Hélène Robitaille
Senior Manager | CPA, CA, LL.M. Fisc. | Tax

Under Quebec tax rules, only one tax credit may be claimed for an activity.

Taxpayers must therefore make informed decisions to optimize their credit entitlement. In the following paragraphs we discuss integrating the research and development tax credit for salaries and wages (tax credit for salaries) and the tax credit for the development of e-business (CDAE). We have also included a few scenarios that could guide readers in their possible choices.

The choice is impacted by several factors: the employee’s salary, the use of the employee’s time, the corporation’s tax status, whether or not the investment tax credit (ITC) is refunded, etc. An additional consideration is that, unlike the tax credit for salaries, the CDAE is not considered government assistance that reduces expenses qualifying for the SR&ED tax credit for federal purposes. Additionally, Investissement Québec charges annual fees for processing the CDAE file.

CDAE overview

To qualify for the CDAE, a corporation must satisfy criteria relating to its income, activities and employees (have at least six eligible employees). The CDAE provides for assistance of 30% of qualifying salaries, up to $25,000 (amount reached when the qualifying salary is $83,333), and 24% is refundable. An eligible employee must spend at least 75% of his/her time carrying out qualifying activities.

Tax credit for salaries overview

The tax credit for salaries depends on the corporation’s shareholders and assets.* To simplify the explanation, let’s look at two scenarios: a Canadian controlled corporation with assets of less than $50M and a corporation with assets over $75M.** The first corporation benefits from a tax credit of 30% while the second one has a 14% tax credit.

For comparison purposes, we assume that the employee’s salary fully qualifies for the tax credit for salaries and the CDAE. Also, in looking at the scenarios, we will not be taking into consideration the impact of the limit of expenses in Quebec.

Most advantageous choice

It is in the first corporation’s interest to claim the CDAE for an employee with a salary under $128,205 in order to maximize total credits and under $105,564 to maximize refundable tax credits.

The second corporation should claim the CDAE for an employee with a salary under $210,084 to maximize total credits and under $168,067 to maximize refundable tax credits. In light of the high amounts in question, these corporations will almost always claim the CDAE.

Undesirable effect in some cases

Under Quebec legislation, when an activity qualifies for more than one credit, the employee’s time relating to the activities must be attributed to one or the other of the credits. In the first corporation’s case, it may be beneficial to combine the two credits, as shown below:

Employee’s salary is $130,000 with 75% being eligible for the tax credit for salaries and 100% being eligible for the CDAE.

If the corporation were to claim only the tax credit for salaries, its credit would be $29,250, whereas if it were to claim the CDAE, it would receive $25,000. If it combines the credits, it could claim $35,500 (increase of $6,250, compared with only claiming the tax credit for salaries).

In the second corporation’s case, combining the credits would have an undesirable effect. By opting for the tax credit for salaries, it would claim $13,650 and under the CDAE, it could claim $25,000. However, by combining the credits, it cannot increase the $25,000 CDAE credit amount. This is because only activities can be used to combine the credits, not expenses. There is a portion of expenses for which it cannot claim a credit because of the CDAE qualifying salary ceiling.

As you can see from these examples, each situation is different, with its own variables. There is however, one constant you can count on, Raymond Chabot Grant Thornton’s tax specialists are there to assist you.

* To be entitled to some or all the increased credit, the corporation must be Canadian controlled and the consolidated world assets of the associated group must be under $75M.

** The rate to calculate the tax credit for salaries decreases on a straight-line basis from 30% when assets are $50M to 14% when assets are $75M.

19 Jan 2017  |  Written by :

Ms. Robitaille is a senior manager at RCGT. She is your expert in taxation for the Montreal office....

See the profile

Next article

Whether you are an employee, a self-employed individual or a professional, you are required to keep a record of your expenses when using an automobile during the course of your professional activities. To assist you, we have developed l’Auto-route to help you record the necessary information.

Whether you are an employee, a self-employed individual or a professional, you are required to keep a record of your expenses when using an automobile during the course of your professional activities. While this may be a tedious and unpleasant activity, it is essential.

We invite you to download l’Auto-route. This Excel file will allow you to enter your personal data for automatic compilation. Click on this link to download l’Auto-route (Excel File)

Should you require more information on the tax impact of using an automobile during the course of your income-generating activities. You will find, among others, a summary of rules related to the calculation of taxable benefits, deductions for automobile expenses and travel allowances, refunds or employer advances.

We can help take you farther!

Please note that l’Auto-route is only available online.

Next article

Mathieu Leblanc
Senior Manager | Ing., M. Ing., MBB | Tax

As a member of Yoshua Bengio’s lab in Montréal, Canada, Grégoire completed his PhD in Deep Learning, while collaborating closely with research teams at Google, Microsoft and Facebook, in the US.

Grégoire is now working on his second venture based in Paris and Montréal. His consulting firm, Incalia, builds custom Machine and Deep Learning solutions for companies where the client owns the IP. The team works on a wide variety of solutions, from analyzing medical image to integrating user feedback into search engines. He and his team mentor Data Science teams want to become proficient in Deep Learning.

