Little-known Sectors that Qualify for SR&ED Part Two: Medical and Health Sciences
Updated to Reflect New Policies (2022)Â*** Some of the policies referenced were updated 2021-08-13. This article has been updated and is accurate as of 2022. ***Â |
Uncovering the little-known sectors that qualify for SR&ED.
Last time, we looked at the agriculture and agri-food industry as an example of a sector where most people do not know they can qualify for an SR&ED tax credit. This time we will look at the medical and health sciences field. This may be Canada’s most research-intensive sector, but it has not historically taken advantage of the SR&ED tax credit. This is due partially to the amount of administration needed to submit a claim and the complexity surrounding the submission of claims.
The complexity comes from the fact that medical doctors can work in universities, hospitals, and biotechnology and pharmaceutical companies, as certain institutions are tax-funded (and hence ineligible for SR&ED). The broad umbrella that medical research falls under can make figuring out which aspects of a medical research project are eligible is a frustrating experience.
However, just like in the case of agriculture, you can apply if you have done any systematic investigation, whether it was successful or not. As research grants shrink, an SR&ED tax credit is a good source of capital to apply for.
Can Medical Doctors Really Apply for SR&ED?
You may be running a practice and feel that you don’t do any R&D. The truth is, you probably do more than you realize. If you generate new information or discover new knowledge in your practice or perform clinical trials, you can probably qualify. If you have a medical hypothesis that can be tested with data from your practice or place of work, such as a university or hospital, you might qualify for an SR&ED tax credit, too.
If you are a family doctor who prescribes medications or makes referrals for patients, you are probably not performing SR&ED. However, if you run a fertility clinic, do dental implants, run a rehabilitation or pain clinic, you may qualify. You would need to develop a hypothesis and test the hypothesis via data collected in your practice. Â If you have done this, you may qualify for an SR&ED tax credit.
It is important to note that there are many nuances regarding medical applications for SR&ED. According to the CRA, “physicians are required to participate in research as part of their appointment with an HCE (health care entity),” and physicians and HCEs are, for tax purposes, separate legal entities.1 In the case of publicly-funded HCEs, like universities and hospitals, which do not pay taxes and hence are not eligible for SR&ED, independent medical researchers or physicians can apply for SR&ED if they have incurred eligible expenses while working for these HCEs.2
If you’d like to know more about the specific nuances of SR&ED for medical research applicants, please read our article SR&ED claim process for physicians & medical professionals about SR&ED claims for medical professionals.
The core part of deciding whether or not your work is SR&ED eligible work is whether you are systematically trying to overcome an uncertainty whose solution is either not known, or not known publicly.
The CRA SR&ED Glossary defines “uncertainty” as:
Scientific or technological uncertainty means whether a given result or objective can be achieved or how to achieve it, is not known or determined based on generally available scientific or technological knowledge or experience. This definition encompasses the definition of scientific uncertainty, technological uncertainty and technological obstacle. The only difference is that scientific uncertainty relates to science whereas technological uncertainty and technological obstacle relate to technology.3
It is always important to meticulously document your trials and experimentation so that you have evidence of overcoming uncertainty and that the scientific method has been followed. If you would like further information on contemporaneous documentation please see Why do I need contemporaneous documentation for SR&ED?
Practice caution: in certain medical studies, outcomes being investigated could be considered to be in the social sciences, which do not qualify for an SR&ED credit. For instance, if your study examines whether patients are satisfied with one treatment over another (a subjective, qualitative measurement), could be construed as part of the social sciences. Sometimes, case reports lack a hypothesis, and narrative review articles do not undertake a systematic investigation. Those types of medical projects would not qualify for SR&ED.
However, if you were undertaking a study to determine if one treatment over another would lead to cost savings in the health system while observing associated health outcomes, you might be able to claim SR&ED. You would have to claim expenditures in the form of time related to the health outcome assessment while excluding the economic impact of your study. When in doubt, it is a good idea to hire a consultant who knows the various nuances of the SR&ED tax credit.
