Main Corporate Tax and Financial Incentives

R&D Tax Credits

• Government of Canada: 20% tax credit; Government of Québec: 17.5% refundable tax credit


• Together, these two measures lower R&D taxes by more than half

Net After-Tax Cost of an R&D Expenditure (CA$) 2008

Example
Private, foreign-controlled companies
20 eligible employees @ $50,000/ year
100% of their work is related to eligible activities
Subcontractor: $200,000
Equipment: $100,000
	Federal	Québec	Total
Salaries	1,000,000	1,000,000
Proxy amount @ 65 %	650,000
Subcontractors*	200,000	100,000*
Equipment	100,000
Québec SR&DE tax credit	-192,500
Québec SR&DE tax credit	1,757,500	1,100,000
Federal tax credit @ 20% and Québec credit @ 17.5%	351,500	192,500	544,000

 *Only 50% of the amount paid to a subcontractor is eligible for the Québec tax credit

Tax Holiday for Foreign Researchers and Specialists

• Foreign researchers and other specialists may be eligible for a tax holiday on 100% of their taxable income


• This holiday consists of an exemption from Québec income tax for a period of up to five years


• An eligible individual can deduct the following from his/her income:
   

• 100% of his/her salary for the first two years
• 75% for the third year
• 50% for the fourth year
• 25% for the fifth year

Refundable E-Business Tax Credit
 

• A Québec Government incentive for the development of e-business in Information Technologies (IT)


• A maximum of $20,000 per employee, per year


• A refundable tax credit equal to 30% of eligible salaries


• Eligible IT activities are those included in the following North American Industry Classification System codes (NAICS):

• 334110   –   Computer and Peripheral Equipment Manufacturing
• 334220 –   Radio and Television Broadcasting and Wireless Communications                        Equipment Manufacturing
• 417310   –   Computer, Computer Peripheral and Pre-Packaged Software  
                         Wholesaler-Distributors
• 443120   –   Computer and Software Stores
• 511210   –   Software Publishers
• 51821     –   Data Processing, Hosting and Related Services
• 541510   –   Computer Systems Design and Related Services

Refundable Tax Credit for the Production of Multimedia Titles
 

• Companies that produce multimedia titles may be eligible for a provincial refundable tax credit, which is calculated as follows:

Tax Credit Calculation

	MULTIMEDIA TITLES category 1	MULTIMEDIA TITLES category 2
Basic credit	30% of eligible labour costs	26.25% of eligible labour costs
Bonus for titles available in French	7.5% of eligible labour costs	N/A
TOTAL	37.5% of eligible labour costs	26.25% of eligible labour costs

Category 1: Titles produced without being part of a commission and destined for commercial markets; titles must be intended for a wide audience and subject to a structured marketing approach
Category2: Other multimedia titles
 

Laval Biotechnology Development Centre (LBDC)
 

• The objective of this tax program is to bring biotechnology businesses together at designated facilities adapted to their needs, thereby contributing to the creation of scientific research networks maximizing synergy and cooperation


• A biotechnology business involved in development and innovation that locates in the LBDC can benefit from a:

• 30% refundable tax credit on wages paid to eligible employees
• 30% refundable tax credit on eligible purchased or leased specialized assets
• 30% tax credit on eligible specialized facilities leased by the corporation

Tax Holiday for the Commercialization of Intellectual Property

Tax exemption rate	– 100% of corporate revenue
Tax exemption period	– First ten years after incorporation
Eligible corporations	– Québec-based – Incorporated in Canada – Must derive at least 90% of income from commercialization activities
Eligible activities	– Manufacturing of products derived from intellectual property – Commercialization of developed products
Other conditions	– The intellectual property must have been developed by Québec universities or eligible public research centres.

Tax Credit for Film Production Services
 

• Government of Québec: 25% (refundable); Government of Canada: 16%
• Applies to labour expenditures
• An additional 20% can be claimed for computer-assisted special effects (VFX) and animation
• A 20% tax exemption is also allowed for the shooting of scenes in front of a chromatic screen (Chrome Key)
• Total tax credits for production services can amount to 53.8%

International Finance Centre (IFC)
 

• The following advantages are available to a corporation or partnership operating an International Financial Centre (IFC) in Montréal:
   

• Québec income tax reduction of 75% on income from qualified international financial transactions (QIFTs)
• Capital tax deduction of 75% for paid-up capital deriving from IFC activities
• A 75% exemption on contributions to the Québec Health Services Fund based on payroll linked to IFC operations

• To be designated as an IFC and take advantage of these tax benefits, all of the corporation or partnership’s activities must involve eligible qualified international financial transactions (QIFTs)

Success@Montréal, Industry
 

• The City of Montréal offers property owners a five-year subsidy equivalent to the increase in the general property tax due to the construction, conversion or expansion of an industrial building
   

• Reimbursement over a period of five years as follows: 100% - 100% - 100% - 80% - 60%
• Maximum annual subsidy: $1 M
• Eligibility open until December 31, 2009
• Three-year deadline for project completion after the eligibility date
• Eligible industrial sectors: manufacturing (excluding nuisance generating activities), film and video production, information system design, packaged software development, call centres, headquarters, physical science R&D, engineering and life sciences

Financial Assistance for Job Creation and Training
 

• The Government of Québec provides businesses with technical and financial assistance to help them meet their human resource needs


• The contribution can be either:

• Up to 25% of eligible costs for the implementation of a training plan or
• Up to 50% of costs incurred by the creation of a human resources department

• To be eligible for the “major economic initiatives” category, a company must:
   

• Submit a proposal for a project that will have an important impact on regional employment or one that comes after a significant investment; or
• Create fifty new full-time, lasting jobs over a twenty-four-month period

Since March 19, 2009, the Government of Québec has increased its financial assistance for the implementation of training plans for major economic projects from 25% to 50%

Strategic Support for Investment Program (PASI)
 

• Any business with a project designed to consolidate a sector for which Québec (Montréal) offers competitive advantages and not having a negative impact on existing enterprises can obtain either a refundable subsidy from Investissement Québec or a guarantee of reimbursement for the net loss incurred by the financial institution that granted a loan, line of credit or letter of credit.


• If no other type of financing is available, the business can receive a non-refundable subsidy


• An investment project must be worth at least $5 M; a development project, at least $2 M


• Government financial assistance cannot exceed 50% of the project’s total cost


• Financial assistance will be provided for a period not exceeding ten years

Strategic Aerospace and Defence Initiative (SADI)
 

• The Government of Canada will invest close to $900 M between 2007 and 2011


• The purpose of this initiative is to support strategic industrial research and precompetitive (R&D) projects in the aerospace, defence, space and security industries


• Loans will be extended for a maximum of fifteen years and cover 30% of a project’s eligible costs


• The contribution to each project corresponds to the minimum financial assistance required to undertake and successfully complete the project and generate spinoffs for Canadians