2023 Summer Blocktalk - The Innovation Issue

How Food Businesses Can Utilize SR&ED Tax Credits

By Alena Barreca, Mentor Works

According to poll results provided by Global News, 90 per cent of Canadians surveyed stated it’s important to know what’s in the food they eat and 83 per cent stated importance about knowing where their food comes from.

As Canadian consumers seek more information about the food they eat, health and wellness experts suggest supporting consumers by updating the standards of commercially processed foods and ensuring consumers understand what ingredients are in their food and how the ingredients are grown, sourced, and processed.

research and development projects. The program provides more than $3 billion in tax incentives to over 20,000 claimants annually.

In addition to the federal SR&ED program, there are also provincial and territorial variations of tax credits that a Canadian business can apply for on top of the federal program. Most provinces and territories have one or more funding streams with specific eligibility criteria, funding amounts, eligible expenses, and deadlines to apply.

Unlike other government funding programs, however, SR&ED has no limit on financial reimbursement. This means that if a food business’ projects meet program eligibility, they are entitled to receive the full financial benefit in the form of an investment tax credit (ITC) and/or a cash refund. This is a significant advantage for businesses looking to improve their products, processes, and systemizations. Many projects can qualify for SR&ED support.

why and how of their purpose and intent: why was a project undertaken and how was the work performed? Moreover, what benefits will the results provide for the organization’s practices and deliverables?

For SR&ED to occur and for a business project to be eligible, the work must be conducted to achieve a scientific or technological advancement and must be conducted in a systematic manner. This means that many food business projects looking for innovative ways to create food might be eligible.

For example, scientific and technological advancements may be required: to understand how products need to get reformulated to include natural and/or organic ingredients, to maintain or improve the existing organoleptic/sensory properties, and/or to overcome processing challenges related to natural and/or organic ingredients.

But what exactly is a natural and/or organic ingredient? “Natural” regarding food claims has three specific criteria as defined by the Canadian Food Inspection Agency (CFIA):

• Not to contain, or to ever have contained, an added vitamin, mineral nutrient, artificial flavouring agent, or food additive; and

• Not to have any part removed or significantly changed, except the removal of water (for example, the removal of caffeine); and

• Not to have been submitted to processes that have significantly altered their original physical, chemical, or biological state (i.e., maximum processes, such as chemical additions).

It is important to note that “natural” is not an indication of the quality or nutritional value of food.

As opposed to “natural,” the term “organic” refers to a specific, regulated way in which food products must be grown and processed.

Just like “natural”, “organic” food does not indicate the health or nutrition of a given food. Specifically, “organic” foods must be grown on fields where no prohibited substances have been applied to soils for the past three years, and then certified through an approved regulatory body. This does not mean that fertilizer or processing aids have not been used.

Similarly, for meat specifically to be “organic” in Canada, the animals the meat derives from must be free from any reproductive hormones or synthetic growth that would make them grow faster, as well as free from all antibiotics and preservatives.

There is a list of approved substances from the Standards Council of Canada that are approved for organic foods. To label a product under the term “organic”, it must contain 95% organic ingredients. To contain “organic ingredients,” a product must list the percentage of ingredients that are organic.

As such, there are many projects that a Canadian food business may undertake to help their processes and products meet “natural” and/or “organic” requirements.

Applying for SR&ED Tax Credits for Canadian Food Business Projects

As mentioned, technological and scientific uncertainties required for SR&ED can often arise when trying to remove the processed preservatives from foods without affecting shelf life, as the preservatives can also act as conditioning or processing aids.

Similarly, natural preservatives impart different taste profiles and dough conditioning. When investigation and experimentation is taken into how the preservatives behave in each food matrix or how to change the processing to match an existing product, SR&ED may occur.

There are many crucial factors that impact the SR&ED application such as eligibility of activities and timelines. It’s also important to note that once accepted, the government does not dictate the direction of any given project, which is why the approval process is so heavily reviewed.

The Mentor Works, a Ryan Company team of Government Funding Planners™ work directly with clients to design and implement tailored solutions to support business growth. They work with Canadian businesses to develop a dynamic government funding plan that supports all areas of business investment and gives a significant competitive advantage when fully leveraged. Their clients are awarded an average of $180,000 in grants per year. Get in touch by visiting mentorworks.ca or by calling 1-888-599-3111.

Alena Barreca is a marketing specialist at Mentor Works, a Ryan Company in Guelph, Ontario. She focuses on helping businesses learn about government funding opportunities and connecting her team with those in need of application assistance.