New Quebec Deduction for the Commercialization of Innovations (IDCI) and Tax Credit for Investments and Innovations (C3i)

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On March 10, 2020, as part of the annual Budget, Québec's Minister of Finance announced several tax measures for individuals and businesses. Two of the main measures announced with respect to businesses are the introduction of the incentive deduction for the commercialization of innovations (“IDCI”), and the introduction of the tax credit for investments and innovations (“C3i”).

The IDCI

The IDCI will allow eligible corporations to reduce their Quebec tax rate on income derived from the commercialization of certain intellectual property assets (generally, legally protected intellectual property assets) down to as low as 2%. The basic corporate tax rate in Quebec is 11.5%. The IDIC will therefore allow a reduction of the basic tax rate of up to 9.5%.

To be eligible for this deduction, a corporation must :

  • Not be tax-exempt;
  • Not be a Crown corporation or a wholly-controlled subsidiary of such a corporation;
  • Have an establishment in Québec;
  • Commercialize an eligible intellectual property asset; and
  • Have incurred scientific research and experimental development expenditures in Québec to develop the eligible intellectual property asset.

For the purposes of the IDCI, income eligible for the deduction will include :

  • Royalties;
  • Income from the sale or lease of property incorporating an eligible intellectual property asset;
  • Income from the provision of a service inherently related to an eligible intellectual property asset; and
  • Damages obtained in a court action relating to an eligible intellectual property asset.

Only eligible income reasonably attributable to an establishment of the corporation located in Quebec will benefit from the IDCI. In addition, this deduction will take into account the relative importance of the scientific research and experimental development activities carried out in Québec by a corporation otherwise eligible to the IDCI.

It should be noted that the Budget provides a special tax aimed at recovering the reduction of tax resulting from the application of the IDCI if a corporation claimed the IDCI deduction without being entitled to it.

This new deduction will apply in respect of a taxation year of a corporation that begins after December 31, 2020. According to the Québec government, close to 15,000 businesses could benefit from this measure.

The C3i

The C3i is a tax credit that may be claimed by eligible corporations in all sectors of activity for their acquisitions of specified property, including manufacturing and processing equipment, computer hardware or certain management software packages, made after March 10, 2020, and before January 1, 2025. The C3i replaces the Tax Credit for Investment.

The C3i will be fully refundable for eligible corporations with assets and gross revenue not exceeding $50 million for the taxation year, and will see its refundability reduced proportionally to become completely non-refundable for eligible corporations whose assets or gross revenue are equal to or greater than $100 million.

Expenditures eligible for the credit are those in excess of $5,000 for eligible computer hardware and management software. For other specified property, expenditures eligible for the credit are those exceeding $12,500.

To be eligible for this measure, a corporation must :

  • Carry on a business in Québec;
  • Have an establishment in Québec;
  • Not be tax-exempt;
  • Not be a Crown corporation or a wholly-controlled subsidiary of such a corporation;
  • Not be an aluminum production corporation; and
  • Not be an oil refining company.

The rate of credit varies according to the region where the investments are made :

  • High economic vitality zone (Montréal and Québec metropolitan communities): 10%;
  • Intermediate zone: 15; and
  • Low economic vitality zone: 20%.

The expenses in respect of which an eligible corporation may claim C3i are limited to a cumulative maximum of $100 million.

The property acquired must :

  • Be used within a reasonable period following its acquisition;
  • Not be acquired for use and not be used in the course of carrying on a recognized business of the corporation or partnership relating to a large investment project;
  • Not be used in the course of operating an ethanol, biodiesel, or pyrolysis oil production plant; and
  • Not be used, before its acquisition, for any purpose or acquired to be used or leased for any purpose.

Also, the property must be used only in Québec (or mainly in the case of eligible management software packages), and be used in the course of carrying on a business for a minimum period of 730 consecutive days (note that certain exceptions apply). If these conditions are not met, the C3i may be recovered through a special tax.

Do not hesitate to contact a member of our team if you have any questions or need more information about those measures.

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