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Budget 2024-2025: What You Need to Know About Quebec’s CDAE and Multimedia Tax Credits

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Quebec’s Budget 2024-2025 unveils significant adjustments to tax assistance measures, particularly targeting the  IT and video game development sectors.

In response to Quebec’s $11 billion budget deficit for 2024, adjustments to the tax credit for the development of e-business (CDAE) and tax credit for multimedia titles (MMTC) aim to rein in costs, which reached nearly $850 million CAD in 2023. With the proposed changes, the cost of tax assistance programs for businesses is estimated to decrease by approximately $1B over four years.

This blog post explores the key changes announced for the CDAE and MMTC programs.

The E-Business Tax Credit (CDAE)

The CDAE enables businesses that are developing and selling software licenses or services (ie. Software-as-a-Service or SaaS) to receive a tax credit for each eligible employee. By providing tax credits for qualified expenditures related to software development, the CDAE encourages businesses to embrace digital transformation and expand their online presence.

First, a run-down on eligibility:

To be eligible, corporations in Quebec’s IT sector must demonstrate that at least 75% of their activities fall within specific NAICS codes related to information system design or software publishing. Additionally, during a taxation year, they must maintain a minimum of six eligible full-time employees. These employees must dedicate at least 75% of their time to relevant activities.

Budget 2024-2025 announced significant adjustments to the CDAE, aimed at optimizing the support offered. Here is a breakdown of the key changes:

Adjustment of Tax Credit Rates

To ensure greater harmony in the support offered by both CDAE and MMTC, the Quebec government is gradually adjusting the tax credit rates of both programs, harmonizing the levels refundability.

Currently, the CDAE comprises a refundable portion at 24% and a non-refundable portion at 6%. Over the next 5 years, the non-refundable portion will increase by 1% annually until reaching 10%, while the refundable portion will decrease to 20% accordingly. This gradual adjustment aims to maintain the competitiveness of businesses while managing costs effectively.

CDAE
Fiscal year beginning during the year Refundable Non-refundable
2024 24% 6%
2025 23% 7%
2026 22% 8%
2027 21% 9%
2028 20% 10%

Labour Expenditure Limit Replaced by Exclusion Threshold

The budget also announced the removal of the $83,333 limit on qualified labour expenditure per eligible employee under the CDAE. Instead, an exclusion threshold per eligible employee will be introduced, aligning with the Quebec basic personal amount ($18,056 for 2024).  In other words, the tax credit is now offered only on the portion of salary that is typically taxable for personal income tax purposes.

Effectively, these changes enable businesses to claim the tax credit for higher-salary employees. Additionally, this adjustment means that the effective rate will increase based on an employee’s salary rather than decrease.

Find the effective rates of the CDAE based on an employee’s eligible salary below:

Employee’s eligible salary 2024

(Before Budget 2024-2025)

 2028

(After Budget 2024-2025)
$50,000 30.0% 18.1%
$100,000 25.0% 24.1%
$150,000 16.7% 26.0%

The Multimedia Tax Credit (MMTC)

The MMTC is designed to support the creation and production of multimedia titles, including video games, interactive media, and digital content. By offering tax credits for qualified labour expenditures incurred during multimedia production, the MMTC aims to incentivize companies to invest in multimedia projects, attract talent, and develop high-quality content, thereby fostering innovation and creativity in Quebec’s multimedia sector.

Like CDAE, the MMTC will undergo several adjustments to better align with the evolving landscape of multimedia production. Here are the key changes proposed in Budget 2024-2025:

Adjustment of Tax Credit Rates

To harmonize tax credit rates with CDAE, the MMTC now comprises both a refundable and non-refundable portion. The non-refundable portion will be introduced gradually, starting at 2.5% in 2025 and increasing by 2.5% annually until reaching 10%. At the same time, the refundable portion will incrementally decrease to 20%.

MMTC
Fiscal year beginning during the year Refundable Non-refundable
2024 30% —
2025 27.5% 2.5%
2026 25% 5%
2027 22.5% 7.5%
2028 20% 10%

Note that the MMTC will continue to offer a 7.5% refundable premium for titles available in French, promoting the production of French video games.

