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Changes to the tax credit for the development of e-business in Quebec


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Canadian Tax Alert, November 5, 2010

On October 29, 2010, the Quebec Department of Finance released Information Bulletin 2010-7 (IB 2010-7), containing certain modifications relating to the tax credit for the development of e-business (CDEB) in information technologies.

1)  Tax credit

The CDEB is a 30% refundable tax credit (maximum $20,000 per eligible employee per year) and is granted to an eligible corporation in respect of wages paid to eligible employees carrying out eligible activities related to the information technology sector.

2)  Criteria relating to the proportion of activities carried out by a corporation

The eligibility of a corporation for CDEB purposes is determined according to the proportion of its activities in the information technology sector that are grouped under certain NAICS[1] codes.

75% of gross revenue must arise from activities in the information technology sector
Two new NAICS codes are added to the seven NAICS codes applicable in determining if a corporation meets the eligible-activities criterion. These new codes are:

  • 561320 (Temporary Help Services)
  • 561330 (Professional Employer Organizations)

Thus, personnel leasing activities are now eligible for CDEB purposes. However, such activities will be considered eligible to the extent they relate to the supply of employees carrying out mainly activities covered by one or other of the actual seven applicable NAICS codes (334110, 334220, 417310, 443120, 511210, 51821 and 541510) for the benefit of a client of the corporation, which is at arm’s length with it. However, personnel leasing activities are only eligible if the corporation’s gross revenue from the activities covered by these two NAICS codes is less than the gross revenue from the activities covered by NAICS codes 511210 and 541510.

Additional criterion of 50%
To be eligible, 50% of the gross revenue of a corporation must come from activities grouped under NAICS codes 511210 and 541510. IB 2010-7 provides that the two new NAICS coded mentioned above will also be considered regarding the application of this additional criterion. However, personnel leasing activities will be considered eligible to the extent they relate to the supply of employees carrying out mainly activities covered by one or other of the actual seven applicable NAICS codes (334110, 334220, 417310, 443120, 511210, 51821 and 541510) for the benefit of a client of the corporation, which is at arm’s length with it, and only if the corporation’s gross revenue from the activities covered by these two NAICS codes is less than the gross revenue from the activities covered by NAICS codes 511210 and 541510.

3)  Eligible employee

Changes in connection to personnel leasing activities
Due to the addition of the two NAICS codes mentioned above, which are dealing with personnel leasing activities, the definition of an eligible employee is adjusted so at least 75% of his or her duties consist in carrying out, supervising or directly supporting work relating to the execution of an eligible activity by the eligible corporation, or — if the employee is the object of personnel leasing to a client of the corporation — by such client.

The other criteria for determining whether an employee is eligible remain otherwise unchanged.

4)  Eligible activities

Maintenance and evolution of computer systems and technology infrastructures
Maintenance and evolution activities are eligible for CDEB purposes if they are incidental to the development and integration of information systems and technology infrastructure. However, now included are activities required for the proper operation of systems and infrastructures or with a view to resolving or preventing problems or incidents, provided they consist of:

  • A technical, corrective or preventive, intervention that modifies one or more technical aspects of the components, including computerized processes, or
  • A diagnostic activity, with remote control or intrusion of systems and technology infrastructures, leading, directly or indirectly, to such a technical intervention

Precisions regarding activities that are not eligible
The CDEB provides that certain activities are not eligible. Among these are the management and operation of computer systems, applications and infrastructure stemming from e-business activities and the operation of a client relations centre.

IB 2010-7 provides examples of activities included in these categories. Thus, the first-level technical assistance service is listed among the activities included as operating a client relations centre.

5)  Date of application

These modifications apply in respect of a taxation year beginning after October 29, 2010.

Furthermore, if the corporation elects in writing to Investissement Québec, these changes may also apply to a taxation year beginning in 2010 (no later than October 29, 2010) and to a taxation year ending in 2010 and that did not begin after October 29, 2010. However, such written election must be submitted to Investissement Québec by the corporation before the end of the ninth month following the deadline for filing its income tax return for the taxation year concerned.


[1] North American Industry Classification System.

 

This publication is produced by Deloitte & Touche LLP as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors. Your use of this document is at your own risk.

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