E-business tax credit to support the growth of IT firms

If your main activity is in information technology (IT), such as :

• Computer systems design,
• Software publishing,
• IT consulting service,
• Development, integration, maintenance or evolution of systems,
• Design or development of e-commerce solutions.

Then, the e-business development tax credit program (CDAE) is for you. Get 30% of the salaries paid to your IT resources each year to increase your business and support your competitiveness.

Get 30% of the salaries paid to your IT resources

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Looking for financing for IT? The SR&ED tax credit is more rewarding but also more intimidating. Do you really do experimental development?

Investissement Québec (IQ) manages eligibility for the program and issues certifications. Revenu Québec (RQ) manages the resulting tax credit.

When to file an application for the e-business tax credit

Applications for attestations for the company and employees must be submitted to IQ no later than 15 months after the end of your fiscal year.

The application for a tax credit for e-business must be submitted RQ no later than 18 months after the end of your fiscal year.

What to document

The key to ensuring the eligibility of a corporation and its employees for the e-business tax credit is the documentation of the:

• Structure of this company,
• Nature of the company’s revenues,
• Activities carried out by the resources claimed.

The 1st application for the e-business tax credit is essential

The first application for the e-business tax credit is particularly critical in establishing your credibility with Investissement Québec. IQ thoroughly evaluates your application, your documentation, as well as public information about your company.

Do not be surprised by the extent of the assessment or the pitfalls as your e-business application may be rejected.

After a first refusal of a e-business claim, future applications become more difficult to accept.

Do you have doubts, or do you need help? Contact us R & D Action maximizes your success.

R&D Action are e-business experts

R & D Action is a team of experienced technical and accounting experts in e-business. Our resources have produced and obtained more than 50 e-business claims in recent years.

To new claimants we offer:

• A screening process to quickly and safely assess your company’s eligibility for e-business, and
• Practical recommendations appropriate to your situation.

The winning process:

In conclusion, R&D Action accompanies you through the whole process until the receipt of the checks:

• Validate the eligibility of your company;
• Build the necessary evidence to obtain sufficient comfort;
• Prepare the documentation requested by Investissement Québec;
• Represents you with Investissement Québec;
• Prepares the tax schedules required to obtain the credit;
• Represents you with Revenu Québec;
• Assists you in financing your tax credits receivable.

Important note: the information contained in this blog is for information only. Before evaluating or submitting a claim, you must consult an accounting or tax specialist such as R & D Action, and the relevant policies available on the Investissement Québec (IQ), Revenu Québec (ARQ) websites.

R&D Action welcomes you to our blog and thanks you for your visit.

Several other categories of practical and applicable solutions are available in the index on the right of this page.

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E-business tax credits certificates

Applications for e-business tax credit certificates must be submitted to  Investissement Québec (IQ)  no later than 15 months after the end of your fiscal year.

Before claiming a tax credit, IQ must verify your application and provide the necessary certifications.

After analyzing the file for the CDAE, Investissement Québec issues two certificates: one for the company, valid for two years and one for the employees, renewable each year.

Investissement Québec issues two e-business certificates: one for the company and one for the employees

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The following explanations are taken from the IQ web site.

1- Company e-business (CDAE) certificate

An e-business (CDAE) company certificate means that the activities and revenues of the targeted company are in the IT domains recognized by the CDAE program.

To obtain an e-business certificate for a company, it must be shown that it maintained, at any time during the tax year, a minimum of six eligible full-time employees (40 consecutive 26-hour weeks). In exceptional cases, IQ will issue a company certificate and another one of employees when the company shows that the non-respect of the number of employees is related to a situation beyond its control (eg if an employee leaves office and he it is difficult to replace).

In addition, in order to obtain an e-business company certificate, it must be shown that it has met two revenue or activity requirements:

1. 75% of gross revenue must come from the IT sector
2. 50% of gross revenue must be tied to four (4) specific NAICS codes

A- 75% of gross revenue must come from the IT sector

75% of the gross revenues of the corporation must have been generated through activities related to the ten (10) NAICS codes described below.

NAICS Code Description

334110 Computer and Peripheral Equipment Manufacturing;

334220 Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing;

334410 Semiconductor and Other Electronic Component Manufacturing;

417310 Computer, Computer Peripheral and Pre-Packaged Software Wholesaler-Distributors;

443144 Computer and software stores;

511211 Software publishers (except video game publishers);

511212 Video game publishers;

51821 Data processing, hosting, and related services;

541514 Computer Systems Design and Related Services;

541515 Video game design and development services;

561320 Substitute personnel hired (under certain conditions);

561330 Permanent staff hired (under certain conditions).

B- 50% of gross revenue must be tied to four (4) specific NAICS codes

50% of the gross revenues of the corporation must have been generated through activities related to the six (6) NAICS codes described below.

NAICS Code Description

511211 Software Publishers;

511212 Video game publishers;

541514 Computer Systems Design and Related Services;

541515 Video game design and development services;

561320 Hire of substitute personnel (under certain conditions);

561330 Hire of permanent staff (under certain conditions).

In addition, in order for a company’s operations grouped under NAICS 511211, 511212 or 541514 and 541515 to be considered eligible, at least 75% of these activities must be:

• Services provided to a person with whom it deals at arm’s length;
• Services relating to applications developed by the company that are used exclusively outside Québec,
• A combination of these two elements.

2- E-business certificate for employees

A certificate for e-business confirms that the individual referred to in it is recognized as an eligible employee of the corporation for the taxation year for which the application is being made or for a part of a year indicated therein.

Eligible employees

An employee is eligible when both of the following conditions are met:

1. He holds a full-time job with a minimum of 26 hours of work per week, for a minimum of 40 consecutive weeks;
2. He devotes at least 75% of his time to undertaking, supervising or directly supporting work related to the performance of an eligible activity, including:

Eligible activities

1. Information Technology (IT) consulting services related to technology, systems development or e-business processes and solutions. Example: the development, integration, maintenance or evolution of information systems or technological infrastructures, or the design or development of e-commerce solutions or the development of security and identification services that can be done for that person;
2. Development, integration, maintenance or evolution of:

• Information systems, such as software packages, software and computer programs;
• Technological infrastructures, such as upgrading the technological architecture and integrating hardware components and software;

It should be noted that the maintenance and development activities must be ancillary to the development and integration activities carried out by the eligible corporation. These activities include any activity (other than a hardware installation activity) required to ensure the proper functioning of systems and infrastructure or to resolve or prevent problems or incidents, provided that it is:

• A technical intervention, whether corrective or preventive, which modifies one or more technical aspects of the components, including the computerized processes;
• A diagnostic activity, with remote intrusion or takeover of technological systems and infrastructures, leading, directly or indirectly, to such a technical intervention;

3. The design or development of e-commerce solutions, if such an activity consists of an e-commerce solution allowing a monetary transaction between those on whose behalf this design or development was carried out and its clientele;

For greater clarity, any activity for the design or development of a solution to which no monetary transaction is associated may nonetheless qualify as an eligible activity as long as it is linked to the development, integration, the maintenance or evolution of an eligible information system;

4. The development of security and identification services.

Important note

The information contained in this blog is for information only. You must consult an accounting or tax specialist such as R&D Action before submitting a claim. You must also review the relevant policies available on the Investissement Québec (IQ), Revenu Québec in French only(ARQ) websites.

R&D Action welcomes you to our blog and thanks you for your visit.

Several other categories of practical and applicable solutions are available in the index on the right of this page.

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E-BUSINESS TAX CREDIT (CDAE) ELIGIBLE ACTIVITIES

With the e-Business Development Tax Credit (CDAE) program, you can get a refundable tax credits of 30% of your IT salaries. These credits can be claimed every year to grow your business and support your competitiveness.

To obtain this benefit, you must demonstrate that the activities performed by your resources are eligible. That is, these activities must:

• Be performed in an site located in Québec;
• Be connected to the development of the company’s e-business;
• Transform a company’s core business processes. For instance by integrating Internet  or any other network technologies (ex.: ERP).

The activities eligible for the e-business (CDAE) tax credit are related to the design and development of e-commerce solutions (such as portals, search engines and transactional websites).

• It is sometimes difficult to distinguish a transactional site from an informational or institutional site. The last two types are not eligible for the CDAE;
• When the company provides related services to transactional websites, portals, intranets, extranets or mobile applications
• All work on non-transactional (informational) websites that do not change the process of the client company must be eliminated.

Examples of eligible activities for the e-business tax credit:

• Design and programming of transactional websites;
• Design, programming and integration of operations systems;
• Consulting for the design of information systems;
• Development of security and identification services related to e-business;
• Technology-related IT consulting services;
• Development, integration and, incidentally, maintenance and evolution:
• Information systems;
• Technological infrastructure;
• E-commerce solutions for monetary transactions;
• Security and identification services.

Examples of excluded activities from the e-business tax credit:

• Activities that are not related to transactional web sites;
• Operating an e-business solution (for example, processing electronic transactions through a transactional website);
• Management or operation of computer systems.
• Applications or infrastructure resulting from e-business activities;
• The operation of a call center or CRM;
  • Equipment installation and training activities;
  • Management tasks;
  • Activities related to a marketing information system
  • Activities aimed at increasing the visibility of a business and promoting it to a current or potential clientele;
  • Works for which the ultimate beneficiary is a government entity or department.

Important note: This blog is for information only. Before submitting a claim, consult an accounting or tax specialist such as R&D Action. You should also review the relevant policies available on the Investissement Québec (IQ), and Revenu Québec (in french)(ARQ)  websites.

R&D Action welcomes you to our blog and thanks you for your visit.

Several other categories of practical and applicable solutions are available in the index on the right of this page.

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How much e-commerce (CDAE) tax credits?

A corporation eligible for the e-business tax credits program (CDAE) gives access to refundable (checks) and non-refundable credits (as a deduction from Québec taxes):

• A refundable tax credit of 24% is granted for eligible salaries for a maximum tax credit of $ 20,000 per employee (maximum of $ 83,333 in salaries);
• And a non-refundable tax credit of 6% for eligible salaries for a maximum tax credit of $ 5,000 per employee(maximum of $ 83,333 in salaries).

This annual repayment may become recurring in subsequent years if the corporation continues to meet the eligibility criteria requested by Investissement Québec (IQ).

The qualifying salary is the gross amount paid to an eligible employee who meets the eligibility requirements.

Who are the eligible employees?

To be eligible for this measure, the employee must meet the following conditions:

• Not hold more than 10% of the shares of the company;
• Have a full-time job (minimum of 26 hours per week) for a minimum of 40 consecutive weeks;
• For at least 75% of his working time, undertake, supervise or directly support work related to the performance of an eligible activity, except administrative tasks.

Optimization of credits

Québec’s tax legislation includes several measures to prevent the accumulation of tax credits from the same expense.

For example, some employees are eligible for the e-business tax credit and the tax credit for scientific research and experimental development (SR & ED). But an information technology company can not claim the SR & ED (Quebec) and the e-business credit for the same salary expense. However, this legislation leaves the taxpayer with the option of determining which of the tax credits to apply to an expense. It is therefore important to make the right choices.

First, it is important to mention the minimum annual R&D  expenses threshold of $ 50,000 introduced in Quebec. If the expenses are below the minimum threshold and they were made by an employee eligible for the CDAE, your choice is simple: CDAE.

If the expenditure exceeds this threshold, an optimization of your requests for tax credits is necessary. This optimization must be done individually for each employee. It must take into account credit rates, the effect between the federal and provincial credits, and the refundable or non-refundable amounts of these credits.

Finally, the excess of $ 83,333 in salary of an employee can be claimed as SR&ED if he qualifies.

Important note:

The information contained in this blog is for information only. Consult an accounting or tax specialist such as R&D Action before submitting a claim. Review the relevant policies available on the Investissement Québec (IQ) and Revenu Québec (ARQ)  websites.

R & D Action welcomes you to our blog and thanks you for your visit.

Several other categories of practical and applicable solutions are available in the index on the right of this page.

