Tax credit for R&D labour costs
QC, Canada
Tax credit for R&D in Quebec
grant_single_labels|summary
grant_single|eligibleFinancing
- grant_single|maxCount
- grant_single|projectCostPercent
grant_single|deadlines
- grant_single|openingDateNovember 14, 2019
grant_single|financingType
Tax Credits
grant_single|eligibleIndustries
- Professional, scientific and technical services
grant_single|grantors
- Gouvernement du Québec
- Revenu Québec
grant_single|status
grant_card_status|open
grant_single_labels|preview
Get a tax credit between 14 and 30% of labour costs for your scientific research and experimental development expenditures.
grant_single_labels|projects
Eligible projects or activities for this grant are those related to scientific research and experimental development (R&D) conducted in Quebec, including work undertaken by employees or subcontractors. Expenses must be paid by the company and the research conducted must comply with the specific criteria.
- Salaries paid to employees in Quebec for R&D work.
- Portion of payments to dependent subcontractors for R&D work performed by their employees in Quebec.
- Portion of payments to independent subcontractors for R&D work performed in Quebec.
- Portion of payments to dependent subcontractors, subsequently paid to independent subcontractors for R&D work performed in Quebec.
grant_single|admissibleProjectsExample
$180,000
Ottawa
Developing advanced cybersecurity measures for financial institutions
$200,000
Vancouver
R&D in renewable energy technology enhancement
$150,000
Montreal
Development of AI algorithms for medical diagnosis improvements
$140,000
Calgary
Improvement of agricultural biotech processes for crop yield
$160,000
Winnipeg
Innovative software solutions for smart home systems
$120,000
Toronto
Creation of eco-friendly materials via chemical research
grant_single_labels|admissibility
A company operating a business in Canada and conducting or having conducted R&D activities in Quebec can claim a tax credit for eligible R&D salaries and certain third-party payments under specific conditions.
The eligibility criteria are as follows:
- The company must operate a business in Canada.
- The company must conduct or have conducted R&D activities in Quebec.
- The company should not be a tax-exempt entity.
- The company should not be a Crown corporation or fully controlled by one.
- The company should not be controlled, directly or indirectly, by a prescribed research entity, or have been controlled in such a manner within 24 months prior to the R&D contract date, including associated companies.
- If the company is a member of a partnership, it can claim the credit for its share of eligible R&D salaries paid by the partnership.
- If the company is associated with other eligible companies, they must agree on how to share the $3 million expenditure limit for the enhanced credit rate and fill out the relevant agreement form.
grant_eligibility_criteria|who_can_apply
Eligible types of companies for this grant are those that operate a business in Canada and perform or have research and development (R-D) work conducted on their behalf in Quebec. Additionally, the companies should not be exempt from tax, should not be a Crown corporation or a wholly owned subsidiary of such a corporation, and should not be controlled by a prescribed research entity.
- Companies operating a business in Canada
- Companies performing R-D work, or having R-D work conducted on their behalf, in Quebec
- Companies not exempt from tax
- Companies that are not Crown corporations or wholly owned subsidiaries of Crown corporations
- Companies not controlled by a prescribed research entity or not having been so controlled in the last 24 months
grant_eligibility_criteria|who_cannot_apply
There are certain types of companies that are not eligible for this grant.
- A company that is exempt from tax
- A Crown corporation or a subsidiary wholly controlled by a Crown corporation
- A company that is controlled, directly or indirectly, in any manner whatsoever, by a prescribed research entity, or that was controlled by such an entity within the 24 months preceding the date a contract related to R&D was concluded
- A company related to a company controlled by a prescribed research entity
grant_eligibility_criteria|eligible_expenses
Yes, there are eligible expenses for this grant. Below are the categories of eligible expenses:
- Salaries paid to employees for R&D work carried out in Quebec.
- Portion of consideration paid to dependent subcontractors for R&D work.
- Portion of consideration paid to dependent subcontractors who further subcontract to other dependent subcontractors for R&D work.
- Half of the consideration paid to independent subcontractors for R&D work.
- Half of the consideration paid to dependent subcontractors who further subcontract to independent subcontractors for R&D work.
grant_eligibility_criteria|zone
The eligible geographic zones for this grant are companies operating within Quebec, Canada.
- Companies must be conducting or contracting R&D work in Quebec.
grant_single_labels|register
- Step 1: Ensure Eligibility
- Verify that the company operates a business in Canada and conducts or commissions R&D work in Québec.
- Confirm that the company is not tax-exempt, a Crown corporation, or controlled by a prescribed research entity.
- Step 2: Gather Required Documentation
- Prepare the prescribed documents:
- Form RD-1029.7 - "Crédit d'impôt relatif aux salaires – R-D"
- Form RD-222 - "Déduction des dépenses engagées pour la recherche scientifique et le développement expérimental"
- Form RD-1029.7.8 - "Entente concernant la limite de dépenses entre sociétés associées" (if applicable)
- Prepare the required documents for analysis:
- Detail of incurred expenses
- Supporting receipts for expenses
- Employee list including names, Social Insurance Numbers, hourly wages, and time dedicated to R&D activities
- Subcontractor list with names, addresses, and payment amounts
- List of subcontractor employees who performed the work
- Copies of invoices from each subcontractor
- Proofs of payment to each subcontractor
- Reconciliation of R&D expenses
- Organizational chart of the company
- Organizational chart of associated companies and linked entities
- Copies of notices of assessment from the Canada Revenue Agency for the previous year
- Documents explaining any variances in financial figures
- Federal form T661 for SR&ED claims for the previous and current years
- Documents outlining roles and responsibilities for salaries of supporting R&D activities, if applicable
- Time sheets and the method of salary allocation for supporting R&D
- Proof of inclusion of any past R&D credits in taxable income for the corresponding fiscal year, if applicable
- Step 3: Complete and Submit the Application
- Fill out the prescribed forms (RD-1029.7, RD-222, and RD-1029.7.8 if applicable).
