Quebec – SR&ED Tax Credits
Among the major industrialized countries, Canada offers one of the most favorable packages of R&D tax incentives. In addition to the federal tax incentives, taxpayers carrying on R&D can also reap the benefits of state tax credits. In an effort to help individuals and corporations to maximize their potential SR&ED tax incentives, each province and territory offer a range of rules and regulations that govern the whole process. The Canada Revenue Agency (CRA) administers the SR&ED program. This body deals with both the federal and provincial governments.
All R&D tax credits are claimable by corporations. In Newfoundland and Labrador, Quebec and the Yukon, individuals also have the privilege of claiming the SR&ED tax credits. The credits can be fully claimed against a taxpayer’s provincial or territorial income tax.
In the case of Quebec, the tax credits have been:
- Reduced by 20% (for all the R&D tax credits). This is effective for R&D expenditures incurred by eligible companies after June 2014.
- Standardized in an effort to ensure that all Quebec R&D tax credits would have the same rates that is generally effective for R&D expenditures incurred after December 2, 2014.
- This states R&D program will parallel the changes to the federal Scientific Research and Experimental Development Tax Credit.
A firm that carries out SR&ED or has R&D carried out on its behalf in Quebec may in certain conditions claim tax credits on qualified R&D salaries and wages paid out during that taxation year.
The following documents must be attached to the tax return of a company applying for the tax credit:
- The RD-1029.7 Form: Tax Credit for Salaries and Wages (R&D)
- The RD-222 Form: Deduction Respecting Scientific Research and Experimental Development Expenditures;
- The RD-1029.7.8 Form: Agreement between associated corporations regarding the expenditure limit, if any.
To qualify for the tax benefits that are associated with SR&ED, a company must file the tax forms accompanied by a description of the work that has been carried out within 18 months of the end of the taxation year in which the expenditures were incurred.
The basic rate applied to the tax credit for eligible R&D salaries and wages paid out by a corporation after June 4th, 2014 is 14%. This rate may be increased to 30% if the corporation is Canadian-controlled and whose total assets for the previous tax year including those of associated companies is $50 million or less.
In the case that the company’s total assets are between $50 and $75 million, the 30% is reduced linearly. The increased rate applies to a maximum of $3 million in expenses. In terms of eligibility, only the activities that are carried out in the province of Quebec are eligible. Furthermore, any taxpayer carrying out business in Canada may benefit from the Quebec tax credit for the SR&ED expenditures incurred, without an obligation to operate a business in Quebec.
For the taxation year that begins after December 2nd, 2014, a company or corporation must subtract an amount named the excluded expenditure amount for wages or valuable considerations paid in respect of R&D work done after that date.