Qualified Labour Expenditure Limit Replaced by Exclusion Threshold

Similar to CDAE changes, the MMTC’s $100,000 limit on qualified labour expenditure per eligible employee will be removed and replaced by an exclusion threshold per eligible employee that mirrors the Quebec basic personal amount.

Effective rates of the MMTC based on an employee’s eligible salary:

Employee’s eligible salary 2024

(Before Budget 2024-2025)

 2028

(After Budget 2024-2025)
$50,000 37.5% 22.7%
$100,000 37.5% 30.1%
$150,000 25% 32.6%

Final Thoughts

The changes outlined in Quebec’s Budget 2024-2025 signify a strategic move towards optimizing tax assistance programs for businesses while managing costs effectively. These changes are generally positive for the CDAE program, which now permits claims for higher-salary employees. However, for the MMTC, these changes are less favourable; the introduction of a non-refundable portion may discourage smaller companies with limited cash flow from submitting claims. Additionally, the MMTC effective rates suffer a more considerable decrease.

However, by reducing the overall “generosity” of these programs, the government seeks to reduce government expenditures while still supporting key sectors like e-business development and multimedia production. As Quebec strives to achieve a fully balanced provincial budget by 2028, the successes of the local software and multimedia industries are poised to play a pivotal role in revitalizing economic conditions across the province.

Federal Budget 2023: Key Measures for Canadian Innovators

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On March 23, 2023, Deputy Prime Minister and Minister of Finance, Chrystia Freeland, unveiled the federal government of Canada’s budget for the 2023-2024 fiscal year. Titled “A Made-in-Canada Plan,” the budget is focused on ensuring Canadians have access to the resources they need to thrive, supporting businesses and workers to build a strong and inclusive economy, and taking a stand against climate change to ensure that Canada keeps pace with the large strides being made in the highly competitive global clean economy.

We have highlighted some of the key initiatives in the 2023 Federal budget and the impact these new measures may have on innovative Canadian companies in the years to come.

Scientific Research & Experimental Development (SR&ED) Tax Credit

Before delving into the new programs and initiatives outlined in Budget 2023, let us re-examine a critical Canadian program: the SR&ED Tax Credit. In the 2022 budget, the government announced their plan to review the SR&ED tax credit program, hoping to support Canadian R&D more effectively. To date, the results of this review have not been released. In fact, in the 2023 budget, there was no mention of any change to the program. It will be interesting to see what comes of this long-awaited review, and how the government endeavours to “provide adequate support” to Canadian innovators.

Read more.

Clean Electricity Investment Tax Credit

The Canadian government has proposed a 15% refundable tax credit to accelerate investments in clean electricity technologies, including non-emitting electricity generation, abated natural gas-fired electricity generation, stationary electricity storage systems, and equipment for electricity transmission. The tax credit will be available for new projects and the refurbishment of existing facilities. The government has also introduced labor requirements and commitments to achieve a net-zero electricity sector by 2035. The tax credit is expected to cost $6.3 billion over four years starting in 2024-25 and $19.4 billion from 2028-29 to 2034-35.

Learn more.

Clean Technology Manufacturing Investment Tax Credit

The Clean Technology Manufacturing Investment Tax Credit is introduced in Budget 2023 to support Canadian companies in the manufacturing and processing of clean technologies and critical minerals. This refundable tax credit is equal to 30% of the cost of investments in new machinery and equipment used to manufacture or process key clean technologies, and extract, process, or recycle key critical minerals. The investment tax credit is estimated to cost $4.5 billion over five years and an additional $6.6 billion from 2028-29 to 2034-35. The credit would apply to property acquired and available for use on or after January 1, 2024, and would expire after 2034.

Learn more.

Reduced Tax Rates for Zero-Emission Technology Manufactures

Budget 2023 proposes to extend the reduced corporate tax rates for zero-emission technology manufacturers for another three years beyond the expiry date in 2032, subject to a phase-out starting in 2032. The eligibility for the reduced rates will also include nuclear energy equipment and the processing/recycling of nuclear fuels and heavy water. The enhancements will cost $20 million over five years and an additional $1.3 billion from 2028-29 to 2034-35.

Learn more.

