Refundable tax credit for private partnership pre-competitive research

In the March 23, 2006 Budget Speech, the Minister of Finance introduced the refundable tax credit for private partnership pre-competitive research, a tax measure to replace the refundable tax credit for pre-competitive R&D.

This tax measure is intended for businesses that:

• carry on a business and have an establishment in Québec;
• carry out a scientific research and experimental development (SR&ED) project with private partners;
• establish their knowledge base through the development of technological expertise.

The 35% tax credit applies, in whole or in part, to eligible SR&ED expenditures (particularly salaries and wages, current expenditures and capital expenditures). It is granted to each eligible business in the partnership.

To claim the tax credit, businesses must obtain a favourable advance ruling from the ministère du Revenu du Québec (MRQ). To that end, they must first obtain a favourable opinion from the ministère du Développement économique, de l'Innovation et de l'Exportation (MDEIE), indicating that the agreement between the parties has the characteristics of a partnership contract within the framework of a pre-competitive research project.

• Purpose of the tax measure
• Nature of the tax credit
• Eligibility criteria
• Analysis criteria used by the MDEIE in issuing an opinion concerning a partnership
  
  1. Characteristics of a partnership contract
     
  2. Characteristics of a pre-competitive research project within the meaning of the measure
• Required information
• Important
• Address and additional information

Purpose of the tax measure

The purpose of the tax measure is to encourage businesses to group together to carry out SR&ED projects in partnership. This measure is intended primarily for businesses that establish their knowledge base through the development of technological expertise with a view to:

• increasing the scientific and technological knowledge they can use in their sector of activity;
• cutting costs and sharing risks in order to complete costly SR&ED projects.

Nature of the tax credit

To qualify for the tax credit, taxpayers must carry on a business in Québec and have an establishment here to which the SR&ED relates.

The 35% tax credit applies, in whole or in part, to eligible expenditures (particularly salaries and wages, current expenditures and capital expenditures related to pre-competitive research activities). It is granted to each eligible business in the partnership, on the basis of the expenditures incurred by the business in Québec to carry out pre-competitive research activities during the fiscal period concerned. While the project is ongoing, only expenditures incurred in Québec qualify for the tax credit.

The tax credit is refundable. Accordingly, businesses can reduce their income tax and even obtain a refund from the MRQ if the credit is higher than their income tax payable.

Eligibility criteria

To claim the tax credit, businesses must obtain a favourable advance ruling from the MRQ before it can refund a tax credit under the partnership contract.
The MRQ checks the following elements:

• The contract is between two or more partners and at least one of them carries on a business and has an establishment in Québec.
• None of the partners is a prescribed research entity, an organization, a trust or a partnership, as set forth in the 2006-2007 Budget (page 63).
• The SR&ED is carried out under an agreement constituting a partnership contract within the framework of a pre-competitive research project covered by the tax credit.
• Before rendering an advance ruling, the MRQ obtained a favourable opinion from the MDEIE, indicating that the agreement has the characteristics of a partnership contract within the framework of a pre-competitive research project. It is up to the applicant to see that the MRQ receives the MDEIE's opinion.

The MRQ charges an initial fee of $250, plus $100 for each additional hour, for its advance ruling service. Advance ruling requests must be sent to:

Direction générale de la législation et des enquêtes
Ministère du Revenu du Québec
3800, rue Marly
Québec (Québec) G1X 4A5

Following is the link for the reference in the 2006-2007 Budget Speech (Section 1, subsection 2.5, page 57 ff.). 2006-2007 Budget - Additional Information on the Budgetary Measures.

Analysis criteria used by the MDEIE in issuing an opinion concerning a partnership

The MDEIE is responsible for issuing an opinion concerning partnerships. Before issuing an opinion, the MDEIE checks the following elements:

1. The agreement has the characteristics of a partnership contract.
2. The research project has the characteristics of a pre-competitive research project within the meaning of the measure.

Last update: December 19, 2007