13 April 2026 Internal T.I. 2025-1082711I7 - MEANING OF "ON BEHALF OF" IN SUBPARAGRAPH 37(1)(A)

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether SR&ED is being performed "on behalf of" a "contract research organization" ("CRO").

Position: "On behalf of" refers to a relationship where the SR&ED claimant provides some direction or control or some other form of involvement in the SR&ED performer's activities, and the claimant has or acquires rights to the SR&ED performed by the performer.

Reasons: Past positions and jurisprudence.

Ms. Brigitte Gener				Income Tax Rulings Directorate
XXXXXXXXXX						Matthew Ross, CPA, CA
SR&ED Directorate
Canada Revenue Agency					

2025-108271

April 13, 2026

Re: Meaning of “on behalf of” in subparagraph 37(1)(a)(i.01)

Dear Ms. Gener:

This is in reply to your memorandum of November 14, 2025, wherein you requested our views on the meaning of the phrase “on behalf of the taxpayer” in subparagraph 37(1)(a)(i.01) of the Income Tax Act (“the Act”).

You’ve presented the following situation for our consideration:

• A clinical study (“the Research”) is to be undertaken for a pharmaceutical company (“the Sponsor”) at universities and hospitals in Canada (“the Sites”).
• The Sponsor engages a Contract Research Organization (“CRO”) to manage the Research and provide support to the Sites. The CRO is paid a fee for its services (“the Fee”).
• The CRO is a corporation resident in Canada for income tax purposes.
• The Research constitutes “scientific research and experimental development” (“SR&ED”), as that term is defined in subsection 248(1) of the Act.
• The Sponsor has direct involvement with the Sites and, for example, dictates how the Research is to be performed. The Sponsor has exclusive use of the results of the Research.
• The CRO does not perform any of the Research; its main responsibility is to verify and pay invoices (“the Amounts”) rendered by the Sites for costs incurred for the Research. The CRO pays for the Amounts from the Fee.

You have asked whether the CRO may deduct the Amounts as SR&ED pursuant to subparagraph 37(1)(a)(i.01) of the Act.

Our Comments

Generally, a taxpayer may perform SR&ED in-house, have someone else perform SR&ED on their behalf or make payments to certain entities (such as approved entities, universities, or not for profit SR&ED corporations) for SR&ED. Section 37 of the Act provides that a taxpayer carrying on a business in Canada may, subject to certain limitations, deduct expenditures for SR&ED.

Subparagraph 37(1)(a)(i) of the Act provides that a taxpayer may deduct expenditures of a current nature for SR&ED carried on in Canada that is related to the business of the taxpayer is and directly undertaken by the taxpayer. Similarly, subparagraph 37(1)(a)(i.01) provides a deduction for expenditures of a current nature for SR&ED carried on in Canada that is related to the business of the taxpayer that is directly undertaken on behalf of the taxpayer.

In our view, for the purposes of subparagraph 37(1)(a)(i.01) of the Act, “on behalf of” refers to a situation where SR&ED is contracted out by the taxpayer to another party (“the Performer”), the taxpayer exercises some direction or control or some other involvement in the SR&ED undertaken by the Performer and the taxpayer acquires or maintains rights to use the results of the SR&ED.

Whether SR&ED is carried out “on behalf of” a taxpayer is a question of fact and would depend on the terms of the particular arrangement. In the situation you’ve presented, if the CRO does not direct nor control or is not involved in the Research performed by the Sites, and if the CRO is not entitled to use the results of the Research, the Research cannot be said to be undertaken by the Sites “on behalf of” the CRO. It follows that the CRO may not deduct any part of the Amounts under subparagraph 37(1)(a)(i.01) of the Act.

Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of the taxpayer. The taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.

We trust our comments will be of assistance.

Yours truly

Sandro D’Angelo, CPA, CMA
Manager
Business and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch