The Québec Government recently announced changes to the refundable tax credit for the development of e-business. The tax credit, which has a rate of 30 per cent, is granted to an eligible corporation regarding the salaries paid to eligible employees for carrying out eligible activities. Introduced last year, the tax credit itself does not change. Rather, the government has broadened one eligibility criterion to allow certain corporations operating in the information technology sector to qualify for the credit.
To qualify as an eligible corporation, at least 75 per cent of the corporation’s activities for the taxation year must be in the information technology sector. The corporation’s gross income is the criterion taken into consideration to make such a determination. In addition, at least 75 per cent of the corporation’s activities carried out in the information technology sector must consist either of: services ultimately supplied to a person with whom it is at arm’s length or services relating to applications developed by the corporation that will be used exclusively outside Québec — or a combination of both.
The change introduced relates to the notion of "information technology sector." In the previous regime, this was limited to activities included under code 541510 of the North American Industry Classification System (NAICS), "Computer Systems Design and Related Services." This notion is now broadened, but exclusively for the purposes of the criterion relating to the proportion of activities in the information technology sector (and not the one relating to the proportion of services supplied).
Under the new regime, "information technology sector" includes the activities encompassed by an additional six NAICS codes: 334110 (Computer and Peripheral Equipment Manufacturing), 334220 (Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing), 417310 (Computer, Computer Peripheral and Pre-Packaged Software Wholesaler-Distributors), 443120 (Computer and Software Stores), 511210 (Software Publishers) and 51821 (Data Processing, Hosting and Related Services).
However, at least 50 per cent of the corporation’s gross income will have to be earned from activities included under NAICS code 511210 (Software Publishers), activities included under NAICS code 541510 (Computer Systems Design and Related Services) or a combination of these activities within the same taxation year.
These changes will apply to salaries incurred by an eligible corporation and paid to eligible employees after March 13, 2008, and before January 1, 2016.
McCarthy Tétrault Notes:
If your corporation operates mainly in computer systems design and related services but was under the threshold in the past because it carried on other activities, you may want to see whether those other activities now fall within the acceptable categories so that your corporation can qualify for the credit.