Tax credit for R&D labour costs

Who is eligible?

• Corporations operating a business in Canada
• Companies conducting or commissioning scientific research and experimental development (R&D) in Quebec

Who is not eligible

• Companies that are exempt from tax.
• Crown corporations or subsidiaries wholly controlled by a Crown corporation.
• Companies controlled, directly or indirectly, by a prescribed research entity, or that were controlled by such an entity within the past 24 months, or companies related to such controlled companies.

Eligible expenses

• Salaries paid to employees of the company for R&D work performed in Quebec during the year.
• Portion of payments made to subcontractors with whom the company has a dependent relationship, corresponding to salaries paid to their employees for R&D services performed in Quebec.
• Portion of payments made to subcontractors with whom the company has a dependent relationship, further subcontracted to other dependent subcontractors, corresponding to salaries paid for R&D work performed in Quebec.
• Half of payments made to independent (non-dependent) subcontractors for R&D work performed by their employees in Quebec.
• Half of the portion of payments made to dependent subcontractors who then subcontract to independent parties, corresponding to R&D work carried out for the company in Quebec.

Eligible geographic areas

• Companies conducting scientific research and experimental development (R&D) in Quebec.

• Step 1: Prepare Required DocumentationGather prescribed forms: RD-1029.7 (Tax Credit for R&D Salaries), RD-222 (Deduction of Scientific Research and Experimental Development Expenditures), and RD-1029.7.8 (Agreement on the Expenditure Limit between Associated Corporations, if applicable).
• Collect detailed supporting documents: breakdown of expenditures, supporting invoices, list of employees and contractors, time sheets, proof of payment, organizational charts, federal notice of assessment, T661 (SR&ED federal form), and any other documentation outlined in the requirements.
• Step 2: Complete Tax Forms and CompilationFill out the relevant sections in the corporate income tax return, particularly lines 440p to 440y, indicating the name of the tax credit, its code (02), and the amount claimed.
• Complete and compile all required forms and supporting documentation for submission.
• Step 3: Attach Documentation to Tax ReturnAttach all completed prescribed and required documents to the income tax return of the corporation for the fiscal year in which the R&D work was conducted.
• Step 4: Submit Application to Tax AuthoritiesSubmit the corporate tax return, accompanied by all required forms and documentation, via Internet using authorized software functionalities (electronic filing), or by mail if necessary.
• If submitting by mail, label each document with the company's name, identification and file numbers, and fiscal year-end date.
• If documents cannot be attached with the initial filing, forward missing documents within 12 months from the tax return filing deadline for that fiscal year.
• Step 5: Post-Submission Follow-upEnsure all documentation is submitted in a single package for efficient processing.
• Monitor correspondence from the tax authority for any further information requests or clarifications during the review process.

• Supporting documents must be submitted in a single package for quicker processing.
• Paper submissions require clear identification of the company, including name, identification and file numbers, and fiscal year-end date on each document.
• If documents cannot be attached to the tax return, they must be sent within 12 months after the deadline for filing the return.
• Internet submission via authorized software is possible, in which case paper documents are not required.