Try them. They are for you.

Did you like your reading? Tell us so. Share it. What should be added? What topics are you interested in?

Did not like this reading? Tell us so. What did you like least about this text? How can we better meet your needs?

How do you select the one for you ?

Is your technology innovative? You are surely looking for financing sources. Do you do research and development? You have probably already studied many government funding programs and tax credits. How can you evaluate the program that suits you, the one that offers the best return for your investment in time and for your efforts? SR&ED or IRAP ?

This article compares two of the most popular federal programs: the Industrial Research Assistance Program (IRAP) and the Scientific Research and Experimental Development (SR & ED) Program.

SR&ED generates more money, but the IRAP is faster to generate liquidities

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Important Notice: This information is presented briefly for presentation purposes only. Before evaluating or submitting a claim you should contact a tax specialist and such programs, such as R&D Action, to validate the calculations in your specific situation. We also suggest you consult the relevant policies available on the Canada Revenue Agency (CRA) and the National Research Council of Canada (NRC) websites.

1- THE IRAP

IRAP is a federal program administered by the National Research Council of Canada. It provides research and development grants to innovative and qualified small and medium-sized businesses in Canada. The IRAP budget is limited (approximately $ 400 million in 2019/20). It receives hundreds of submissions each year, making it a very popular financing option.

IRAP is a large program of the federal government (after SR&ED) to help innovative businesses. This program manages a network of resources across the country. This approach aims at supporting the rapid progression of companies by developing new products in all kinds of technological fields, including mechanical engineering, chemical, software, etc. The fairly fast processing of their files is unmatched by any other government program.

The “hands-on” approach with IRAP’s Industrial Technology Advisors and their influence in project management can be a welcome source of value for some companies. To our knowledge, however, better strategic, business and operational advice can be found elsewhere. Government representatives are not always the best coaches and mentors for entrepreneurs.

IRAP can fund up to 75% of certain costs in the form of a repayable loan based on future results, or a grant, or a combination of both.

2- THE SR&ED

2.1 Federal

The SR&ED program is administered by the Canada Revenue Agency (CRA) and provides a tax credit for eligible R&D expenditures. This tax credit is refundable (a check) for most SMEs. The rate of tax credits for SMEs is 35% for eligible expenses.

• Eligible salary expenses are increased by 55% overhead (overhead), so that $ 100 of federal salary is calculated as $ 155 of expenses.
• For subcontractor expenses, the federal credit is 28% (80% * 35%) of the eligible invoices. For the materials consumed, the rate is 35%

Since the SR&ED program does not have a fixed budget, each eligible application is approved. In 2016-17, the program processed approximately 21,000 credit applications representing approximately $ 2.7 billion in federal tax credits. This is more than 6.5 times the budget of the IRAP program

Also, any IRAP funding reduces your federal eligible expenses for SR&ED claims.

The federal SR&ED program is duplicated by a similar program in several provinces:

2.2 In Quebec

In addition, Quebec’s supplementary SR&ED credit is always refundable. For SMEs, the higher rate of tax credits is 30% for eligible expenses exceeding $ 50,000. This means that the federal + Quebec combined credit rate is 54% on the salary of the first $ 50,000 of eligible expenses and 73.75% on salaries exceeding the first $ 50,000 of expenses.

For subcontractor expenses, the combined rate above the initial $ 50,000 is 37.75%. Material expenses are not eligible in Quebec, so the combined rate is 35%.

2.3 In Ontario

In Ontario, the additional non-refundable SR&ED credit is 3.5%. Non-refundable means the credit is deducted from payable taxes.

Ontario Innovation Tax Credit (OITC)

The CIIO is a refundable tax credit of 8% for small and medium-sized businesses on eligible R&D expenditures. The following table illustrates how it is possible to increase the rate of the CIIO.

