Couillard government cuts tax credits

Facing the prospects of a much larger deficit than anticipated, the Couillard government tabled its first budget on June 4, 2014. Given the realities of the current environment, it comes as no surprise at all that he announced major spending cuts, as he has to meet his balanced budget objective. Businesses will be particularly hard hit. Welcome to the era of austerity!

20% reduction in tax credits

The most significant measure is the generalized 20% cut in business tax credits. This will allow the province of Quebec to save upwards of $625 million between now and March 2017. However, it could prove a risky gamble in industries whose jobs are easily transferable from one jurisdiction to another. For example, the credit for the production of multimedia titles will be reduced from 37.5% to 30% for products that have a French version, whereas the equivalent tax credit in Ontario is 40% (with no restrictions on the language of the product). We may thus end up witnessing an exodus of video game companies to Toronto.

Tax Credit ProgramBefore June 5, 2014After June 4, 2014
SR&ED  
SR&ED salary17.5% to 37.5%14% to 30%
University research35%28%
Private partnership35%28%
Research consortium35%28%
E-Business30%24%
Multimedia titles26.25% to 37.5%21% to 30%
Industrial design15% to 30%12% to 24%

The various scientific research and experimental development (SR&ED) credits have not escaped this cut. However, the impact will be less significant, as the federal credit will partially compensate for the loss of assistance. In fact, the Quebec credit reduces the qualifying expenditure amount for calculating the federal credit. With a smaller provincial credit, the federal credit will consequently be higher. In the example of a $100,000 eligible SR&ED salary expenditure, a Canadian-controlled private corporation (CCPC) would have received $78,625 in credits (federal and provincial combined) in 2014. Now, with the new rate it would receive $73,750, representing a 6.2% reduction.

For a CCPC claiming $100,000 in salaries under the proxy method.
 Before June 5, 2014After June 4, 2014Difference
Quebec SR&ED Credit$37,500$30,000– $7,500
Federal SR&ED Credit$41,125$43,750+ $2,625
Total$78,625$73,750– $4,875

These reductions will apply to expenses incurred as of June 5, 2014. Finally, the government announced that it will be reviewing all tax credit programs over the course of the coming year. The expectation is therefore that it will be modifying certain measures and getting rid of others altogether.

Abolition and suspension of certain measures announced since September 2012

Minister Leitao also announced the abolition of certain measures proposed by the Marois government last September. Enhanced R&D tax credits for biopharmaceuticals have now been scrapped, as has the planned increase in the refundable Tax Credit ceiling for the Development of E-business (CDAE), which was scheduled to kick in in January 2016. The extension of the program to 2025 is however maintained. The axe is also falling on the Tax Credit for the Integration of IT in Manufacturing SMEs, for which no new certificate will be issued starting June 4, 2014. Enhanced investment loans for companies located in resource regions and for manufacturing SMEs are also facing a similar fate.

Holiday on the contribution to the Health Services Fund for hiring of some specialist workers

And now for some good news. SMEs with a payroll of less than $5 million will be able to take a holiday on the contribution to the Health Services Fund when hiring new specialist workers, including computer scientists. The holiday will only apply to the salaries attributable to the new hires, and will be full for companies with a payroll of less than 1 million dollars, and partial for those with payrolls of between 1 and 5 million dollars.

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Steve Piché - ECC Solutions

Steve Piché – ECC Solutions

Over the years, I have worked with several consultants from Emergex and I can say that they all have met our high expectations. Emergex Subsidies has always delivered the goods! I speak from experience, having worked with two other SR-ED firms before.