South Africa has a proud history of vineyards and winemaking dating back to the mid-1600s. There is presently over 90 000 hectares of vines under cultivation in South Africa with over 3000 primary grape producers and more than 500 wine cellars. Being a well-established industry, there is considerable investment in new technologies and unique approaches to make grape cultivation and fermentation methods more efficient.
Why is it that most of these businesses fail to claim the Research and Development (R&D) Tax Incentive? Is it because they don’t know whether these activities are considered eligible research activities, or that they find the process to apply for the incentive cumbersome? The fact is that many business owners in the winery industry simply aren’t aware of the R&D Tax Incentive, and furthermore, that their daily activities, and the wages paid to employees involved in these activities qualify for the valuable tax incentive.
The fact is that the Vineyards and Wineries are some of the prime candidates as industries that invests a lot in R&D. These industries employs viticulturists, technicians, winemakers, horticulture, scientists, environmental sustainability technicians who often spend a significant portion of their time developing new vines, improving existing wines and manufacturing techniques – all in an effort to remain competitive and keep up with the latest consumer and market trends and responding to regulatory and environmental constraints.
Furthermore, the ongoing improvement and availability of new techniques, ingredients and technologies provides the background against which R&D is done. Therefore, these industries are involved in R&D every day, and it is important to recognise, and take advantage of the SA R&D Tax Allowance.
What is the R&D tax incentive?
This incentive is part of a package of measures that the government of South Africa has introduced to support innovation, industrial development and competitiveness. The objective is to help companies build capabilities to create new products, processes, devices and techniques, or significantly improve existing ones. Ultimately, the R&D Tax Incentive hopes to encourage businesses to undertake and invest in R&D in South Africa.
Benefits of the R&D Tax Incentive:
- A 150 % ‘Super’ Tax Deduction on research and development operational expenses
- Accelerated Depreciation at 50/30/20 percent over 3 years for R&D plant and machinery
- Immediate write-off on pilot plant or pilot mould in the year of implementation
As regards the 150% ‘Super’ Deduction, as an example, if a business spends R10m on R&D, it can save R1.4m in taxes. This saving on income tax can be used to invest in more R&D, invest in other areas of the business or quite simply generate more profit. Any smart business would recognise the significance of these benefits.
Some examples of qualifying research activities related to the wine industry include, but are not limited to, the following:
Optimising Vineyard Plots
- Evaluating soil, water availability and ground slopes to assess the optimal grape cultivation
- Evaluating and developing of soil and rootstock improvement processes
Developing new or improved bottling or packaging
- Developing improvements to bottle labelling materials
- Evaluating varied methods of filtration to prevent microbial spoilage to increase wine quality
Improving production mix
- Developing new or improved product prototype batches
- Developing new or improved quality assurance testing processes
Reducing costs and improving efficiency
- Developing improved strains of grapes
- Testing of product ingredient mixtures for desired flavour or aroma profiles
These are just a few examples of research and development activities in the Vineyard & Winery industries.
The R&D Tax Incentive means paying less corporate tax to SARS.
If your company operates in the Vineyard or Winery industries, there is good reason for you to find out whether your projects and activities qualify for the R&D Tax Incentive. For a free assessment, speak with Vantage R&D Tax Advisors to help you understand whether you can claim the tax deductions.
email: vantage@taxincentive.co.za