Medical Cannabis and SR&ED Incentives

Licensed producers of medical cannabis may not realise that they are performing scientific research or experimental development (SR&ED). Upon closer inspection however, such producers may well have eligible SR&ED activities that should be claimed.

The SR&ED tax program in Canada aims at giving firms an incentive to conduct research and development. In the medical marijuana sector, advances in research and development may involve production facilities that churn out new plant cultivars for disease resistance, the production of new fertilizer blends that boost yield or the development of biological pest controls. The development of other cannabis products, such as innovative new methods to assess cannabinoid concentration, could also be eligible for the tax credit.

Post-production activities such as clinical trials on patients to assess their response to different doses may also qualify for the SR&ED tax credit. The medical cannabis sector has been on the rise in recent times, due to legalization in many places. It has created an environment where firms can engage in the production and research of medical marijuana within a legal framework.

The SR&ED program in Canada is one of the most generous in the world and is beneficial to both small and large companies. For instance, a Canadian-controlled private corporation can recoup up to 66% of its eligible labour costs relating to research expenditure. A public company can recoup up to 38% of these costs.

To claim the SR&ED tax incentive, you do not need to prepare a proposal and then wait for its approval. You just carry out the experimental activities before making a claim. However you must ensure the activities are eligible before claiming. To meet the eligibility requirements, activities must be scientific or technological in nature; the outcome must be unknown; and industry experts must systematically perform and document the work. To discuss the SR&ED Tax Incentive with an expert, please contact Swanson Reed R&D Tax Advisors.

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