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Is your medical research eligible for SR&ED tax credits?

Is your medical research eligible for SR&ED tax credits?

Synopsis
5 Minute Read

Many practitioners conduct research to support the well-being of their patients and contribute to innovation in their field. This research may be eligible to receive tax credits under the Scientific Research and Experimental Development (SR&ED) program and understanding these five details can help you navigate the process:

  • What is the SR&ED program
  • What types of medical research are eligible
  • What types of medical research are not eligible
  • How to apply for the SR&ED program
  • How the SR&ED program supports practitioners
SR&ED Leader, Ontario Region

You may conduct research as part of your professional corporation to support the well-being of your patients and contribute to innovation in your field. This research may be eligible to receive tax credits through the federal government’s Scientific Research and Experimental Development (SR&ED) program. However, many medical practitioners are not aware of this program or find it challenging to navigate the eligibility requirements and application process.

Let’s review what the SR&ED program is and the eligibility requirements your medical research must meet to receive these tax credits. We’ll also provide an overview of the application process and share two stories highlighting how the SR&ED program can support your research.

What is the SR&ED program?

The SR&ED program is a federal tax incentive program designed to help Canadian businesses innovate or undertake research and development. Eligible businesses include:

  • Canadian-controlled private corporations (CCPCs)
  • Large corporations
  • Public corporations
  • Partnerships
  • Trusts
  • Individually owned businesses

If your practice is incorporated as an entity, you should be able to participate in the SR&ED program and earn either a refundable or non-refundable tax credit for the research you conduct provided all other eligibility requirements are met. More than $3 billion in tax incentives are issued to over 20,000 claimants each year. 

The SR&ED program is a two-tier system which offers tax credits at an enhanced rate of 35 percent on qualified SR&ED expenditures up to $3 million or at a base rate of 15 percent. CCPCs earn refundable tax credits at the enhanced rate while non-CCPCs earn non-refundable tax credits at the base rate. Additionally, provincial tax credits may be available to supplement the federal tax credit your professional corporation receives.

The SR&ED program provides a tax incentive for expenses incurred within three areas of research and development. This includes basic research, which seeks to gain new knowledge. Basic research can involve working in a lab or at a university and conducting in vivo or in vitro projects. The other two areas are applied research, which is the application of this gained knowledge in clinical work with patients or patient data, and experimental development which involves the development of novel treatments or surgical and diagnostic tools.

Expenses eligible for a tax incentive under the SR&ED program include salaries and wages for Canadian employees and payments by Canadian taxable suppliers (i.e. subcontractors and consultants). Overhead and materials consumed or transformed are also eligible under this program.

The deadline to apply to the SR&ED program administered by the Canada Revenue Agency (CRA) is 18 months after the end of the taxation year in which the research was conducted. SR&ED investment tax credits typically reimburse 20% - 66% of total qualified SR&ED expenditures depending on the type of eligible expense and medical professional corporations can continue to apply to the SR&ED program every year if research projects continue through each taxation period.

What types of research are eligible?

Your medical research needs to meet two requirements — known as the how requirement and the why requirement — to qualify for SR&ED tax credits.

Your work must be a systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis to meet the how requirement. This work must be conducted for the advancement of scientific knowledge or for the purpose of achieving technological advancement to meet the why requirement.

Additionally, asking yourself these five questions can help you self-assess whether your research in the medical field is eligible under the SR&ED program:

  1. Was there a scientific or technological uncertainty?
  2. Did the effort involve formulating hypotheses specifically aimed at reducing or eliminating that uncertainty?
  3. Was the overall approach adopted consistent with a systematic investigation or search, including formulating and testing the hypotheses by means of experiment or analysis?
  4. Was the overall approach undertaken for the purpose of achieving a scientific or a technological advancement?
  5. Were detailed records of the work performed – including time spent – documented as the work progressed?

If you answered yes to these five questions you may be eligible to receive SR&ED tax credits for your research. However, it is important to note that there are several types of research that are not eligible for a tax credit under the SR&ED program even if it meets the requirements above.

What types of research are not eligible?

Types of research and development that are not eligible for tax credits under the SR&ED program include:

  • Aspects of psychology (psychopharmacology is eligible)
  • Medical education
  • Social determinants of health, social sciences, or humanities
  • Gender studies
  • Economic studies
  • Systematic or Narrative Reviews of the current state of your field of specialty
  • Adherence or compliance studies of a commercially available medical/therapeutic device
  • Case reports or studies
  • Policy studies
  • Post-market surveillance of a commercial medical/therapeutic device
  • Dissemination of research to the lay public

How to apply for the SR&ED program

The next step after determining whether your research is eligible to receive SR&ED tax credits is to submit a claim to the CRA. This is a four-step process that includes:

  1. Project scope — This involves identifying which of your projects are eligible for the SR&ED program and the costs associated with that research, such as labour, materials, contractors, or overhead.
  2. Technical documentation — This includes the hypothesis and methodology of the research as well as what advancements your professional corporation has made during the taxation year.
  3. Submitting the applications — This step requires you to work alongside an accountant to document the costs associated with the research and file the claim application to the CRA.
  4. CRA assessment — The CRA will assess your claim application to determine whether it meets the requirements for the SR&ED program and issue a tax credit if you are eligible.

Professionals may encounter obstacles when applying for the SR&ED program. While practices have been eligible to incorporate since 2011, many professionals have not incorporated their practice — resulting in their research receiving a minimal tax incentive if filing as an individual under the SR&ED program. Additionally, the time you spend on research may not be eligible under the program if you pay yourself in dividends instead of a salary.

It can also be challenging to document your progress on your research or track time for your employees, contractors, or consultants. MNP can support you through the documentation and claim application process to help you spend more time focusing on your research.

How the SR&ED program can benefit your practice

The SR&ED program is a valuable opportunity for practitioners to receive a tax incentive for innovative medical research and development. Our MNP advisors work with practitioners to help them navigate the claim application process — and have shared two examples below of how claiming SR&ED tax credits can benefit both you and your practice.

A clinician scientist spent more than 20 years investigating bleeding disorders before they discovered their research may be eligible for the SR&ED program. Our advisors met with the clinician scientist, identified potential research projects that they could claim for two eligible fiscal years, and helped the clinician scientist prepare their claim application. We also helped the clinician scientist prepare for an education session with the CRA as a first-time claimant into the program. The clinician scientist received a sizeable tax incentive for each taxation year from the SR&ED program in support of their innovative research in their field of specialty.

In another case, a clinician investigator recently completed graduate school and a fellowship. They wanted to determine if incorporating and claiming SR&ED tax credits would be a good fit for their practice and met with our MNP advisors to gain insights into the process. We identified that their applied research projects in palliative medicine would be eligible for SR&ED tax credits and helped prepare the claim application. The clinician investigator received a sizeable tax incentive in their first taxation year from the SR&ED program.

Take the next steps

For more information about how the SR&ED program can support your medical research and development, contact a member of MNP’s Tax Services or Professionals teams.

Neha Tiku
SR&ED Leader, Ontario Region
416.515.3834 [email protected]

Andrea Granados, PhD
Senior Manager, Scientific Research and Development – Life Sciences
416.596.1711 [email protected]

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