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For more than a decade, many Canadian healthcare professionals have claimed Scientific Research and Experimental Development (SR&ED) tax credits through their medicine professional corporations (MPCs) for research and development (R&D). They conduct research for their MPCs and in many instances, research is also as an expectation for their appointments at academic universities and hospitals.
However, the CRA’s complex structure and previous lack of guidelines has led to confusion and uncertainty around who can claim these tax credits and how they may be accessed.
With new guidelines released by the federal government in September 2019, we now have more clarity on how a medical doctor may access SR&ED credits. Now, you can move forward with confidence and focus on the important work you’re doing instead of dealing with paperwork and worrying about audits.
Currently, the main issue is MPCs are claiming SR&ED credits for the R&D they’re doing for both their MPCs and arguably for the universities and hospitals they are appointed to. The CRA views the appointments as an employer-employee relationship, however, this is not true.
Most physicians are not expected or required to conduct R&D nor are they fully compensated for their efforts as part of their appointments. Despite clear indication that an appointed doctor is not an employee and is not completely (if at all) compensated for SR&ED efforts, the CRA has pushed back and denied claims made by MPCs based on these issues. The recent guidance helps to clarify the right of an MPC to claim SR&ED, along with other current issues and how to avoid them.
The CRA recognizes work involving medical research which generally meets technical SR&ED eligibility criteria and allows for claims, provided the work is conducted by the MPC and any assistance related to the R&D is considered. However, they’ve also argued R&D efforts are a requirement of the doctor’s appointments with affiliated universities and hospitals and are therefore not eligible for the credit.
The CRA details two common scenarios: In scenario one, they treat the physician making a SR&ED claim as an individual. In scenario two, they consider claims made by the individual doctor’s MPC. For tax planning reasons (and to maximize the benefit), MPCs most often make SR&ED claims, so we’re going to focus on this scenario.
The CRA presents four examples for MPCs claiming SR&ED credits:
As these are the typical examples they encounter, the CRA has made these distinctions to help them assess an MPC’s right to claim SR&ED credits and to determine the related expenditure amounts.
Examples one and two are ideal. They clearly allow MPCs that undertake and pay for R&D efforts to make a SR&ED claim. While this is the position that MNP typically takes for academic physicians, the CRA has taken issue, as the agreements physicians have in place with affiliated institutes list the physicians, and not the MPC as the signatory. MNP’s position has been that the doctor is an agent of their MPC and thus an appropriate signatory.
This issue has been contentious and the CRA has deemed most academic MPC claimants to be claiming in a structure similar to example three. As such, they contend that the claim should be made at the individual level and that the MPC should not be claiming SR&ED credits on the associated R&D. Claiming SR&ED at the individual and not MPC level significantly reduces the amount of the R&D expenditures that may be recovered.
In scenario four, the CRA indicates MPCs doing R&D both as part of their appointments and directly for their MPC, are in the clear to claim SR&ED-related expenditures for the latter. The MPC needs to clearly delineate between the R&D conducted for the MPC versus as part of their appointment or affiliations. These examples provide clearer guidance for how MPCs can take advantage of the SR&ED program.
The CRA guidance tells us academically appointed physicians may make a claim if they have clear indication that there is a research expectation for the MPC and not the physician themselves. To the CRA, individuals and corporations are two separate legal entities. According to CRA guidance, a physician and their MPC may align with this expectation by including the MPC on any contracts or agreements with affiliated institutes. Further to this, an employment agreement between the MPC and the physician helps to corroborate the structure in the context of filing a successful SR&ED claim.
Confounding the CRA’s interpretation is that most R&D-related grant applications, ethics submissions and publications list the physician themselves and not the MPC. In our experience, it is more difficult to modify these documents than actual appointment agreements, as the former often have related issues such as liability, financial disclosure requirements, and the need to adhere to community or international norms.
In general, the CRA is looking for documentation detailing that the MPC directs and conducts the R&D and not the individual on behalf of the affiliated universities and hospitals.
MNP has helped hundreds of healthcare professionals access the SR&ED tax credit through their MPCs across Canada. The lack of clarity around issues specific to MPCs in some instances has led to detailed audits and although the eventual outcomes have been in favor of the doctor in all instances, it would be ideal to avoid the audits altogether. The latest guidance by the CRA suggests an MPC’s SR&ED claim is complex and ideally should be put together by a team of experts that understands the related complexity.
If you are a healthcare professional conducting research and are interested in learning more about the SR&ED program and how MNP can help you make a claim, contact Arif Aziz, PhD., MBA, Senior Manager within MNP’s SR&ED Team at 416.596.1711 or [email protected]
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