- Attach all required documents to the corporate tax return.
- Ensure to list the credit's name, code (02), and amount in the appropriate lines of the tax return (lines 440p to 440y).
- Step 4: Transmission of Documents
- Send all forms and required documents either:
- Via authorized software for electronic filing.
- By mail with the company's name, identification numbers, and fiscal year-end date clearly indicated on each document.
- Preferably submit all documents in one package for faster processing.
- Step 5: Deadline Management
- If documents are not attached to the tax return, submit them within 12 months after the tax return deadline for the fiscal year in question.
Apply to this program
Overview of the SR&ED Salary Tax Credit
The SR&ED Salary Tax Credit allows Canadian companies conducting scientific research and experimental development (SR&ED) in Quebec to claim a credit for eligible R&D salaries and third-party payments. The base credit rate is 14% but can go up to 30% for qualifying SMEs.
Detailed Explanation of the SR&ED Salary Tax Credit
Introduction
In Quebec, companies engaged in scientific research and experimental development (SR&ED) activities can significantly reduce their financial burden through the SR&ED Salary Tax Credit. This incentive aims to foster innovation and technological advancement by providing tax relief on eligible R&D expenditures. Whether you are a small, medium, or large enterprise, understanding how to leverage this tax credit can be crucial for maximizing your R&D budget.
Eligibility Criteria
To qualify for the SR&ED Salary Tax Credit, a company must meet specific criteria:
- Operate an enterprise in Canada.
- Conduct or subcontract SR&ED activities in Quebec.
Nevertheless, certain entities are excluded from the program:
- Tax-exempt companies.
- Crown corporations or fully controlled subsidiaries.
- Companies controlled directly or indirectly by a prescribed research entity, within 24 months of signing an R&D contract.
Types of Eligible Expenditures
Several kinds of expenditures qualify for the SR&ED Salary Tax Credit. These include:
- Wages paid to employees located in Quebec for SR&ED work.
- Payments made to non-arm’s length subcontractors based in Quebec, covering their labor costs for SR&ED activities.
- 50% of the payments made to arm’s length subcontractors based in Quebec for SR&ED work.
Credit Rates and Limits
The base credit rate is 14%. However, the credit can be enhanced to 30% for small and medium-sized enterprises (SMEs). To benefit from the increased rate, the company must:
- Not be controlled by non-residents of Canada.
- Have total assets of $50 million or less in the preceding fiscal year.
For companies with assets between $50 million and $75 million, the enhanced rate is gradually reduced. The enhanced rate applies only to the first $3 million of eligible expenditures.
Calculating the Credit
Companies must include eligible SR&ED wages and certain third-party payments in their calculation. However, the calculation is subject to a "reduction amount" – the lesser of either a fixed exclusion threshold or the total eligible expenditures. Generally, the exclusion threshold is set at $50,000 and scales progressively with asset value, capping at $225,000 for companies with assets of $75 million or more.
Required Documentation
To claim the SR&ED Salary Tax Credit, companies need to provide comprehensive documentation:
- Form RD-1029.7: Detailing eligible SR&ED expenses.
- Form RD-222: For deduction of SR&ED expenses.
- Form RD-1029.7.8: Agreement on the distribution of the $3 million expense limit among associated companies, if applicable.
- Detailed expense reports.
- Supporting receipts for incurred expenses.
- Employee list with names, social insurance numbers, hourly wages, and time allocated to SR&ED activities.
- Subcontractor list with names, addresses, and amounts paid.
- Invoices and payment proofs for subcontractors.
- R&D expenditure reconciliation.
- Corporate organizational chart and charts of associated companies.
- Previous year's assessment by the Canada Revenue Agency (CRA).
- Document explaining discrepancies between Form CO-17.A.1 and Form RD-222, if any.
- Federal SR&ED expenditure forms T661 for the current and previous year.
- Documents outlining roles and responsibilities of personnel involved in SR&ED support activities, if applicable.
- Time sheets and salary distribution methods for support personnel.
- Evidence that the SR&ED tax credit received for a past fiscal year is included in the company's income for the current fiscal year, if applicable.
Submission Process
Companies must submit the required forms along with their corporate tax returns. These documents must be sent electronically or by mail within 12 months following the due date of the tax return for the applicable fiscal year. If sending by mail, ensure each document is labeled with the company's name, identification numbers, and fiscal year-end date.
Importance of Comprehensive Documentation
Detailed and accurate documentation is critical for successfully claiming the SR&ED Salary Tax Credit. Keep thorough records of all relevant expenses, labor contributions, and third-party payments to facilitate the review process and avoid delays.
Conclusion
The SR&ED Salary Tax Credit is a valuable tool for Quebec-based companies aiming to innovate through scientific research and experimental development. By understanding the eligibility criteria, types of allowable expenditures, and necessary documentation, your company can maximize its benefits and significantly reduce its R&D costs. Proper planning and meticulous record-keeping are essential for navigating this complex yet rewarding tax incentive program.
