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2008-2009 Quebec budget highlights

R&D Tax Update, March 2008 (08-2)

The 2008-2009 budget, presented on March 13, 2008, by Minister of Finance Monique Jérôme-Forget, contains interesting tax measures to improve assistance for scientific research and experimental development (SR&ED) and other important tax developments specifically for the manufacturing sector.

Tax assistance for SR&ED – New improvements are proposed to Quebec’s system of tax assistance for SR&ED.

  • The tax assistance granted to small- and medium-sized enterprises (SMEs) that carry out SR&ED will increase. The tax legislation will be amended to raise the spending limit that applies to the increased rate of 37.5% to $3 million. This change will apply for fiscal periods ending after March 13, 2008, and will be prorated for fiscal periods that include this day.
  • Partnerships with public partners will now be eligible for the refundable tax credit for pre-competitive research previously limited to private partnerships.  Eligibility criteria for the credit will be modified and other technical amendments made. Changes will generally apply regarding eligible SR&ED expenditures incurred after March 13, 2008.
  • The tax assistance currently in place to encourage business-university synergy will be improved by technical amendments to make the tax credit more accessible.

Development of information technology – To consolidate the development of companies in the information technology sector, a temporary refundable tax credit for the development of information technology will be introduced. This tax credit, which an eligible corporation may claim until December 31, 2015, is equal to 30% of eligible salaries incurred as of March 14, 2008. The maximum amount of the tax credit that an eligible corporation may claim regarding an eligible employee, for a taxation year, will be limited to $20,000.

Manufacturing sector – An investment tax credit is introduced for eligible investments incurred from March 14, 2008, to January 1, 2016, with regard to new manufacturing and processing equipment (class 43) by a corporation that carries on a business in Quebec and has an establishment there.

  • The tax credit rate will be 5%, but may rise to 20% if the eligible investment is made in an intermediate zone (Saguenay-Lac-Saint-Jean, Mauricie, and the La Vallée-de-la Gatineau, Pontiac, and Antoine-Labelle RCMs), to 30% if the investment is made in the Bas-Saint-Laurent regions, and up to 40% if this investment is made in a remote zone (the Abitibi-Témiscamingue, Côte-Nord, Nord-du-Québec and Gaspésie-Îles-de-la-Madeleine regions).
  • The tax credit will be fully refundable for corporations whose paid-up capital, calculated on a consolidated basis, does not exceed $250 million. Refundability will decline linearly for paid-up capital between $250 million and $500 million. Any non-refundable portion of the tax credit may be carried forward 20 years, and back three years.
  • Aluminum producing corporations and oil refining corporations will be excluded.

Elimination of the tax on capital for manufacturing corporations – A deduction will be allowed to manufacturing corporations, in calculating their paid-up capital, to enable them to completely eliminate their tax on capital. This deduction will apply for taxation years ending after March 13, 2008.

  • The expression "manufacturing corporation” will designate a corporation at least 20% of whose activities consist of manufacturing and processing.
  • The elimination of the capital tax will be complete for a manufacturing corporation whose proportion of activities attributable to manufacturing and processing, for a given taxation year, is 50% or more; if the proportion is between 50% and 20%, the deduction a manufacturing corporation may claim in calculating its paid-up capital is reduced linearly.

About R&D Tax
Opportunities, issues and developments affecting the federal and provincial scientific research and experimental development tax incentive programs.

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