R&D and Taxation
Companies wishing to invest in research and development in Montréal can rely on a number of generous incentives on the part of the different levels of government. These incentives benefit eligible companies, as well as foreign researchers and experts who come to the region to work.
Deduction of R&D Expenses:
The Canadian and Québec governments allow deductions of current expenditures for the year in progress and subsequent years.
Canada
- The Government of Canada allows a basic 20% tax credit on eligible R&D expenditures. For small businesses under Canadian jurisdiction, this credit may be refundable and equivalent to up to 35% of the first $2M in expenditures.
Québec
- The Government of Québec allows a 35% refundable tax credit on 80% (effective rate of 28%) of all eligible R&D expenditures incurred by a recognized research center (university, hospital, public research center) on behalf of a business in Québec regardless of its size, or to conduct pre-competitive research. Companies that are members of an R&D consortium may also be eligible for this tax credit.
- The Government of Québec also allows a 17.5% refundable tax credit on salaries allocated to R&D. For small businesses, this credit is increased to 37,5% on the first $2M of R&D salaries. This may be of particular interest to companies in their start-up phase, as they are not required to become profitable to be eligible for this credit.
To encourage international companies to grant R&D contracts to their Québec subsidiaries, funds received to this end from outside Canada do not offset the total admissible expenditures of Québec companies when they calculate their super-deduction and their Canadian and Québec tax credits.
Tax Holiday for Foreign Researchers and Experts
Foreign researchers and other foreign experts may be eligible for a five-year tax holiday on provincial income taxes when they settle in Québec to conduct R&D in a company. This measure also applies to other types of foreign experts, particularly managers who devote themselves entirely to innovation management and marketing abroad, as well as foreign post-doctoral candidates who sign an employment contract with eligible universities and research centers.
This tax holiday consists of a deduction from the employee’s taxable income corresponding to an amount equal to 100% of the income during the first two years of the holiday. Subsequent deductions will be reduced annually by 25%.
A more detailed account of the “Tax Holiday for Foreign Researchers” and the “Tax Holiday for Foreign Experts” can be found on the Ministère du Développement économique et régional et Recherche du gouvernement du Québec Web site.
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