A Recent Court Case
In the case of Andre Lamy Medicine Professional Corporation v. The Queen, in 2020, a Tax Court of Canada judge decided that the Appellant, Andre Lamy Medicine Professional Corporation, is owed his incurred expenses as a physician experimenting on distinct projects under the auspices of his own private corporation.4
His experiments which he claimed as SR&ED involved a handful of projects: the Coronary Project, involving techniques used for bypass surgery; the Compass Project, involving trials regarding the drug Rivaroxaban; the Vision project, designing trial procedure for identifying when people had heart attacks during cardiac surgery; and the Accelerate Project, which focused on the medication used for diabetes and bypass surgery.5
Dr. Lamy paid himself his salary during these projects and claimed this as incurred expenses for SR&ED. During times when Dr. Lamy worked with Hamilton Health Sciences Corporation, or third-party group Bayer Inc., no amounts were paid to Dr. Lamy or Dr. Lamy’s corporation.6
This case is an example of how a physician could use SR&ED, and illustrates the challenges that take place regarding medical SR&ED. For more in-depth analysis, make sure to read our full post about this court case.7
Don’t Forget to Review the T4088 Appendix
When making your claim, do not forget to look at the appendix for the T4088 – Scientific Research and Experimental Development (SR&ED) Expenditures Claim – Guide to Form T661.8
You will need to select the field of science or technology that best describes the primary field in which the SR&ED project was attempting to achieve an advancement and insert this code into line 206 of the T661 form. The project qualifying for an SR&ED tax credit may be different from the field of science or technology your company usually researches. Failing to fill in this line could impact the eligibility of your application.
The codes related to the medical and health sciences are as follows:
Medical engineering
- 2.06.01 – Medical and biomedical engineering
- 2.06.02 – Medical laboratory technology (biomaterials under 2.09.05)
Basic medicine
- 3.01.01 – Anatomy and morphology (plant science under 1.06.08)
- 3.01.02 – Human genetics
- 3.01.03 – Immunology
- 3.01.04 – Neurosciences
- 3.01.05 – Pharmacology and pharmacy and medicinal chemistry
- 3.01.06 – Toxicology
- 3.01.07 – Physiology and cytology
- 3.01.08 – Pathology
Clinical medicine
- 3.02.01 – Andrology
- 3.02.02 – Obstetrics and Gynecology
- 3.02.03 – Paediatrics
- 3.02.04 – Cardiac and cardiovascular systems
- 3.02.05 – Haematology
- 3.02.06 – Anaesthesiology
- 3.02.07 – Orthopaedics
- 3.02.08 – Radiology and nuclear medicine
- 3.02.09 – Dentistry, oral surgery, and medicine
- 3.02.10 – Dermatology, venereal diseases, and allergy
- 3.02.11 – Rheumatology
- 3.02.12 – Endocrinology and metabolism and gastroenterology
- 3.02.13 – Urology and nephrology
- 3.02.14 – Oncology
Health Sciences
- 3.03.01 – Health care sciences and nursing
- 3.03.02 – Nutrition and dietetics
- 3.03.03 – Parasitology
- 3.03.04 – Infectious diseases and epidemiology
- 3.03.05 – Occupational health
Medical biotechnology
- 3.04.01 – Health-related biotechnology
- 3.04.02 – Technologies involving the manipulation of cells, tissues, organs, or the whole organism
- 3.04.03 – Technologies involving identifying the functioning of DNA, proteins, and enzymes
- 3.04.04 – Pharmacogenomics, gene-based therapeutics
- 3.04.05 – Biomaterials (related to medical implants, devices, sensors)
Other medical sciences
- 3.05.01 – Forensic science
- 3.05.02 – Other medical sciences9
Conclusion
Medical researchers can be SR&ED eligible, in certain circumstances. Due to the nature of medical research, and the added complications of healthcare entities and medical professional corporations, medical SR&ED claims can be intimidating. To understand more of the nuances that specifically face physicians, read our guide on the claim process. There are more avenues to obtain an SR&ED tax credit than you may realize if you are in the medical and health sciences profession. And of course, if you’re ever uncertain, you should consult an SR&ED professional.