Tax Cut for Innovative Manufacturing Corporations!

- September 27, 2017

The Québec government announced a number of tax measures geared towards innovative corporations in its last budget. These new measures are added to those already in place (SR&ED tax credits, First Patent program) to foster research and development (R&D) in Québec, but also the commercialization of the resulting inventions.

Deduction for qualified innovative manufacturing corporations

The deduction for qualified innovative manufacturing corporations (or “DIMC”) is particularly intended for corporations in the manufacturing and processing sector that cannot claim the small business deduction. The purpose of the DIMC is to encourage a qualified innovative manufacturing corporation to profit in Québec from a patent it has been granted as the result of scientific research and experimental development (R&D) work that it carried out in Québec. The DIMC will enable such a corporation to reduce its taxable income for a taxation year by an amount equal to a portion of the value of a qualified patented part integrated into qualified property that the corporation sold.

Fiscal legislation has been amended so that a qualified innovative manufacturing corporation can deduct, in calculating its taxable income for a taxation year, a specified annual percentage of the lesser of:

  • the total value of all qualified patented parts incorporated into qualified property that the corporation sold;
  • the DIMC ceiling, which is equivalent to 50% of net income earned on the sale or lease of qualified property shown in the separate accounts of the particular company.

Qualified patented part

The term qualified patented part, for a particular taxation year, refers to an invention for which the corporation owns or co-owns a patent under the Patent Act or any other legislation of a jurisdiction other than Canada having the same effect.

The Couillard government is hoping to foster investment in the innovative manufacturing sector, to maintain intellectual property in the province and to make Québec businesses more competitive. It also wants to encourage the production and commercialization of goods resulting from patents on Québec inventions. Finally, the government wants to encourage innovative companies to bring Québec to the forefront for high added-value manufacturing and R&D activities.

However, unfortunately the companies targeted for this measure are those mainly carrying on manufacturing and processing activities in Québec and operating a business with at least $15 million in paid-up capital.

Given the complexity of this tax incentive, it is a good idea to talk to a patent officer and to one of our tax professionals in order to put in place measures allowing for the preparation and filing of R&D patent applications and making it possible to determine income from this intellectual property to claim the deduction.

Please come and talk to us about this!

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