Key Takeaways:
1) A new product, ingredient or process is not automatically eligible R&D.
2) The key question is whether the technical outcome could be determined in advance using existing knowledge, information or experience.
3) Routine testing, market research, consumer feedback and sales trials are generally not core R&D activities.
4) Eligible core R&D requires a systematic progression of work based on a hypothesis, experiment, observation, evaluation and conclusion.
5) The examples in the new Agrifood Sector Guide show that the distinction between R&D and ordinary product development depends on why the work was needed and what was genuinely unknown.
The Australian Government’s new Agrifood Sector Guide provides practical examples to help businesses distinguish eligible R&D from ordinary product development, testing and commercial activities. The central message is simple: innovation alone does not make an activity eligible for the R&D Tax Incentive (R&DTI).
The key question: could the outcome be known in advance?
For an activity to qualify as core R&D, the outcome must not be able to be known or determined in advance based on current knowledge, information or experience. The business must then undertake a systematic progression of work involving a hypothesis, experiment, observation, evaluation and logical conclusion for the purpose of generating new knowledge.
If supplier information, published research, standard industry methods or professional expertise can already explain how a product, ingredient or process is expected to perform, the work may be product development rather than eligible core R&D.
What the guide’s examples show
Example 1: Dairy cattle feed trial
A business tests whether increasing crude protein in dairy cattle feed will improve milk production. Existing industry research already shows the relationship and provides a likely range of outcomes. Even though the exact improvement cannot be predicted, the trial is confirming existing knowledge rather than resolving a genuine technical uncertainty. The activity is therefore not core R&D.
Example 2: Smart food packaging
A business develops smart packaging using a carbon dioxide-responsive dye. Initial bench trials follow known methods and confirm findings already available in published studies. Those trials are not core R&D because the outcome can be determined from existing knowledge.
However, later work investigates an unproven linker where existing knowledge cannot establish whether the approach will work. If the business identifies the technical uncertainty, develops a testable hypothesis and conducts controlled experiments to resolve it, that work may qualify as core R&D. This example clearly shows the difference between confirming what is already known and experimenting to generate new knowledge.
Common activities that are not automatically R&D
The guide also highlights several common areas where agrifood businesses should be careful. Using a new ingredient does not automatically create eligible R&D if supplier guidance or existing expertise already explains how it should be used. Routine nutritional analysis, contaminant testing, pesticide residue testing, salinity or moisture testing, quality control and ordinary shelf-life monitoring will generally not be core R&D where they simply measure or confirm expected results.
Market research, market testing, sales promotion and consumer surveys are specifically excluded from being core R&D activities. Customer feedback on taste, presentation, pricing or purchase preferences may be commercially useful, but it is different from technical experimentation. Businesses should therefore separate consumer validation and sales trials from the experimental work undertaken to resolve a technical uncertainty.
Record the experiment, not just the result
Contemporaneous records are important because they help demonstrate why the outcome could not be determined in advance and how the experimental work was conducted. Records should capture the technical uncertainty, research undertaken, hypothesis, experimental method, observations, results, failed attempts, evaluations and conclusions. Useful evidence may include trial plans, technical reports, laboratory results, production notes, sensor data, emails, meeting notes and correspondence with external experts.
What this means for agrifood businesses
Before treating product development work as R&D, businesses should ask three questions: Was there a genuine technical uncertainty? Could existing knowledge or expertise resolve it? Were experiments required to determine the outcome? If the answer to these questions is clear and supported by contemporaneous evidence, the activity may have a stronger basis for R&DTI eligibility.
Rimon Advisory assists agrifood businesses in assessing potential R&D activities, separating eligible experimental work from routine or commercial activities, and preparing R&DTI applications supported by appropriate technical and financial evidence.
If you’re unsure whether your agrifood activities may qualify for the R&D Tax Incentive, reach out to Rimon Advisory to discuss your circumstances.