3- Differences IRAP vs SR & ED

IRAP and SR&ED differ in many ways:

• The agreement with IRAP may be partially or fully refundable. You will not be requested to refund the SR&ED tax credit;
• IRAP is limited to businesses with fewer than 500 employees. SR&ED has no limit on the size of the business;
• IRAP considers only future research and development projects. SR&ED covers eligible expenditures already incurred;
• IRAP benefits are usually paid in installments as you report project progress. SR&ED tax credits are paid in lump sum and approved once your end-of-year tax return has been accepted by the CRA;
• SR&ED accepts more extensive categories of expenditures than IRAP;
• IRAP provides a network of advisors across the country who can:
• Guide some companies;
• Deliver timely approvals to businesses seeking funds, contrary to the lengthy waiting period for SR&ED approvals;
• IRAP uses an additional “criterion”: sales potential, SR&ED does not take into account this potential

4- Final verdict:

In conclusion, R&D Action advisors, experienced experts, recommend SR&ED credits for three main reasons:

• SR&ED provides more financial return;
• SR&ED is available to any eligible business; and
• IRAP funding will be deducted from your SR ED claims.

On the other hand, if you have cash restrictions, you may be interested in IRAP. In fact, IRAP quarterly payments are made as you report the progress of the project, whereas the SR&ED credit is approved once your end-of-year return has been accepted by the CRA, which can take several months.

Thank you for visiting the R&D Action blog. Look at the index on the right of this page. It contains several other categories of practical and applicable solutions which are also for you.

Did you like your reading? Tell us so. Share it. What should be added? What topics are you interested in?

You did not like this reading? Tell us so. What did you least like about this text? How can we better meet your needs?

E-business or SR&ED : which tax credit is for you ?

Is your company in Information Technology (IT)? You are surely looking for sources of financing. Do you do research and development? You probably have already studied many government funding programs and tax credits. How to evaluate the program that suits you, the one that offers the best return for your investment in time and for your efforts? Is e-business or SR&ED made for you?

This article compares two of the most popular government programs: the e-business tax credit (Crédit pour Développement des Affaires Électroniques – CDAE) and the Scientific Research and Experimental Development (SR&ED) tax credit.

Eligibility for the e-business tax credit is less burdensome, more predictable and easier to maintain for many years

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Important Notice: This information is presented briefly for presentation purposes only. Before evaluating or submitting a claim you should contact a tax specialist into such programs, such as R&D Action, to validate the calculations in your specific situation. We also suggest you consult the relevant policies available on the Canada Revenue Agency (CRA), the Quebec Revenue Agency (in French only) and Investissement Québec websites.

1- THE E-BUSINESS TAX CREDIT (CDAE)

The e-business tax credit is a provincial program administered jointly by Investissement Québec and the Quebec Revenue Agency (ARQ). It offers tax credits to companies qualified in information technology in the province of Quebec. The cost of the e-business credit for the government in 2019/20 is limited to over $ 450 million of refundable and non-refundable credits. This program receives hundreds of submissions each year. So this is another very popular financing option.

e-business credit may apply to you if your primary activity is Information Technology (IT), such as:

• Computer systems design,
• Software publishing,
• IT consulting service,
• Development, integration, maintenance or evolution of systems,
• Design or development of e-commerce solutions.

The e-business credit provides access to refundable tax credits (checks) and non-refundable tax credits (as a deduction from Québec taxes):

• A refundable tax credit of 24% is granted for eligible salaries, up to a maximum of $ 83,333 in salaries, for a maximum tax credit of $ 20,000 per employee;
• In addition, a non-refundable 6% tax credit is granted for eligible salaries, up to a maximum of $ 83,333 in salaries, for a maximum tax credit of $ 5,000 per employee.

Certification of company

The company must be qualified before qualifying employees for the program. To obtain a e-business credit company certificate, it must be shown that it:

• Maintained a minimum of six (6) eligible full-time employees (40 consecutive 26-hour weeks) at any time throughout the year.
• Met both of these revenue or activity requirements:
• 75% of gross revenue must come from the IT sector which is defined by twelve (12) specific NAICS codes;
• 50% of gross revenue must be tied to four (4) specific NAICS codes.

