Agreements With a Government Entity and Their Impact on the TCEB

- June 27, 2017

In the 2015 Quebec budget speech, the Finance Minister announced changes to the Tax Credit for the Development of E-Business (TCEB) by introducing the concept of “work under an agreement entered into by the employer and a government entity”. As a result, the portion of an employee’s wages that is attributable to the employee’s duties in the performance of work in respect of a government entity no longer qualifies. This change applies to agreements entered into, renewed or extended after September 30, 2015.

This modification in the tax credit calculation does not change the eligibility criteria for the entity or its employees. Accordingly, even though the entity has ongoing agreements with government entities, its qualification tests are unchanged, since its income from such agreements still qualifies. The work performed by employees in connection with these agreements continues to qualify for the 75% threshold. Rather, the change results in limiting the credit amount on a prorata basis of work carried out under agreements with these entities.

Due to a subtlety in the calculation of eligible salaries, in some cases, the calculation will not be on a true prorata basis. In practice, it will be the employee’s total wages that will be reduced rather than the maximum wages for the tax credit. In certain situations, this subtlety alters the prorata to the claimant’s benefit. Consider the example of employees with annual wages of $100,000 who spend 15% of their time on agreements with entities targeted by the tax change—their qualified wages will be $85,000. Since the TCEB is calculated on maximum wages of $83,333, in this case, the tax credit is not reduced.

For clarification, a government entity is:

It’s interesting to note that not all Quebec government organizations are included within the scope of government bodies. Accordingly, agreements with universities, CEGEPs, hospitals, school boards, municipalities and organizations not listed in the schedules are not subject to the change.

A detailed analysis of employees’ individual timesheets, on the basis of the agreement signature date, will be needed to deduct a portion of the qualified employee’s wages.

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