The Journal de Montréal reports that the E-Business tax credit (CDAE in French) is too difficult to claim for smaller companies in the information technology industry […] due to its rules that are so complex.”
Don’t worry! Emergex can help you! We have filed hundreds of e-business claims since the program’s inception in 2008. For an opinion on your eligibility, ask about our personalized assessment, free of charge and without any obligation!
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 Program
Before June 5, 2014
After June 4, 2014
SR&ED
SR&ED salary
17.5% to 37.5%
14% to 30%
University research
35%
28%
Private partnership
35%
28%
Research consortium
35%
28%
E-Business
30%
24%
Multimedia titles
26.25% to 37.5%
21% to 30%
Industrial design
15% 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, 2014
After June 4, 2014
Difference
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.
Nicolas Marceau, the Quebec Minister of Finances announced on Monday, September 30th, improvements to the program for the production of multimedia titles. This program, created at the end of the ’90s, at a time when multimedia titles consisted mostly of CD-ROM products (like virtual tours of museums) and offline video games, was starting to be out of touch with the needs of the industry, notably in the sector of online gaming.
One of the main problems was the fact that the eligibility period was limited to three years after publication of the product. Such a limit made no sense for online games which continue to be developed for several years. For example, the massively multiplayer online role-playing game Everquest celebrated its fourteenth anniversary this year. Expenses will now be eligible to the credit during the entire lifecycle of the product.
New categories of activities will also be added to the eligibility list in order to better support this sector. The conception and the development of game hosting infrastructures as well as deployment and maintenance tools for these infrastructures will now be eligible. User relations will also give access to the credit since the development of user communities, technical services, animation and user care will be considered eligible activities.
These changes will be in effect for all claims submitted after September 30th 2013.
In your opinion, will these changes help consolidate Montreal’s position as one of the capital of video games?
What do you think of the cost for our governments or for Quebec’s society in general compared to the economic windfall that such tax breaks bring?
Will small businesses have the same access to these tax credits as large multinationals?
Is the administrative red tape required to satisfy the requirements of Investissement Québec worth it for startup companies?
Mr. Pierre Savignac is the founder and CEO of Emergex SR&ED Subsidies. This expert consulting firm specializes in tax credit claims in the software and IT industries, particularly the tax credits for scientific research & experimental development (SR&ED), e-business development (CDAE) and multimedia titles. At the seminar to be held on February 6, Mr. Savignac will talk about the last changes in tax incentive programs for IT companies, in force since January 1: New version of T661 form: managing inspection risks
Changes in rates and eligible expenses
Extension and indexation of the E-Business (CDAE) program
Credit for the production of multimedia titles: expenses will now be eligible to the credit during the entire lifecycle of the product
Optimization of additional credits : tips for maximizing tax credits
Kudos to Emergex for their utmost professionalism and flexibility. Emergex is much more than assistance with R&D filings. They provided Business Interactive Corp. with added-value strategic advice that not only enabled our organization to obtain R&D credits, but to make important strategic business decisions as well.