Certification of employees

An employee is eligible when both of the following conditions are met:

• He has a full-time job with a minimum of 26 hours of work per week, for a minimum of 40 consecutive weeks;
• He devotes at least 75% of its time to undertaking, supervising or directly supporting work related to the performance of an eligible activity, including:

Eligible activities

• Information Technology (IT) consulting services related to technology, systems development or e-business processes and solutions;
• Development, integration, maintenance or evolution of:
• Information systems, such as software packages, software and computer programs;
• Technology infrastructure, such as upgrading the technology architecture and integrating hardware components and software;
• The design or development of e-commerce solutions for a monetary transaction;
• The development of security and identification services.

2- THE SR&ED TAX CREDIT

2.1 Federal

First, the SR&ED program is administered by the Canada Revenue Agency (CRA) and provides a tax credit for eligible R & D expenditures. This tax credit is refundable (a check) for most SMEs. The rate of tax credits is 35% for eligible expenses for SMEs.

• Eligible salary expenses are increased by a 55% proxy for overhead, so that $ 100 of salary is calculated as $ 155 of expenses in the federal claim.
• For subcontractor expenses, the federal credit rate is 28% of eligible invoices. For the materials consumed, the rate is 35%

Since the SR&ED program does not have a fixed budget, each eligible application is approved. In 2016-17, the program processed approximately 21,000 credit applications representing approximately $ 2.7 billion in federal tax credits and over half a million in provincial credits. This is more than 6 times the budget of the CDAE program.

2.2 Quebec

Also, the federal SR&ED program is duplicated by a similar program in Quebec. Quebec’s supplementary SR&ED credit is always refundable. For SMEs, the higher provincial rate of tax credits is 30% for eligible expenses exceeding $ 50,000. This means that the federal + Quebec combined credit rate is 54% on the salary of the first $ 50,000 of eligible expenses and 73.75% on salaries exceeding the first $ 50,000 of expenses.

For subcontractor expenses, the combined rate above the initial $ 50,000 is 37.75%. Material expenses are not eligible in Quebec, so the combined rate is 35%.

3- Differences e-business credit vs SR&ED

In summary, e-business and SR&ED differ in many ways:

• e-business credit is limited to Information Technology companies. SR&ED has no limitations in the company’s technology domain;
• e-business credit can only be claimed for companies that have six (6) eligible and more full-time employees. SR&ED can be claimed as soon as the company has eligible hours and costs.
• SR&ED tax credit is the most rewarding but also the most intimidating. Do you really do experimental development? Once the company and its recognized employees are eligible for the e-business credit, the annual repayment may become recurring in subsequent years if the corporation continues to meet the eligibility criteria requested by Investissement Québec.
• The e-business credit may require the creation of a new company that qualifies for the company certificate criteria. SR&ED can be claimed by any company that pays salaries or pays bills deemed eligible;
• Any e-business credit funding reduces your eligible expenditures for the provincial SR&ED claims;
• Once granted, the e-business credit and SR&ED tax credits will never have to be repaid (except in the case of fraud, of course);
• The e-business credit only considers salaries. SR&ED can be claimed on wages, subcontractors and materials consumed for research;
• The e-business tax credit is limited to $ 25,000 per employee. SR&ED has no such limit.
• The e-business credit considers technological activities. SR&ED only deals with experimental development activities to resolve technological uncertainties in order to advance technology. The challenge of eligibility for SR&ED credit is therefore greater;
• Both tax credits are paid in lump sum and approved once your end-of-year tax return has been accepted by the CRA, IQ and the ARQ;

4- Final verdict:

In conclusion, R&D Action experts, recommend, as experienced experts,:

• SR&ED credit if your development advances your technology and knowledge of your technology field. It is also more generous for the efforts deemed eligible;
• e-business credit if your activities are less “R&D ” typical and more like consultation, design, standard development, integration, maintenance or evolution of information systems.

In general, eligibility for the e-business tax credit is less burdensome, more predictable and easier to maintain for many years.

Thank you for visiting the R&D Action blog. Look at the index on the right of this page. It contains several other categories of practical and applicable solutions which are also for you.

Did you like your reading? Tell us so. Share it. What should be added? What topics are you interested in?

You did not like this reading? Tell us so. What did you least like about this text? How can we better meet your needs?