Quebec budget – R&D developments
R&D Tax Update, Special edition, April 1, 2010
The 2010-2011 Quebec budget tabled on March 30, 2010 introduced a number of significant improvements to scientific research and experimental development (SR&ED) incentives.
This year’s budget softens some of the SR&ED wage tax credit rules for clinical trials performed by pharmaceutical companies, which are applicable to any Canadian life science company undertaking such trials in Quebec.
Specifically, the research subject costs incurred in clinical trials undertaken by pharmaceutical companies or clinical research organizations, in compliance with food and drug regulations, will be eligible for this tax credit. This is effective for taxation years that are not statute-barred and implies that some companies could potentially revisit their Quebec SR&ED claims to ensure that this opportunity was not lost for open years.
Other harmonization rules were introduced, the most relevant being that from 2010 onwards, the first $1,500 in payments received by clinical trial research subjects will be tax exempt.
Arm’s length subcontractors
Over the years, as a result of a technicality in the way the rules were interpreted, the wage tax credit could not be claimed in situations where an SR&ED contract payment was made to an arm’s length corporation that compensated the owner-manager through dividends (and not salary). Such situations were common, particularly in the life science and information technology industries. The budget provides a solution for taxation years that are not statute-barred by treating the owner-manager as an eligible employee for SR&ED purposes.
Refundable tax credits for the production of multimedia titles
The Quebec government broadened the rules concerning eligibility for the refundable tax credit relating to the production of multimedia titles. Consequently, production activities for a digital animation movie which is taken from a video game developed by the same corporation will now be eligible for the credit. Moreover, the eligibility period will be extended from 24 to 36 months to take into account the growing complexity of new generation multimedia titles. Lastly, the activities related to system architecture will now be eligible for the credit.
E-business development credit
The credit for the development of e-business (30% of eligible salaries with an annual maximum of $20,000 per employee), introduced in March 2008, has been modified to facilitate the qualification of corporations in circumstances of business transfers or start-ups. This modification aims at ensuring that in these circumstances, eligible corporations can still meet the requirement (maintaining 6 full-time eligible employees at all times during the taxation year). More specifically, it will now be possible for a corporation to obtain an eligibility certificate from Investissement Québec for a portion of a taxation year.
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