Integrating processing into the farm business: how do you qualify mixed activities?

More and more farms are considering adding manufacturing or processing activities in order to diversify their income and add more value to their production. When these activities coexist, however, it is important to determine whether the business is engaged in farming, processing or a mixture of the two.

This distinction directly influences taxation, subsidies and access to measures such as the Tax Credit for Investment and Innovation (hereafter "C3I").

Why add processing activities to your farm business?

Farm businesses are diversifying their activities for a number of reasons:

• increase and stabilise incomes;

• reduce intermediaries and better control marketing;

• value an agricultural product through a value-added stage;

• optimise corporate structure and asset protection;

• facilitate the arrival of investors;

• maximise access to subsidies.

However, separation of activities is not always possible. In some cases, farming and processing activities become intertwined, creating a "mixed" business.

Identify a manufacturing or processing activity

The first step is to determine whether the company carries out a manufacturing or processing activity (hereinafter "M&P") distinct from agriculture.

An F&T activity involves :

• a treatment that makes the product more marketable;

• a change in the shape, appearance or nature of the product;

• a physical or chemical transformation that does not result from the simple process of growth.

However, certain operations may be considered ancillary to farming if they are necessary to make the product saleable or if they are marginal in relation to the main activity.

It is therefore necessary to identify an F&T activity that does not constitute a normal stage of agricultural activity.

An activity can be considered agricultural even if it involves processing operations, when :

• processing is incidental to growing the product;

• it is necessary to make the product saleable;

• it remains small-scale and incidental to farm income.

When does processing become a separate business?

The second step is to determine whether the F&T activity is sufficiently separate from the farming activity. The criteria include :

• whether or not resources (premises, equipment, manpower) are shared;

• the existence of separate processes or customer bases;

• the intention of one activity to supply the other;

• separate accounting records are kept;

• operational and financial autonomy.

The more interdependent the activities, the more difficult it is to see them as two separate businesses.

Tax support to provide a better framework for your mixed activities

Properly qualifying mixed activities is essential for optimising taxation, structuring companies appropriately and accessing tax incentives.

If you are considering adding a processing activity or reviewing your current structure, our team of tax specialists can help you. Contact us to analyse your situation and prepare for what's next.