Canada Growth Fund

The Canadian government has established the $15 billion Canada Growth Fund to attract private capital for low-carbon projects, technologies, businesses, and supply chains. The fund will be managed by the Public Sector Pension Investment Board (PSP Investments) and will use investment instruments to absorb certain risks and encourage private investment in Canada’s clean economy. The Growth Fund will begin investing in the first half of 2023, and PSP Investments will establish an independent investment team with extensive experience to make investment decisions. The Growth Fund will maintain a reporting framework for public transparency and accountability, and contracts for difference will be provided to support clean growth projects.

Learn more.

Additional Funding for the Strategic Innovation Fund

Since 2018, the Strategic Innovation Fund has created over 105,000 jobs and leveraged $67 billion in private investment across 107 projects. In Budget 2023, the federal government announces plans to provide $500 million over ten years to support clean technology development, and up to $1.5 billion of existing resources will be directed toward clean technologies, critical minerals, and industrial transformation.

Learn more.

Final Thoughts

Budget 2023 focuses heavily on developing a green economy and innovating in clean technologies. It will be interesting to see how the proposed tax credits, funds, and programs incite change and affect the business ecosystem. Is this budget perhaps a turning point for Canada in the competitive global green economy? Only time will tell.

Federal Budget 2022: Key Measures and New Funding for Canadian Innovators

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Deputy Prime Minister and Finance Minister Chrystia Freeland unveiled the 2022 Federal budget on April 7, 2022. Titled “A Plan to Grow Our Economy and Make Life More Affordable,” the budget announces a number of changes to existing programs and new initiatives to fund the development of green energy, the circular economy and Canadian innovation.

The following article offers a brief overview of some of the highlights of the 2022 Federal budget and the impact these new measures may have on innovative Canadian companies in the years to come.

Updates to the SR&ED Tax Credit 

After nearly three years of no major changes to the federal Scientific Research & Experimental Development tax credit program – the last significant modifications date back to 2019 – Budget 2022 officially announced that the program will be undergoing a formal review to find out if changes to the eligibility criteria are necessary. The review will also consider the possibility of implementing a “patent box” regime to encourage the development of innovative IP in Canada. A “patent box” essentially allows income earned from IP to be taxed at a lower rate than other business income, encouraging innovation.

This review was just announced, so we cannot be sure of its impact on the program at present. However, there are reasons to believe that any changes may expand access to the program and program funding, rather than restricting it. This is because expanding access to SR&ED was part of the Liberals platform for the 2021 election.

Learn more

Creation of an Innovation and Investment Agency

Budget 2022 announces the creation of an operationally independent federal innovation and investment agency, with a planned budget of $1 billion for its first five years of operation – starting in 2022-3. Additional details have yet to be announced, but the agency’s mandate will generally be to work with existing and new businesses in crucial industries and help them make investments necessary for their growth and increase their competitiveness.

Learn more

Creation of the Canada Growth Fund

This brand-new investment fund aims to attract private capital to Canada to encourage growth in strategic sectors and fund initiatives related to key economic goals like emissions reduction, low carbon technology development, supply chain restructuring, the development of the primary resource sector, and more. Funding will take a variety of forms, including equity, debt financing, and loan guarantees.

Learn more

Introduction of a new Investment Tax Credit for Carbon Capture, Utilization and Storage

A new refundable tax credit, effective for projects starting on or after January 1, 2022, will be introduced to offset the cost of carbon dioxide capture and storage equipment purchases. This new credit’s rates will vary between 37.5% and 60% until 2030.

Learn more

Additional Funding for the Development of Semiconductors

Innovation, Science and Economic Development Canada will receive $45 million over 4 years to engage in various activities aiming to support semiconductor projects and strengthen Canada’s place in the sector.

Learn more

Additional Funding for Canada’s Superclusters

The budget plans for an additional $750 million in funding over 6 years for the 5 innovation superclusters to support projects and foster public-private collaboration in key economic sectors. The superclusters have also been officially renamed Global Innovation Clusters moving forward.

Learn More

Read our article dedicated to the Supercluster initiative to find out more about each cluster and their programs.

Making the SME lower tax rate more accessible

Canadian small businesses already benefit from the reduced federal tax rate of 9% on their first $500,000 of taxable income, a 6% tax cut from the general 15% federal corporate tax rate. The current rule only allows businesses to access this lower corporate tax rate as long as their level of capital employed in Canada stays under $15 million.

