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

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.