Tax credit for R&D labour costs
At a glance
- No Condition
- Open Date : November 14, 2019
- Mining, quarrying, and oil and gas extraction
- Utilities
- Manufacturing
- Professional, scientific and technical services
- Gouvernement du Québec
- Revenu Québec
Overview
Eligibility criteria
A company operating in Canada that conducts or has research and experimental development (R-D) work done for its account in Quebec may be eligible for a tax credit related to eligible R-D salaries and certain payments made to third parties for R-D work for the corresponding taxation year.
- The company must operate a business in Canada and conduct or have R-D work done for its account in Quebec.
- The following are not eligible for the R-D salary tax credit: a tax-exempt company, a Crown corporation, a fully controlled subsidiary of a Crown corporation, a company controlled, directly or indirectly, in any way by a prescribed research entity, or linked to such a controlled entity.
Who is eligible
Eligible companies for this grant must operate a business in Canada and conduct research and development work in Quebec. Certain types of companies, such as those exempt from tax, Crown corporations, or those controlled by prescribed research entities, are not eligible for this tax credit.
- Companies operating a business in Canada
- Companies conducting research and development work in Quebec
- Companies not exempt from tax
- Companies not controlled by prescribed research entities
Who is not eligible
Some types of companies are not eligible for this grant. These include:
- a tax-exempt corporation;
- a Crown corporation or a wholly-owned subsidiary of a Crown corporation;
- a company controlled, directly or indirectly, in any way, by a prescribed research entity, or that has been in the 24 months preceding the date on which an R&D contract was entered into, or a company related to such a controlled entity.
Eligible expenses
Eligible expenses for this grant include salaries paid to employees in Quebec for R&D work, certain payments to related subcontractors for R&D work done on the company's behalf, and expenses related to subcontractors supporting the company's research efforts.
- Salaries of employees at a Quebec establishment for R&D work
- Portion of payments to related subcontractors for R&D work in Quebec
- Portion of payments to related subcontractors who then engage other subcontractors for R&D work in Quebec
- Half of payments to unrelated subcontractors for R&D work in Quebec
- Half of payments to related subcontractors who then engage unrelated subcontractors for R&D work in Quebec
How to apply
- Step 1: Verify eligibility
- Ensure the company operates a business in Canada and conducts or has work done on its behalf in the Quebec province for scientific research and experimental development (R&D).
- Check that the company is not exempt from tax and does not fall under specific ineligible categories mentioned in the grant information.
- Step 2: Gather necessary documents
- Collect all relevant information and supporting documents such as payroll records, contracts with subcontractors, and any other required paperwork.
- Step 3: Calculate eligible expenses
- Determine the salaries paid to employees for R&D work and the applicable portion of payments to related subcontractors involved in R&D activities.
- Ensure expenses comply with the grant guidelines to qualify for the tax credit.
- Step 4: Subtract reducible expenses
- Calculate and subtract the reducible expenses from the total eligible expenses to obtain the final amount applicable for the tax credit.
- Consider the threshold exclusion amount and linear adjustments based on the company's total assets from the previous year.
- Step 5: Apply for the tax credit
- Submit the application for the tax credit, including all necessary documentation, within the specified timeline and following the guidelines provided by the grant program.
- Ensure that all expenses and salaries claimed for the credit have been paid at the time of the application.
Overview of the R&D Salary Tax Credit (Code 02) Grant
A company operating a business in Canada and conducting scientific research and experimental development (R&D) activities in Quebec may be eligible to claim a tax credit for eligible R&D salaries and certain payments made to third parties for R&D work. The credit rate ranges from 14% to 30% based on specific criteria, with higher rates applicable to smaller companies that meet certain asset thresholds.
Explaining the R&D Salary Tax Credit (Code 02) in Detail
The R&D Salary Tax Credit (Code 02) is designed to incentivize companies to engage in research and development activities in Quebec, promoting innovation and economic growth. Eligible companies must operate in Canada and conduct R&D work in Quebec to qualify for the credit.
Companies can claim a tax credit for salaries paid to employees working on R&D projects in Quebec, as well as a portion of payments made to related or unrelated subcontractors for R&D activities performed on the company's behalf. The credit rate can be enhanced to 30% for companies not controlled by non-Canadian residents, with the possibility of reaching this rate for up to $3 million in expenses.
It is important to note that certain types of companies, such as tax-exempt entities, Crown corporations, and those controlled by prescribed research entities, are not eligible for this tax credit. Additionally, companies associated with each other must agree on the allocation of the $3 million expense limit related to the enhanced credit rate.
Qualifying expenses for the R&D Salary Tax Credit include salaries paid to Quebec-based employees working on R&D projects, as well as specific portions of payments made to subcontractors for R&D services. Companies are required to deduct an amount called "reducible expenses" from the total R&D-related salaries and payments before calculating the credit.
In conclusion, the R&D Salary Tax Credit (Code 02) provides financial support to companies conducting research and development activities in Quebec, aiming to foster innovation and technological advancement in the region. By offering tax incentives for eligible R&D expenses, the grant encourages companies to invest in cutting-edge projects and contribute to the growth of the knowledge-based economy.
