SR&ED vs Tax Planning / Income Sprinkling for Medical Professionals

The SR&ED (Scientific Research and Experimental Development) Program has been in existence for over 30 years.

The SR&ED program provides refunds worth up to 66.8% for eligible time!

The SR&ED program was designed by the government, and is protected under the Income Tax Act.

The SR&ED program is largely considered a technology program, despite the fact that the list of eligible industries clearly covers all area of technology, science AND medicine.

Yes, medicine. Yet, of the 22,000 claims that are submitted to CRA every year, it is estimated that only 3% of the claims are related to advancements in knowledge in a field of medicine or science.

Let’s put that in perspective. Based upon this author’s estimates, it is unlikely that CRA receives as many as 500 SR&ED claims from the medical community (doctors, physicians, surgeons, naturopaths, physiotherapists, dentists, clinics).  However, there are 80,000 physicians in Canada (not including naturopaths and dentists), and half of that number, 40,000, practice in an area of medical specialty.

Why don’t more practicing doctors in a field of medical specialty claim for SR&ED?

Most doctors don’t claim because:

• they mistakenly believe that the program doesn’t cover time spent within a medical practice
• they mistakenly believe that the program only covers development of pharmaceutical medicines, clinical trials or formal research that is published
• they were never informed by their accountant or advisor about the program
• in some unfortunate cases, the doctor is incorrectly advised to stay away from SR&ED
• they are never informed by CRA that they qualify; CRA typically doesn’t go out of its way to advise corporations that they are eligible for tax incentives
• they may have heard about the program, but don’t know how to claim
• OR…
• they receive their income in the form of dividends as a result of standard tax planning strategies, and thus don’t qualify for SR&ED

In order to qualify for SR&ED, the practicing doctor MUST receive a T4 from the professional corporation. Without the T4 income, there can be no conversation about SR&ED eligibility.

In the past, these doctors have benefited from the tax planning provided by their advisors, but they left the SR&ED on the table, unclaimed.

Typically, the T4 strategy has been in direct conflict with standard tax planning strategies with dividends (ie. income sprinkling). But now the government is proposing changes to eliminate any advantages from such tax planning.

Now, more than ever, doctors need to start taking the SR&ED program seriously.

For every $1000 of T4 salary earned by a doctor that is categorized as eligible work under the program, the MPC (Medicine Professional Corporation) will receive a credit of $668, most of which is refundable, even if the corporation is not profitable.  To be clear, yes, that’s a 66.8% refund. To state the obvious, that’s higher than the highest marginal tax rate anywhere in Canada, and this refund rate applies to every dollar of SR&ED time.

This author would like to ask medical specialists to stop disqualifying themselves for SR&ED. Seek out an assessment from a SR&ED Specialist today.

In order to qualify, you would need to confirm that:

• There is a MPC (Medicine Professional Corporation)
• The doctor receives a T4 from the MPC
• The practicing doctor may have professional contractual relationships with hospitals and academic institutions, or grants received from the government, that need to be analyzed
• Typically the practicing doctor is involved in epidemiology studies, data collection and data analysis that leads to the advancement of knowledge in a field of medicine, which may or may not be published

100% of the medical SR&ED claims prepared by Bond Consulting Group have been accepted and approved by CRA.

This article was written by Julie Bond, President of Bond Consulting Group. For more SR&ED articles, visit our Blog. To learn more about SR&ED, visit our Video Learning Centre.