Tax credits – R&D

TAX CREDITS - R&D

ACCESS TO TAX BENEFITS

Quebec believes in innovation and research. That’s why its government has created tax measures that enable companies to realize considerable savings on R&D, potentially reducing the net cost of R&D expenditures by more than half. Such measures are invaluable for businesses looking to develop innovative products.

TAX MEASURES

For tax purposes, a corporation that does R&D can deduct all of its current expenditures and certain capital expenditures that it incurred. It can also deduct amounts paid to subcontractors relating to R&D activities performed on its behalf. It can also elect to defer the deduction for the expenditure indefinitely. There are also generous tax credits that vary according to the corporation’s status, size and taxable income.

A business doing R&D will also find it easier to attract foreign researchers and specialists to Quebec because of the tax holiday to which they are entitled. All the corporations in a group are taken into account in determining size and taxable income. Among the countries studied, Canada has the lowest Total Tax Index at 53.6. In other words, total tax costs in Canada are 46.4 percent lower than in the United States, which has a TTI of 100.0 and represents the benchmark against which all locations are scored.¹

PROVINCAL TAX CREDITS

The following expenditures are eligible for the Quebec R&D tax credits:

  • Salaries of employees who worked directly on the project;
  • One-half of the fees paid to a subcontractor at arm’s length who performed R&D on behalf of the corporation in Quebec;
  • 80% of the total eligible R&D expenditures incurred in connection with a research contract with a university or eligible research centre;
  • Contributions to a research consortium;
  • Expenditures made in connection with a private partnership pre-competitive research project.

 

The basic Quebec tax credit is 14% of R&D expenditures. This rate is increased to 28% for contracts with a research centre, contributions paid to a research consortium and expenditures incurred in connection with a private partnership pre-competitive research project, regardless of the size of the corporation. The tax credit is always refundable, i.e. a corporation can receive its tax credit even if it did not pay any income tax.¹

FEDERAL TAX CREDITS

The following expenditures are eligible for the federal R&D tax credits provided the activities are carried on in Canada:

 

CURRENT EXPENDITURES :

  • Salaries of employees who worked directly on the project;
  • 80% of fees paid to a subcontractor at arm’s length who performed R&D for the corporation;
  • Payments to a certified association, university, college, research institute or other certified body;
  • Cost of materials used in connection with the project;
  • Leasing cost of equipment used during the execution of the project and incurred before January 1, 2014;
  • Overhead expenses directly related to the research.

 

CAPITAL EXPENDITURES :

  • Capital cost of property, such as equipment, provided that 90%of the property is used in connection with the R&D project and that the property is acquired before January 1, 2014.

 

The basic tax credit is 15% of the R&D expenditures and is not refundable. The unused balance can be carried back three years and forward 20 years.¹

QUEBEC TAX CREDIT FOR SMBS

The tax credit for SMBs is 30% on the first $3 million of eligible expenditures per year. An SMB is a Canadian-controlled private corporation whose assets, combined with those of all the corporations in the group, are less than $50 million as presented in their financial statements. If the assets exceed $50 million, but are less than $75 million, the rate is gradually reduced.¹

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