The SR&ED Tax Credit program is the single largest source of R&D funding in Canada: over $3 billion in tax incentives are distributed annually 1. The program supports Canadian businesses by encouraging industrial research and development. In their latest article, the CRA shared some helpful information for SR&ED claimants from the medical profession, recognizing the difficulties faced in the SR&ED application process due to the collaborative nature of medical research.
In this blog post, we explain some of the obstacles faced by physicians and medical professionals in the SR&ED application process and how to overcome them.
SR&ED Claim Requirements
There are some general rules to be aware of when applying for the SR&ED tax credit. The CRA uses a checklist of five main questions to determine eligibility (for additional insight read about the intent and evolution of the eligibility questions for SR&ED). The very first requirement is that the work must prove a technological advancement in a field of science and technology. According to the Income Tax Act SR&ED work “must be directly undertaken by the taxpayer or undertaken on behalf of another party and have resulted in expenditures.” 2
SR&ED in the Medical Field
The difficulty physicians and medical professionals conducting research have in applying for SR&ED credits stems from the business model under which they operate. Medical professionals either work independently, or under the auspices of a Medical Professional Corporation (MPC), or a Health Care Entity (HCE), such as a hospital, research institute, etc. The question then becomes who has the right and responsibility to apply for the SRED credit?
“In many cases, physicians are required to participate in research as part of their appointment with an HCE. As several parties can collaborate to carry out medical research, determining the payer and performer can be challenging. Physicians and corporations (MPCs, HCEs, etc.) are distinct legal entities for tax purposes.”3
Further complicating matters is the fact that publicly funded organizations such as universities and hospitals do not pay taxes and are therefore not eligible to apply for tax credits. However individual medical professionals who undertake and incur eligible expenses for research, even research undertaken for these medical corporations and health care entities can apply for SR&ED credits.
In their article explaining the nuances medical professionals must navigate when applying for SR&ED, the CRA illustrates several helpful examples that prospective applicants can review to determine in which category their situation may fall. However, they do recognize that these examples do not cover every single scenario and SR&ED applications must always be assessed on a case by case basis. “The CRA recognizes that these scenarios will not address the complexities in all situations and will continue to examine specific areas of concern, such as the application of the government assistance and contract payment rules.“4
Some common scenarios are detailed in the table below.5
As always, the best thing a prospective claimant can do is ensure adequate documentation to back up the claim in the event of a review. Claimants should document the work that has been undertaken, who carried it out and under what authority. It should also be made explicit in the claim what expenses were incurred and by whom. Additionally, the scope of work, project plans and developments should also be outlined. Particular to medical claimants is the illustration of the division of labour. It is especially helpful to have written agreements outlining the relationship the physician/medical researcher has with the MPC or HCE, in the event questions arise.
The SR&ED tax credit has often been accused of being difficult to apply for and subject to frequent reassessments by CRA. However, with helpful articles such as their Information for physicians and medical professionals, it is clear that the CRA is working to overcome these obstacles. By making the application process less onerous it stands to reason that more applicants will attempt the process and be successful, resulting in a robust, evolving program that will last for years to come.
Do you have experience as a medical researcher applying for SR&ED?
- Government of Canada. (2015, April 7). Evolution of the SR&ED Program Retrieved April 4, 2019, from https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/evolution-program-a-historical-perspective.html ↩
- Government of Canada. (2019, September 23). SR&ED claims made by physicians and Medical Professional Corporations – Information for claimants. Retrieved October 2, 2019, from https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/claims-made-physicians-medical-professional-corporations.html?utm_source=sred&utm_medium=eml ↩
- Ibid. ↩
- Ibid. ↩
- Ibid. ↩