase in milk production cannot be predicted in advance, existing knowledge provides a known range of expected outcomes. As such, the feed trials undertaken by the company confirm existing knowledge rather than generate new knowledge.

Not directly related to a core R&D activity

This activity is not a supporting R&D activity because it is not directly related to a core R&D activity. The company does not need to conduct a core R&D activity because the company can improve milk production using existing knowledge, information and experience.

Example 2: bench trials for food grade packaging

This example explains when bench trials do not meet the requirements for a core R&D activity. It shows that the trials do not generate new knowledge and only confirm previously established methods. The example also shows how the bench trials are not directly related to a planned core R&D activity.

Scenario

A company proposes to develop smart food packaging for perishable items by drawing on existing knowledge that carbon dioxide (CO2) levels increase when food deteriorates. It has identified Dye-X, a known and commercially available CO2-responsive dye used in liquid coating applications. It believes that when Dye-X is chemically incorporated into polymer-based food packaging, elevated CO2 levels will trigger a visible, increasingly darker colour change as food deterioration progresses.

Incorporating dyes into polymers is a well-established method that the company’s personnel are familiar with. However, the company has not previously incorporated Dye-X into a common polymer.

The activity

The company conducted background research and found some studies that indicated existing methods for chemically incorporating dyes into polymers are not effective for Dye-X. To confirm these results, the company undertook bench trials following known methods for incorporating dyes into polymers and tested the resulting material. Consistent with the studies, the results showed that the dye exhibited little or no colour change in response to elevated CO2 levels.

Outcome could be known or determined in advance

This activity is not a core R&D activity because the outcome could be determined from current knowledge, information or experience, without needing to apply a systematic progression of work.

The company applied existing knowledge and established methods to incorporate dyes into the polymer. While information is limited, studies have already shown that existing dye incorporation methods are not effective for Dye-X. As such, the bench trials served to validate existing knowledge rather than generating new knowledge.

Not directly related to a core R&D activity

This activity is not a supporting R&D activity because it is not directly related to a core R&D activity. At the time the bench trials were undertaken, the company did not have any planned core R&D activity.

Example 3: using a linker to attach the dye to the polymer

This example explains how testing the performance of an unproven process can meet the requirements for a core R&D activity. It shows how the activity identifies a technical issue that cannot be resolved from existing knowledge and develops and tests a hypothesis through experiments.

Scenario

A company proposes to develop smart food packaging for perishable items by drawing on existing knowledge that carbon dioxide (CO2) levels increase as food deteriorates. It has identified Dye-X, a known and commercially available CO2-responsive dye used in liquid coating applications. It believes that when Dye-X is chemically incorporated into polymer-based food packaging, elevated CO2 levels will trigger a visible colour change as deterioration progresses.

The company’s background research identifies studies which indicate that existing methods for chemically incorporating dyes into polymers result in Dye-X losing its colour changing properties. The company decides to develop a solution to this technical issue.

The activity

The company seeks advice from the dye manufacturer who suggests that the standard method for incorporating dyes into polymers may include a step that destabilises Dye-X’s properties. The manufacturer states that there is no available or known solution for that problem.

The company then consults materials scientists and polymer chemists who recommend that a linker may resolve the issue. While linkers have been used to attach other materials, the experts advise that existing knowledge cannot be confidently applied to Dye-X due to its unique chemical properties.

The company develops a hypothesis that using a linker to attach Dye-X into the polymer could successfully integrate the dye and retain its colour changing properties.

The company designs experiments to compare several types of linkers. The experiments use measurable colour change and retention of colour change in response to CO2 levels as indicators of success.

Core R&D activity

This activity can qualify as a core R&D activity because the outcome:

  • cannot be determined in advance from current knowledge, information or experience, and
  • can only be resolved by applying a systematic progression of work.

Through background research and consultation with relevant experts, the company shows that it cannot rely on existing information to determine whether using a linker will successfully incorporate the dye with a polymer while retaining the dye’s colour-changing properties.

After establishing that the outcome of the activity cannot be determined in advance, a testable hypothesis was formulated.