What is the C3I (Investment and Innovation) tax credit?
The C3I tax credit—short for Crédit d’impôt investissement et innovation—is a fiscal program offered by Revenu Québec to encourage businesses to modernize their equipment and adopt innovative technologies. Aimed specifically at corporations with an establishment in Québec, this investment and innovation tax credit supports companies’ digital transformation and manufacturing innovation. In practice, the C3I can be viewed as a tax credit for digital transformation and manufacturing innovation by subsidizing the adoption of cutting-edge technologies in your operations. Most recipients are small and medium-sized enterprises (SMEs); hence it is sometimes called the “C3I SME Québec” credit to highlight its suitability for Québec-based SMEs investing in innovation.
Launched in March 2020, C3I is a refundable tax credit that allows eligible companies to recover a portion of their investment spending on qualifying equipment. In other words, if your business invests in production machinery, IT equipment or management software, a significant share of that spending can be returned to you as a tax credit. The credit rate generally ranges from 15 % to 25 % of the cost of eligible assets (after a specified excluded amount), depending on the region where the equipment is used and the acquisition period. The program has recently been extended until 31 December 2029 (with an announced extension to 2030), providing a long window for businesses to incorporate the credit into their medium-term investment planning.
C3I vs. CII: how does it differ from the former investment credit?
Do not confuse the C3I with the CII. Historically, CII referred to the Crédit d’impôt pour investissement introduced in 2008, aimed mainly at spending on manufacturing and processing equipment in the manufacturing sector. That earlier program ended on 31 December 2022. The C3I replaced it, expanding the scope of eligible expenditures to include, in addition to manufacturing production machinery, innovation-related assets such as IT equipment and management software. Thus, C3I keeps the basic principle of the CII—financially supporting capital investment—but covers a broader range of eligible assets and offers rates that vary with each region’s economic vitality. In short, C3I both replaces and improves upon the old CII, with a stronger focus on corporate digital transformation and technological innovation.
Eligibility conditions: qualifying businesses and expenditures under C3I
To benefit from the C3I tax credit, your company must meet strict eligibility criteria concerning both the business itself and the expenditures incurred.
Criterion | Details |
|---|---|
Eligible business | Any corporation that has an establishment in Québec and carries on business there may claim the C3I credit. It is not limited strictly to SMEs, but most beneficiaries are Québec SMEs. Excluded: non-tax-paying corporations (exempt entities), Crown corporations and their subsidiaries, and certain specific businesses such as aluminium producers or oil refiners. In short, your company must be taxable in Québec and active in the private sector to qualify (C3I eligibility). |
Eligible property & expenditures | The credit targets specific “prescribed” property—generally new capital assets used for production or innovation. Main categories (C3I eligible expenditures): 1) Manufacturing & processing equipment (Class 53, Annex B of the Taxation Regulations)—e.g. manufacturing production equipment, CNC machine tools, industrial processing devices used to make goods for sale or lease. 2) General electronic data-processing equipment (Class 50)—broadly IT equipment: servers, computers, networking gear, data-processing electronics, and associated operating software (OS, etc.). 3) Eligible management software package (integrated management software, Class 12)—ERP systems, CRM software, or any business software covering multiple management functions (C3I-eligible software). 4) Specialized mining & metallurgical equipment —certain assets for ore processing (Class 43) or smelting, refining or hydrometallurgy. |
Eligible period | Only acquisitions after 10 March 2020 and before 1 January 2030 qualify. Thus the program covers investments from March 2020 through end-2029(C3I eligibility period) after the recent extension (initial deadline was end-2024). |
New property & Québec use | Equipment or software must be new (or refurbished to “like-new” condition) upon acquisition, used primarily in Québec for at least 730 consecutive days (≈2 years) after purchase. Early sale or transfer outside Québec can jeopardize the credit. |
Arm’s-length transactions | Eligible property must not be bought from a person related to your company; purchases must occur at arm’s length. Buying from a subsidiary or related corporation is excluded. |
Minimum investment amount | A fixed amount for each asset is excluded before calculating the credit. The exclusion thresholds: $12,500 for Class 53 & 43 assets (production machinery, industrial gear) and $5,000 for Class 50 & 12 assets (IT equipment, management software). Example: purchase a CNC machine for $100,000 → first $12,500 gives no credit; the credit is computed on the remaining $87,500. Buy management software for $30,000 → credit applies on $25,000 after excluding $5,000. |
By meeting these conditions, a wide range of capital expenditures may open the door to the C3I credit—particularly projects for manufacturing modernization and digitalization (new production machinery, IT infrastructure upgrades, ERP implementation, etc.).
Amount of the credit and applicable rates in 2025
The C3I tax credit you can claim depends on two main elements: the cost of your eligible investments (after the exclusion amount) and the applicable credit rate.
