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It’s Time to Consider a Food Safety Tax Credit


​Making Preventative Action a Priority

While Canada has an excellent system of food safety, recent crises and product recalls have given food safety a high public profile -- raising the question of whether  government and the food industry are investing sufficient financial and human resources to adequately address complex risks. With the industry experiencing a number of challenges, such as aging infrastructure and strong global competition, the pressure to improve safety comes at a difficult time.

“Investing in food safety is the right thing to do, but it doesn’t typically give processors improved efficiencies, strengthen sales margins or result in increased market share,” says Andrew Raphael, Director of Agri-Food for MNP. “It is a preventive action that should be a priority but is not always top-of-mind for food processors facing other critical investment needs.”

Manufacturers know that regulatory compliance is non-negotiable. Mistakes in food safety can have devastating business consequences, but significant upgrades to buildings, systems, equipment and staffing are put off because of the one-time and ongoing operating expenses without offsetting cost reductions. “If an action is going to slow production or cut into staff time, it’s difficult to take when you’re already juggling other priorities,” Raphael points out.

Investment required

With a high Canadian dollar, tight credit, a tough regulatory environment and key export markets that can close overnight due to perceived food safety issues, the food-processing sector requires investment.

“Investment will help increase competitiveness, innovation and job creation. The federal and provincial governments have dedicated some funding to trigger change, but neither has gone far enough,” adds Raphael.

Under the Canadian Integrated Food Safety Initiative, the federal government established programs to help national organizations. However, these programs do not directly help  processors , farmers or distributors purchase the equipment they need , train staff or get certified against customer requirements.

Provincial programs vary greatly across the country in terms of scope and eligibility criteria. They are also administratively cumbersome for small businesses and offer minimal assistance which often doesn’t meet the needs of today’s firms.

“In the U.S. they found the mean cost of fixed capital expenditures to comply with the 1996 pathogen reduction and HACCP requirements in a small meat plant was $470,000,” says Raphael. “Ultra High Pressure systems can cost $1 million for equipment and much more for facilities reconfiguration. The help that is available is simply not enough.”

In order to respond, government and industry need to work more closely to enact practical food safety regulatory oversight matched by industry investment in the infrastructure, equipment, and technology required to meet the rising expectations of customers, regulators and consumers.

A practical response

Implementing a time-limited federal food safety tax credit would provide a simple, uniform, national financial incentive for food processors of all sizes, in all commodity sectors and in all regions. “Similar to the Scientific Research and Experimental Development tax credit, (SR&ED) it would allow certain companies to earn a credit of 35 per cent on the first $3 million of qualified expenditures for food safety investments, and 20 per cent on any excess amount,” explains Loren Kroeker, Vice President of Taxation Services at MNP.

How would it work?

A company with a taxable income in the immediately preceding year that does not exceed the business limit (e.g. $500,000 in taxable income) would receive a portion of the Investment Tax Credits (ITCs) earned as a refund, after applying these tax credits against taxes payable. As with SR&ED, unused tax credits could be carried back for 3 years and forward for up to 20 years.

What expenses could it cover?
  • Implementation of HACCP (or equivalent) food safety pre-requisite programs and operating systems
  • New product formulation and processing technologies that improve food safety
  • Plant and equipment upgrades focused on sanitary design and GMP’s (e.g. line separation barriers, improved drainage, air flow systems for condensation management)
  • Rapid testing systems for pathogens and chemical residues
  • Product traceability and recall management systems
  • Informatics systems for recording and analyzing microbiological test data
  • Enhanced sanitation equipment and operating protocols
  • Third-party food safety certification and auditing against global standards (e.g. GFSI, ISO 22000, etc.)

“Investment Tax Credits are an effective way to influence the economic choices of businesses and individuals in support of government policy objectives,” explains Kroeker. “This type of credit reduces the cost of investments without constraining the choice of technologies or services. It also applies regardless of which jurisdiction has regulatory responsibility for the plant, and doesn’t have the limiting and bureaucratic features of grant programs.”

The cost in foregone taxes is difficult to determine because the program will be demand driven. However, using the costs of the SR&ED program as a guide, the 2004 Government data shows that 19,600 corporations took advantage of SR&ED tax credits at a total cost of $3.4 billion. This suggests an average cost of approximately $170,000 for each participating firm. Based on this, Kroeker estimates that if 2,000 firms  took advantage of the program -- and received 50 percent of the average SR&ED benefit -- the annual cost would be approximately $170 million.

“$170 million is a favourable price to pay for an industry with manufacturing shipments valued at about $76 billion " adds Raphael. “A strategic investment like this can slow the growth in the operating budget of the Canadian Food Inspection Agency – currently $650 million annually – and also help reduce the health care costs associated with food borne illness.”

“A food safety tax credit is an effective way to help struggling firms make food safety a high priority when making critical business decisions. Inspection will only succeed if matched by more investment by industry to prevent problems rather than react to them after the fact,” says Raphael.

Raphael notes that “Canadian food manufacturers are under enormous financial pressure, urgently trying to reduce operating costs to survive in the short-term while modernizing and scaling up plants to grow over the long term. “At this time, a food safety tax credit would provide a simple, uniform incentive to help firms keep food safety a high priority as critical business decisions are made.”

MNP’s 65 years of experience in the agri-food sector combined with an experienced Specialty Tax team gives MNP the industry insight to understand the issues and deliver the strategies you need to address your operational and taxation needs.

To find out what MNP can do for you, contact Andr​ew Raphael, Director of Agri-Food at 1.877.688.8408