Last update : July 2016
In an effort to enable Canadian and Québec companies to become and remain innovative, the Canadian and Québec governments have implemented tax incentives to support these companies in their research and development initiatives. Therefore, Canada and Québec are recognized as being among the most attractive places in the world for Research and Development.
The federal income tax credit program for Scientific Research and Experimental Development (hereinafter “SR&ED”) sets out the conditions that must be respected for basic and applied research or for experimental development to qualify for tax incentives. Accordingly, a project and its activities must meet all three of the following criteria, namely: scientific or technological advancement, scientific or technological uncertainty, and, finally, scientific or technical content.
Federal level:
Québec level:
Generally speaking:
The table below is a summary of the eligibility percentages of the main expenditures in the calculation of tax credit for each program:
Calculation of federal tax credit | Calculation of Québec’s tax credit | |
---|---|---|
Salaries and wages of SR&ED employees | 100% | 100% |
SR&ED subcontractors | 80% | 50% |
Materials consumed or transformed | 100% | 0% |
Certain general expenses | Choice of methods | 100% of the salary portion 50% of the subcontracting portion |
University research contract | 80% | 80%1 |
The university research tax credit is an important tax benefit for you. In order to benefit from this credit, you must make a request for an advance ruling generally 90 days following the signature of the research contract agreement with INO.
Requests must be sent to:
Direction générale de la législation et du registraire des entreprises
Décisions anticipées
Revenu Québec
3800, rue de Marly, secteur 5-2-6
Québec (Québec) G1X 4A5
The request must specify the dates the work is carried out as well as the total budget of the contract. Also, a copy of the contract must be included as well as a cheque in the amount of $300 made out to Revenu Québec to cover the minimum consulting expenses charged. To obtain further details, consult the Revenu Québec website or call (418) 659-4692 or 1-800-567-4692.
As a reference, we suggest that you consult the following websites:
This document is of a general scope and is used for informational purposes only. The information contained herein is under no circumstances intended to be a substitute for the competent professional advice of a tax specialist adapted to your particular situation.
EXAMPLES OF CALCULATIONS FOR YEAR 2016.
The following tables illustrate the net cost of a research contract awarded to INO which has been subjected to a favourable advance ruling:
Total cost of contract awarded to INO | $100,000 |
---|---|
Québec income tax credit (refundable) ($100,000 X 80% X 30%) |
(24,000) |
Federal income tax credit (refundable) ((($100,000 X 80 %) - $24,000) X 35%) |
(19,600) |
Net cost after income tax credits | 56,400 |
Income tax savings arising from the deductibility of expenditures (Income tax rate of 10.5% at the federal level and 8.0% at the Québec level). |
(10,434) |
Net cost for business | $45,966 |
Total cost of contract awarded to INO | $100,000 |
---|---|
Québec income tax credit (refundable) ($100,000 X 80% X 24%) |
(11,200) |
Federal income tax credit (non-refundable) ((($100,000 X 80 %) - $11,200) X 15%) |
(10,320) |
Net cost after income tax credits | 78,480 |
Income tax savings arising from the deductibility of expenditures (Income tax rate of 15.0% at the federal level and 11.9% at the Québec level). |
(21,111) |
Net cost for business | $57,369 |
The government of Québec has introduced a minimum threshold for R&D tax credits. Therefore, businesses will only benefit from these tax incentives for eligible expenditures exceeding a certain threshold.3
1Subject to obtaining a favourable advance ruling – see the following section.
2For this example, no threshold was applied since the threshold applies to all qualified expenditures.
3The minimum eligible expenditure thresholds will be: