SR&ED: A physician’s eligibility to claim as an employee of the MPC

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As noted earlier, although CRA recognizes that research undertaken by MPCs can meet the eligibility criteria of the SR&ED program, determining eligibility to claim has historically been challenging due to the relationship between the MPC undertaking SR&ED and other affiliated entities. As such the CRA will sometimes deny SR&ED claims based on the physician’s agreement with an affiliated entity with a default position that the research is being conducted by a medical practitioner for the affiliated entity and not their MPC.

Andre Lamy MPC vs The Queen

A recent tax court case (Andre Lamy Medicine Professional Corporation v. The Queen, 2020 TCC 61) helps to clarify the ability of an MPC to claim the SR&ED tax incentive. In the tax years in question (FY2013 and FY2014), Dr. Lamy was a cardiac surgeon and researcher at Hamilton General Hospital and performed activities consistent with the practice of medicine on behalf of the MPC. Dr. Lamy also held an academic appointment as a Professor at McMaster University where his teaching duties included lecturing on research methodology and the inclusion of students in cardiac surgery. He was not an employee of the hospital, performing all his work as a cardiac surgeon and carrying out all his research as an employee of the MPC. Therefore, the MPC, and not any other entities, compensated him for the time he spent on conducting research. As such, labour expenditures related to SR&ED-eligible research undertaken by the MPC for these tax years were claimed.

During court proceedings, the main issue was whether the MPC carried out the SR&ED or whether Dr. Lamy conducted the research in his personal capacity as an employee of an affiliated HCE (as a Professor at McMaster University). After reviewing the facts and Dr. Lamy’s testimony that the work was conducted in his role as an employee of Andre Lamy MPC, the court stated that since Dr. Lamy was the appellant’s sole employee, he was the only one able to perform the research in question. Furthermore, the physician’s employment agreement specified that he must not devote his time to any business other than that of the MPC. Although a grant was provided for a study by the Canadian Institute of Health Research, no payments were made under this agreement to Dr. Lamy or his MPC. The physician’s salary for the research conducted was paid by the MPC directly. The court also considered the fact that although Dr. Lamy signed the research contracts under his own name, it did not contradict his testimony that he was signing on behalf of the MPC, as this was the same approach that Dr. Lamy took in signing off on his billings for medical services. The court accepted Dr. Lamy’s position that work was conducted in his role as an employee of the MPC and therefore the MPC has the ability to claim the SR&ED-related expenditures.

The court’s decision is welcome news as it helps clarify the ability to claim SR&ED by MPCs affiliated within HCEs and can help support academic physicians interested in claiming SR&ED tax credits for related expenditures incurred by their MPC.

Considerations

If the physician, as an employee of their MPC, or the MPC itself is performing SR&ED work in collaboration with an affiliated entity, consider having any contractual documents pertaining to the work clearly state the business entity (the MPC) that will be making the SR&ED claim as the performer, and not the physician as an individual. Additionally, consideration should be given to establishing an employment agreement between the MPC and the physician, detailing the job requirements including clinical, administrative, teaching, and research activities. As is typical for SR&ED claims made for any industry segment, it is important that the SR&ED work and related expenditures be tracked in a contemporaneous manner. This includes details of SR&ED planning, experimentation, data collection, and analysis of that data and formulation of conclusions. The related labour and other eligible expenditures should also be tracked prospectively by project and activity.

How can MNP help?

MNP has helped hundreds of healthcare professionals across Canada access the SR&ED tax credit through their MPCs. 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 favour of the MPCs, it can take time and effort to achieve. 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 and tax legal rules.