For taxation years beginning on or after April 7, 2022 – budget day – access to the reduced tax rate will instead be phased out gradually, and only businesses with $50 million or more in employed capital in Canada will be fully excluded from the reduced rate.

The goal of this measure is to incentivize small businesses to grow and make capital investments without drastically increasing their tax burden.

Learn more

How R&D Partners can help

If you have any questions about this or other tax credit programs, do not hesitate to contact Jacob Ma at jma@rdpartners.com

Other Resources

Federal Budget Summary

Full Budget PDF

This article is intended for general informational purposes only and does not constitute professional accounting or tax advice.

2022-3 Quebec Budget: Key Takeaways for Quebec Innovators

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Finance minister Eric Girard tabled budget 2022-2023 on March 22nd, 2022. The budget includes several measures to address the rise of the cost of living for Quebec taxpayers, but also many interesting updates that innovative businesses headquartered in or with operations in the province of Quebec will want to be aware of.  

The largest spending envelope identified in this year’s budget is the $8.9 billion earmarked for the restoration and the enhancement of Quebec social services and healthcare system by 2026-2027. A $4.2 billion spending package dedicated to fueling economic growth in the province comes second. 

This article will mainly focus on identifying new or modified tax measures and how they will benefit Quebec businesses. We will also discuss some measures that have yet to be precisely defined, but are likely to lead to funding or opportunities for Quebec science and technology innovators.  

General Research and Development Investments for 2022-2027  

Within the $1.3 billion set aside by the Quebec government for the continuation of R&D efforts in the province, $500 million will be allocated to private equity funds and $100 million directly to the Impulsion PME Program. Both of these spending envelopes seek to encourage the development of even more innovative businesses in the province. (E.11) 

Find the Impulsion PME Program in our funding search engine.  

C3i Tax Credit Bonified Rates Further Extended Until December 31st 2023 

The 2021-2022 Quebec budget introduced doubled base rates for the C3i tax credit, which were initially going to apply to eligible equipment purchased between March 25, 2021 and December 31st 2022. These doubled rates are now available until December 31st 2023. This gives eligible businesses another full year to make equipment and software package purchases and benefit from the doubled tax credit rates. (E.28)  

Read our full article on the C3i tax credit to learn more about the eligibility criteria and the types of expenses that qualify here.  

Launch of a New Cybersecurity Enhancement Program  

While the budget states that details will be communicated by the appropriate bodies at a later date, we know that a total of $100 million – $30 million in 2022-3 and $70 million in 2023-4 – have been set aside for the creation of a new program to fund initiatives aiming to strengthen cybersecurity in Quebec. (E.25) 

Projects will be deployed in public bodies with the goal of helping the government ensure its digital transformation, protect citizens’ information and ready themselves in the case of cyberattacks.  

Supporting the Bio Food and Forestry Sectors 

The Financière Agricole du Québec (FADQ) will receive an additional $50 million over the next two years to continue funding eligible projects through its Growth Investment Program. Its strategic investment subsidiary known as Capital Financière Agricole will also receive $10 million more in capitalization to continue to support a variety of food processing and agri-food related innovative projects. (E.47) 

Innovation Bois, a program created to support innovation in the forestry sector, will also receive an additional $75 million in funding to increase productivity and support the sector’s diversification.  

New Biofuel and Pyrolisis Oil Production Tax Credits 

Two brand new biofuel and pyrolisis oil production tax credits will replace three previous refundable tax credits: one for the production of ethanol in Quebec, one for the production of cellulosic ethanol in Quebec, and one for the production of biodiesel fuel in Quebec. All three will expire on March 31, 2023. (F.14) 

The new tax credits’ assistance amounts will be calculated based on the carbon intensity reduction offered by the biofuel, ethanol or pyrolysis oil produced compared to the use of an equivalent quantity of regular fossil fuels. Additional details have yet to be released.  

 

How R&D Partners can help 

If you have any questions about funding for innovative companies in Quebec, do not hesitate to contact Jacob Ma at . 

 

Other Resources 

Ministère des finances du Québec 

2022 Quebec Budget: Province to Keep Spending Taps Open (TD)   

 

This article is intended for general informational purposes only and does not constitute professional accounting or tax advice.