QC — Effective immediately, the provincial government has introduced new minimum thresholds starting at $50,000 per claim for Scientific Research and Experimental Development (SRE&ED) conducted in the province.

Specifically, the government will exclude any SR&ED spending below a specified threshold that starts at $50,000 and increases from there for corporations with assets valued at more than $50 million. The change will only impact the provincial portion.

The announcement, which was made on December 2, 2014 went into effect on December 3, 2014, giving businesses little time to respond.

This will have a significant impact on smaller companies and could see as much as 40 per cent of claims in the province eliminated, while additionally many companies will receive much less back from the credits as they will only be able to claim spending amounts over the $50,000 minimum threshold.

The rationale provided by the government is as follows:

1. The average claim for many businesses is considerably low. For 40% of businesses: R&D expenditures are under $50,000 and average $25,000 per business, while manufacturing and processing equipment investment tax credits are less than $12,500 and average $4,500 per business.
2. The administrative costs can be high in proportion to the claim.
3. The government believes the tax credit "… does not seem to be an essential deciding factor for carrying out the activities or investments concerned."

Yet this position misses critical points:

1. For start-ups and smaller companies looking to innovate, refund amounts in the ranges mentioned can make up a significant portion of the business' operating costs.
   
   As the world transitions our country needs to have strength around the commercialization of emerging innovations that will be driven by research, experimentation and technology. These changes to the SRED program in Quebec completely cut-off access for the smallest project and will also significantly impact the refunds available to all companies at the smaller investment levels.
    
2. There is an important side benefit for smaller companies doing their in-house R&D, which is the ability for those companies to strengthen the company's knowledge, resources and the scope of projects it can undertake. Shifting to a post-secondary collaborative approach will not help with the vital business development advantage of keeping some or all of the R&D in-house.

For more information

http://www.finances.gouv.qc.ca/documents/Autres/en/AUTEN_updateFall2014.pdf

http://www.finances.gouv.qc.ca/documents/bulletins/en/BULEN_2014-11-a-b.pdf

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