Leveraging Canadian R&D Tax Credit Program

Research & Development (R&D) Tax Credits are available to pharma and biotechs to incentivize drug development and clinical research in countries around the world

In this article, we will discuss Canada’s R&D tax credit program, which is part of local government strategy to boost innovation in drug development and support R&D activities in the private sector. First, a bit of information about Precision for Medicine (PFM). We are more than just a Contract Research Organization and have a comprehensive suite of capabilities to support the spectrum of biopharmaceutical companies’ needs across the drug development lifecycle. We are excited to share later on in this article what services we can provide locally in Canada, which will help Sponsors (Biotech and Pharma) take advantage of the Canada’s Scientific Research and Experimental Development (SR&ED) tax incentive program. 

Disclaimer: PFM prepared this article for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consult your own tax, legal, and accounting advisors before engaging in any Canadian tax credit applications.

Insights into Canada’s Scientific Research and Experimental Development tax incentive program

Now, let’s dive back into the information we have to share. Canadian Biopharma companies are considered a critical hub of innovative drug development, and Canada’s R&D tax credit program, also referred to as the Scientific Research and Experimental Development (SR&ED) is a particularly generous, mature, and worldwide recognized fiscal incentive with the aim to better society by encouraging innovation, the pursuit of scientific knowledge and the development of ideas that may lead to Canadian economic growth and competitiveness. Indeed, R&D expenses can be claimed on activities performed throughout the drug development process. 

Managing the SR&ED program, the Canadian Revenue Agency (CRA) maintains a very helpful website that explains how the process works (here) and issues guidance and frequent webinars in English and French assisting claimants in accurately selecting eligible activities and their associated costs.¹  SR&ED popularity is also correlated to the diversity of eligible expenses that can be included on an annual basis (see CRA Guidance here). Depending on the size and type of business owned, SR&ED incentive program offer several rates and financial outcomes:

• A Refundable ITC at the enhanced rate of 35% on qualified SR&ED expenditures for Canadian-controlled private corporations, with a maximum expenditure limit settled at $CAN 3M. 
• A non-refundable ITC at the basic rate of 15% on qualified SR&ED expenditure, utilized to reduce tax payable. 

We will focus on the refundable ITC, the SR&ED incentive available for Canadian-controlled private corporations (CCPC), defined by the CRA as follows:

• Private corporation 
• Corporation that was resident in Canada and was either incorporated in Canada or resident in Canada from June 18, 1971, to the end of the tax year 
• Not controlled directly or indirectly by one or more non-resident persons or public corporation 
• Not controlled by a Canadian resident corporation that lists its shares on a designated stock exchange outside of Canada
• Not controlled directly or indirectly by any combination of persons described in the three previous conditions
• All of its shares that are owned by a non-resident person, by a public corporation, or by a corporation with a class of shares listed on a designated stock exchange were owned by one person, that person would not own sufficient shares to control the corporation
• No class of its shares of capital stock is listed on a designated stock exchange

If you are an CCPC, as defined by the Canadian authorities, and want to claim your R&D tax credits as a refund, we encourage you to learn more about this on their website (here).

“As a leading Canadian CRO, Precision for Medicine is exceptionally positioned to support our Canadian BioPharma companies, allowing them to benefit from advantageous local R&D incentives”

— Andrea Cotton-Berry, Global Head, Strategic Development US, EU, APAC

Canada-Based Services available from Precision for Medicine

Providing customized CRO solutions from late pre-clinical stage all the way through post-launch clinical trials, Precision for Medicine offers a unique partnership to promote innovation in Canada, prioritizing R&D activity development locally and maintaining close collaboration with Canadian R&D centers of excellence. Below is a list of available services based out of Canada.  

Collaborate with a Canada-based Partner

For innovative BioPharma companies where you want to tap into Canadian R&D tax credit, it‘s also critical to work with a partner with services and staff in Canada. This is where PFM can support your drug development innovation. To learn how Precision can support your efforts, please contact our team here.

Reference:

1. https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program/policies-procedures-guidelines/guidelines-eligibility-work-sred-tax-incentives.html