When I asked him, Grégoire gladly accepted to answer some questions about his field of interest, which I find fascinating.

How do Artificial Intelligence (AI) and Machine & Deep Learning bring value to companies?

AI is relevant and very useful for organizations that would like to streamline a human decision process into an automated process at scale. Today, machines are reaching an accuracy equal or superior to human performance on certain tasks. AI is creating value in diverse markets by allowing new ways of collaborating between traditional wisdom and algorithms. AI is or will be present in most industries, with applications as varied as self-driving trucks to detecting early stage cancers.

What is the difference between Machine Learning and Deep Learning?

Research and industry have made huge progress over the last three decades in the field of Machine Learning, but Deep Learning is now adding on another significant layer of change. Deep Learning allows machines to bridge the perceptual gap. In the past, it was hard to extract the best characteristics from sensory input like images, sounds or even texts into machine-readable format. Now, the machine can automatically learn the features that are most suited for the challenge being tackled.

Another advantage of Deep Learning is versatility. The high-level architecture of Deep Learning is composed of plug and play blocks that can be easily combined. For instance, you have two algorithms: one can generate text from a large, unstructured set of text and the other one can easily detect an object in an image. You can plug those two models together and obtain an algorithm that will automatically generate textual captions for images, given the detected objects in the image.

With AI and DL being more and more introduced in our daily lives, should we be scared that robots will take over?

Machines are still dumb. Indeed, they can become extremely competitive when world-renowned scientists spend significant time working on a complex problem, as we recently realized it with the Go Game victory of AlphaGo versus a world-class human champion. This victory heavily relied on human input, as numerous sequences from expert human player games were fed into the machine during its training process. So, we are currently very far away from a computer that we feed with minimal data, and that becomes intelligent by itself.

In nature, animals and plants adapt and learn very quickly from their environment, showing a form of intelligence that we cannot find in machines.


Explore this fascinating topic in greater depth.

Here are some ideas:

16 Jan 2017  |  Written by :

Mr. Leblanc is a senior director at Raymond Chabot Grant Thornton. He is your expert in taxation for...

See the profile

Next article

Sylvain Moreau
Partner | FCPA, FCGA, Pl. Fin., D. Fisc., TEP | Tax

It is generally known that the accrued gain on your principal residence is not taxable.

Without necessarily getting into the details, an individual who sells his residence knows that he is not required to report anything in his tax return and generally has no tax to pay.

If, however, you have more than one residence where each can be designated as a principal residence, a prescribed form (T2091) must be prepared to establish the portion of the gain that could be taxable. It’s not always necessary to send this form to the tax authorities. To address this lack of information and control, with very little fanfare, the federal tax authorities have introduced new rules for improving observation and administration of the tax system in this regard. Since there’s a risk of changes and certain surprises for taxpayers who do not follow these, it’s worth looking at them.

New obligations

Gone are the days when you could sell your residence without notifying the tax authorities. According to the new provisions, you will have to comply with disclosure obligations (starting with your 2016 tax return), if you disposed of your residence since January 1, 2016. To the extent that you lived in your residence for each of the years where you were the owner, the gain could be totally exempt and no tax be required. Up to here, nothing has changed.

However, you will henceforth have to report the acquisition year, the sale price and a description of the property. This means that if you have more than one dwelling and the property sold cannot be designated as your principal residence for each of the years you owned it, you will have to complete the prescribed form (T2091) to calculate the tax-free and taxable portions.

Don’t forget to declare the sale, otherwise…

Unless you declare the sale of your residence during the year, you will not be able to benefit from the exemption for a principal residence, such that the profit realized (called capital gain) will be taxable.

If you forget to declare the disposition and to designate it as a principal residence in the year of the sale, it would be in your best interest to ask the Canada Revenue Agency (CRA) to modify your income tax return and pay a penalty for late filing. This penalty will correspond to the lesser of the following two amounts:

  • $100 per late month calculated since the filing deadline;
  • $8,000.

Furthermore, individuals who have not reported the sale could be in for another surprise. The period during which the CRA can issue a new assessment (which is currently three years) will be indefinitely extended. The tax authorities will therefore have all the time needed to find delinquent taxpayers.

Tips

  • Make sure you comply with the new disclosures in order to benefit from the exemption for a principal residence;
  • If you forget to declare your principal residence, notify the tax authorities and pay the penalty applicable. It could be less costly than the capital gains tax;
  • Remember: keeping track of the cost of your property and related improvements will help reduce your tax bill;
  • New rules have also been provided if you’re a non-resident of Canada or if you hold a residence in a personal trust;
  • Consult a tax professional to avoid unpleasant surprises.

06 Jan 2017  |  Written by :

Sylvain Moreau is a partner at Raymond Chabot Grant Thornton. He is an expert in taxation for the...

See the profile