During his economic update of December 2, 2014, Finance minister Carlos Leitao announced a second wave of cuts to the Research and Development (R&D) program in 6 months. For the fiscal years beginning after December 2, the first $50,000 in eligible expenses incurred by businesses will now be excluded in calculating the credit. This threshold could be up to $225,000 for companies with assets exceeding $75 M.
These cuts come on top of the 20% cut in credits for businesses announced in Quebec’s budget of June 4, 2014, and of the gradual 65% to 55% drop of the replacement amount the federal government announced in its 2012 budget.
For the 40% of SR&ED claimants with expenses under $50,000, one-third of their credits will disappear in three years. While they could expect an 82% return on their R&D investments in 2012, this amount will have dropped to no more than 54% at the end of 2015.
Wealthier companies fare a lot better. For example, those that are capable of investing $250,000 will only see a 15% drop, with their effective tax credit rate dropping from 82% to 70%.
In just a few months, Quebec will therefore have brought its R&D program to a level equal to or lower than what exists for most businesses in Ontario, where the effective rate for businesses stands at 68%.
Reduction of the effective rate of SR&ED tax credits for a CCPC with a fiscal year-end of December 31st based on the level of eligible expenditures.