Basic formula C3I credit = (Eligible expenditure – excluded amount) × applicable credit rate
Region where the asset is mainly used | C3I credit rate (2024–2029) |
|---|---|
Low economic vitality zone (remote or less-prosperous regions) | 25 % (maximum enhanced rate) |
Intermediate vitality zone | 20 % |
High economic vitality zone (Greater Montréal, Québec City & vicinity) | 15 % (minimum rate) |
Explanation. Québec uses an economic-vitality index to classify regions. Metropolitan areas like Montréal and Québec City are high-vitality and thus receive the lowest rate (15 %). Regions designated as low-vitality (often remote or disadvantaged) receive the highest rate (25 %). All other regions fall in the intermediate category at 20 %. These rates include a 5-percentage-point enhancement introduced on 1 January 2024. When C3I launched in 2020 the standard rates were 20 %, 15 % and 10 %; from March 2021 to December 2023 they were temporarily doubled (40 %, 30 %, 20 %) to stimulate pandemic-era investment. Since 2024 they reverted to the permanent 25 %, 20 %, 15 % structure, which will remain until the program ends in 2029 (C3I rates 2025 and onward).
Practical example (2025).
A manufacturing SME located in an intermediate zone invests in 2025 in a new assembly line (new Class 53 asset) costing $200,000 before tax.
- Exclusion for Class 53 assets = $12,500. Net eligible expenditure = $200,000 − $12,500 = $187,500.
- Applicable rate (intermediate zone) = 20 %.
- C3I credit = $187,500 × 20 % = $37,500.
Because the credit is refundable, it can reduce the corporation’s tax payable or be paid out as a refund if taxes are insufficient.
$100 million ceiling.
There is a global cap on the amount of expenditures that can benefit from C3I. Each group of associated corporations has a cumulative ceiling of $100 million of eligible expenditures over a moving period (originally 5 rolling years, now 48 months for expenses after 2023). Beyond this limit, additional investments no longer earn the credit. This very high cap affects only very large firms; typical SMEs will never reach it. If your company is part of a related group making major investments, use form CO-1029.8.36.IK to allocate the ceiling among associated corporations.
How to claim the C3I credit: procedures and administrative requirements
- Include it in the corporate tax return. In your Québec corporate income-tax return (Form CO-17), enter the Investment and Innovation Tax Credit (code 109) on the appropriate lines and the credit amount for the year.
- Complete the dedicated form. Fill out Form CO-1029.8.36.II – Investment and Innovation Tax Credit. It itemizes each eligible asset and computes the credit. If your company is a partner in a partnership that acquired the property, use the relevant sections to share the credit. If you have associated companies sharing the $100 M ceiling, file Form CO-1029.8.36.IK.
- Attach supporting documents. Submit Form CO-1029.8.36.II (and others, e.g., CO-125.1 for a lease-purchase) with the return, and keep all supporting documents—detailed invoices, purchase/lease contracts, proof of payment, etc.—ready for Revenu Québec in case of audit.
- Respect filing deadlines. The credit must be claimed no later than 12 months after the filing-due date for the tax return of the year concerned. In effect, you have roughly one year after the initial filing to submit the credit forms. Missing this deadline may forfeit the credit. Although recent relaxations may extend certain deadlines, it is strongly recommended to file the C3I claim with the annual return to avoid issues.
Tips for maximizing the C3I credit in your tax strategy
- Build C3I into your investment planning. For major equipment or technology spending, factor this credit in from the start. The program runs to 31 December 2029, so you can schedule investments to optimize tax assistance—but don’t postpone useful projects merely to claim the credit later.
- Leverage support for digital transformation. C3I is central to Québec’s push for SME modernization. Investments in new management software or IT infrastructure not only improve efficiency but also refund part of the cost. Identify areas where technology can boost productivity—ERP rollout, automation, server upgrades—and invest knowing some costs will be reimbursed.
- Maximize the eligible amount. Be sure to capitalize all costs that form part of the asset’s acquisition—installation, electrical or structural modifications, transport, configuration, implementation, training, licence fees—so they count in the credit base, instead of expensing them immediately.
- Anticipate interactions with other incentives. C3I generally combines well with other fiscal measures, but comply with each program’s rules. If you also receive subsidies or claim an R&D credit (SR&ED) for a project, avoid double-claiming the same expenditures. Deduct any subsidies from the asset cost before computing C3I.
- Stay compliant to prevent refusals. Ensure every program condition is met. Do not, for instance, buy used equipment from a related entity expecting to claim the credit—that will be disallowed. Keep proof the asset was commissioned and used in Québec for at least 24 months; early sale or relocation can trigger credit repayment.
Conclusion
The C3I tax credit is a powerful financial lever for Québec SMEs wishing to invest in innovation and productivity enhancement. It enables eligible companies to recover 15 % to 25 % of their spending on strategic equipment and software while driving technological modernization. Because it is refundable, even a growth-stage business with low taxes can receive a government cheque. With C3I extended to 2030, it is a durable tool on which to base medium-term investment plans. By optimizing use of the C3I credit, your company can invest more in innovation and digital transformation, reinforcing competitiveness thanks to this significant fiscal boost.
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