How to Claim SR&ED Credits for Medical Research

You can get Tax Credits for your Medical R&D

The Scientific Research and Experimental Development (SR&ED) program is a federal tax incentive program administered by the Canada Revenue Agency (CRA). It offers tax and cash incentives to Canadian companies for scientific and technological development.
The programme offers generous tax credits of around 60% of eligible payroll expenses, and 40% of sub-contractor expenses.
The CRA recognizes that SR&ED expenditures in medical research generally meet the criteria of the program as it resolves technological uncertainties in the medical field and leads to the advancement of medical knowledge.

It is often unclear who can claim Medical SR&ED Tax Credits

It is often difficult to determine who can claim the tax credit for medical research. Usually there are many legal entities involved, doing research in a collaborative effort. For example physicians who work in a medical institution, Medical Professional Corporations (MPC) that employ physicians, and Health Care Entities (HCE) like hospitals, universities or research institutes.
When these three types of organizations work together on a research project, then it has to be very clearly defined who owns the Intellectual Property IP resulting from the research. CRA has a very hard time dealing with collaborative efforts, and wants to get a clear picture on the individual contributions.
The recent SR&ED guideline is mostly concerned with the eligibility of these collaborative claims. CRA is auditing tax credit submissions by individual medical professionals and will even go to the extent of scrutinizing employment contracts to make sure a claim is eligible for a tax credit.

How to Claim SR&ED for Medical Research

Health Care Entities can not benefit from the SRED programme directly. A publicly funded HCE is not a taxable entity, and therefore cannot benefit from the tax credits.
The Income Tax Act states that the SR&ED work must either be done directly by the taxpayer (called the “payer”) or on behalf of another party (called the “performer”), and that the work must result in direct expenses.
Therefore the SR&ED tax credits need to be claimed by the Medical Professional Corporation for expenses that were made specifically for the research. For the CRA to accept the claim, a contractual agreement needs to be in place for the specific purpose of the research.
It is important to keep track of the actual work done by a physician. For example, if a physician is required to perform academic responsibilities other than R&D (i.e. lecturing), then that needs to be tracked and can not be included in the claim.
Because of the diverse working relationships between physicians and hospitals / universities, there is a lot more to be considered when deciding on the best way to submit a SR&ED claim.

Documentation required for your Tax Credit Claim

The CRA wants to see all agreements in writing. We generally advise our clients to comply, and help them to compile all agreements in a manner which is acceptable by the CRA.
Sometimes we have situations where no written agreement exists. In that case other evidence should clearly demonstrate which party is legally bound to provide the medical services and to perform the research. This includes the documentation about the research itself, but also the contracts showing the relationship between entities, and who is making the contract payments for which portions of the research.

Documentation required for your Tax Credit Claim

It’s a good idea to get professional advice from a SR&ED consultant when you conduct research. There is a good chance that the CRA will fund some of the cost of your medical Research.
The CRA SR&ED Guidelines provide brief suggestions on which types of medical research can be eligible to claim tax credits, and who can submit a claim. However, in reality, the programme is very complex and submitting SR&ED claims is a time consuming process.
We can assist you in setting up your medical research project in such a way that you have the best chance for getting government assistance. Contact us now, before you even start your project, and maximize your SR&ED tax credits.