SR&ED for Physicians and Medical Professional Corporations

Canada is recognized as a world leader in healthcare and medicine with many ground-breaking discoveries under its belt. Formidable efforts by various parties in the medical sector including physicians, medical professional corporations (MPCs) and health care entities (HCEs) to perform intensive research in a wide range of critical fields—from cancer research to population health—have led to significant developments in treatment strategies and sustainability of the public healthcare system.

Government support for research and development activities is evidenced by available funding programs for health research as well as tax incentives for performing Scientific Research and Experimental Development (SR&ED) work in this industry. As the Canada Revenue Agency (CRA) recognizes advancements in scientific knowledge and technology contributed by medical research, this work generally meets the eligibility criteria of the SR&ED program.

Who can claim SR&ED?

According to the CRA, in order to claim SR&ED tax incentives, the SR&ED work must be directly undertaken by the taxpayer (i.e., Physicians and corporations (MPCs, HCEs, etc.))  or undertaken by another party on behalf of the taxpayer, and result in expenditures.

SR&ED claims are typically submitted by MPCs or independent physicians. MPCs are usually incorporated by physicians to operate a medical practice/business and thus SR&ED claims are submitted as a corporation. As for physicians operating as independent contractors for another entity, the physicians may directly submit an SR&ED claim for themselves. The CRA outlines the common scenarios where MPCs or physicians claim SR&ED :

MPCs and their physician-employees (incorporated business)

MPCs may submit SR&ED claims as a corporation in the following cases:

  • The work was directly undertaken by the MPC and their physician-employees.
  • The work performed on behalf of another party is carried out by the MPC’s physician-employees.*
  • Any additional work on top of the work performed on behalf of another party is directly carried out and funded by the MPC.

* However, if only the MPC’s physician-employees (excluding the MPC) are named on the agreements/contracts as performing the SR&ED work, the MPC cannot submit the SR&ED claim. The physicians, however, may submit the SR&ED claim for themselves.

Physicians as independent contractors (unincorporated business)

Independent physicians may directly submit an SR&ED claim for themselves when:

  • The medical research was carried out by physicians themselves or their employees.
  • The medical research was performed on behalf of another party AND the physician has incurred SR&ED expenditures that have not been reimbursed.  

Physicians may include salaries and benefits payable to their employees in the SR&ED claim but salaries or drawings paid or payable to sole proprietors or their partners are not deductible.

How do physicians/MPCs need to prepare for the SR&ED claim?

Sufficient project documentation is critical to support the eligibility of an SR&ED claim. The claimant must be prepared to present documentation that clearly shows whether the claimant performed the SR&ED work for themselves or on behalf of another party, which entity incurred the SR&ED related expenses, and the detailed breakdown of the medical research activities undertaken. The CRA recommends that all agreements be in writing. Where there are no written agreements, claimants should provide alternative evidence that demonstrates which party is legally responsible for performing the research.

Here are the main types of documentation required:

  • Research-related documents: These are documents and records showing the work performed. An example of research documentation shows a detailed account of the research, developments, challenges, and learnings throughout the project. 
  • Financial documents: These are documents and records that show the SR&ED expenditures incurred. These include material cost, labour activities and subcontractor quotes/invoices.
  • Relationship-contractual agreements: These are contracts and other documents that show the clear legal relationships and terms of the agreement between the physicians and/or their MPCs and other parties. These contractual agreements should describe the nature of the SR&ED work, the associated payments, and the ownership of the resultant knowledge.
  • Other documents: These are documents that can be considered as another source of information to support a claim. For example, e-mails or signed attestations describing terms of the SR&ED work may be considered as supporting documents.

What are eligible sub-sectors?

Medical sub-sectors that are eligible for claiming SR&ED tax incentives include, but are not limited to:

  • Medical devices and Biomaterials
  • Cardiac and Cardiovascular Systems
  • Neuroscience and Neural Imaging
  • Radiology and Nuclear medicines
  • Dentistry and Oral Medicine
  • Medical and Biomedical Engineering
  • Pediatrics
  • Telemedicine and Medical voice assistants
  • Genetic Medicines Therapeutics and Pharmacogenomics
  • Oncology Research
  • Big Health Data
  • Public Health Management
  • Internet of Medical Things (IoMT)
  • Precision Medicine
  • Nutrition and Dietetics
  • Anaesthesiology, Pharmaceuticals, and Toxicology

Trends and priorities constantly change across all aspects of health, which calls for continuous research and development to propel innovations in health and medicine.

To learn more about how to claim SR&ED tax incentives for medical research activities, contact us today for a free consultation.

Authored by Rebecca Galicha, Technical Writer at NorthBridge Consultants.

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