The first cut was announced in the 2014-2015 Quebec Budget on June 4, 2014. For expenditures incurred prior to June 5, 2014, the R&D salary credit is reduced from 17.5% to 14%. Canadian controlled corporations with total assets of less than $75 million could qualify for a 37.5% credit on up to $3 million of expenditures incurred prior to June 5, 2014. For expenditures incurred after June 4, the rate is reduced to 30%.
Sweeping Changes Effective December 2, 2014
For taxation years commencing after December 2, 2014, Finances Quebec announced weeping changes to the SR&ED program in their Fall Update:
Minimum Eligible Expenditure Threshold
Businesses will earn the R&D salary credit only on expenditures that exceed a minimum threshold. For corporations with assets up to $50 million, the expenditure threshold will be $50,000. For corporations with assets of $225 million or more, the expenditure threshold will be $225,000. Between $50 – $225 million of assets, the threshold will increase linearly between $50,000 to $225,000.
Quebec acknowledges that 40% of businesses that claimed R&D tax credits in 2011 had eligible expenditures of less than $50,000. This measure alone eliminates SR&ED labour tax credits for these 40% of claimants. The associated tax expenditure savings for Quebec are coming at the expense of the smallest claimants, arguably the companies that need it the most.
For taxation years that commence prior to December 3, 2014, a Canadian controlled corporation accesses the enhanced credit rate (37.5%/30%) on expenditures up to their expenditure limit. For Canadian controlled for Canadian controlled corporations with assets up to $50 million the expenditure limit is $3 million. For Canadian controlled corporations with assets of $75 million or more, the expenditure limit is NIL. Between $50 – $75 million of assets, the expenditure limit decreases linearly from $3 million to NIL. The enhanced credit rate is earned on any expenditures up to the expenditure limit and the base rate (17.5%/14%) is earned on expenditures in excess of the expenditure limit.
Under the new system in effect for taxation years that commence after December 2, 2014, the credit rate is linearly reduced from 30% to 14% when the corporation’s assets are between $50 – $75 million.