Pierre Larouche
Lead Senior Director | Eng. | Tax

There have been numerous amendments to the tax credit for the development of e-business (TCEB) since it was introduced in 2008. You may recall that this tax measure is designed to support providers of information technology (IT) services to help their clients improve their main operational processes.

The last changes were made in 2015, when the Quebec Finance Minister (QFM) announced rules to further clarify the types of IT providers covered by the program, while, at the same time, limiting access for other providers. To qualify for the TCEB, a corporation must show that its main revenues meet specific criteria.

Under the proposed changes, the QFM now disqualifies a class of income from the sale of software where the software is considered to be integrated into property (equipment of some form) intended for sale. This criterion is very broad in meaning and Investissement Québec (IQ), which is responsible for applying the program, has been providing clarifications on this new exclusion rule since early 2017.

Incidental or not?

When it reviews a TCEB claim and a company’s business model, if IQ determines that the sale of software includes property, it will ask a number of questions to understand the connection between the software and the property in question:

  • Who benefits from using the software (manufacturer, value-added distributor, wholesaler, retailer)?
  • How is the software used?
  • Was the software used before or at the time of the sale?
  • Is the result an integral or inseparable part of the property?

IQ does not use a single rule to determine if software is integrated into the property intended for sale and must now be excluded. In short, software that seems to be incidental to a property when a solution is implemented is now eliminated from the program.

This analysis is open to much interpretation and, as you can imagine, there are numerous gray areas. There are major implications if software supplied to clients that also includes property is deemed to be excluded under the new rule. The work performed by employees who develop and implement the software will no longer be eligible, which could disqualify an employee from the credit. However, the greatest impact is the company being completely excluded from the program if the proportion of income related to these activities is too high.

Explain the predominate role of the software

When IQ analyzes a TCEB claim, it bases itself on several documents. In addition to documents that explain the predominate role of the software vs. the property, factual information is always the best way to support a claim. If the core of the solution you are proposing to your clients is the software and not the equipment that is incidental to its operation, the documentation should support this fact: contracts, invoices, promotional documents, website, etc. If you are able to adjust this documentary evidence without misrepresenting your business, you’ll avoid a lot of worries when you submit a TCEB claim.

Don’t hesitate to contact our tax specialists to help shed light on these gray areas.

04 Dec 2017  |  Written by :

Mr. Larouche is your expert in taxation for the Québec office. Contact him today!

See the profile

Next article

Sebastian Alberione
Senior Manager | Eng. | Tax

The video game industry is flourishing in Montréal and a source of great pride for the city, province and country. I interviewed a number of leaders of independent video game studios of all sizes to learn more about what drives this sector and talk about their journey, successes and challenges.

These discussions revealed that technology, in particular, game engines and digital distribution platforms, have had a major impact on the creation of numerous independent studios and the ability to develop and distribute quality games worldwide. They also revealed that, while the gaming industry’s entrepreneurial ecosystem has reached a high level of maturity, the general public is virtually unaware of the extent of outstanding game projects being developed in their city and the size and growth of the global video game industry (it will reach US$108.9 billion in 2017 according to a newzoo.com article). The popularity of eSports has also played a major role in these statistics.

Game engines

Studios can use software that handles most of the logic and interactions required to provide a 2D or 3D gaming experience, that is, tasks that previously required programmers are now automated. These engines can be combined with complementary technologies, such as ZBrush for 3D sculpting and painting, Maya for animation or Gamesparks/AWS for the infrastructure. As a result, small teams can quickly produce exceptional quality games and focus on the actual game creation process rather than on developing an engine. For example, take a look at the trailers for Sundered (by Lotus Games), a completely hand-drawn game or Mordheim (by Rogue Factor), an adaptation of the cult classic tabletop game.

Sometimes, integrated tools don’t necessarily meet all the needs of a studio, which will then develop proprietary technologies to expand its capabilities. This is the case, for example of Vandal Games, a Montréal studio specializing in multiplayer online games with a web browser, a technology that involved developing features that were not supported by the Unity engine. Other studios, such as Snowed In Studios in Ottawa, developed leading-edge expertise by developing technologies to meet specific needs that native features in existing engines could not.

The most widely used engines are Unity and Unreal. Unity’s numerous advantages include the ability to create and deploy games on more than 25 different platforms (mobile, console, PC, etc.), on the basis of monthly fees per workstation. Unreal’s business model is based on a percentage of sales on game distributions. A complete game can therefore be created on the platform at no cost. But there’s more to this industry!

Digital distribution platforms

New digital distribution platforms and multiplayer games such as XBOX Live, PS Network or Steam have revolutionized the industry. Not so long ago, boxed video games were sold on store shelves, creating a major entry barrier for small studios without access to the major players’ distribution channels. The situation has since changed, with the arrival of platforms such as Steam, since it only takes a few moments for anyone to distribute a game worldwide. And this is happening every day, with an increasing number of games becoming available.

This situation makes life more complicated for independent studios that aren’t able to undertake massive marketing campaigns. It’s not quite back to square one, but the game marketing budget is also a form of entry barrier. High quality games often go unnoticed as a result. Consider for example that 403 games were released on Steam in 2012, and over 6,000 to date in 2017.

Studios must often call on the services of an editor to take over the marketing component for a percentage of the profits. Finding an editor is not so easy however. According to Jean-François Boivin, of Panache Digital Games, the presence of local game editors with more involvement in independent studios would be very advantageous.

What’s next?

What new technological developments can we expect? It’s hard to say. Buzzwords aside, at this time, it does not appear that there will be major upheaval in terms of virtual or augmented reality. On the other hand, artificial intelligence is poised to expand considerably, both for the game mechanics and as a development tool (automation of complex creation processes, behaviour analyses, etc.).

According to Kien-Van Tram, from Vandal Games, progress in AI and the processing of megadata will make it possible to analyze all stages of a product’s life cycle and optimize player acquisition and retention and game monetization.

The main concern is the ability to identify games produced. There is certainly room for innovation in this area.

In closing, I’d like to thank the studios that took the time to talk with me. Their website links are presented below. Take a tour and discover their games!


For more information about independent studios, take a few moments to visit the Guilde des développeurs indépendants de jeu vidéo site (131 members).

Read a 2017 report by the Entertainment Software Association of Canada which provides some interesting facts about the Canadian video game industry.

04 Dec 2017  |  Written by :

M. Alberione is your expert in taxation for the Montréal office. Contact him today!

See the profile

Next article

November 2017

Would you like to reduce your income taxes? Although tax planning should be a year-long activity, there is still some time left to implement a few tax strategies that will help reduce your tax bill. Furthermore, there are certain new measures coming into effect beginning in 2018 that should be taken into consideration.

The following are a few simple, effective strategies that can be implemented before the end of 2017 or early in 2018. A few major changes that will soon come into effect are also highlighted. Don’t hesitate to contact your Raymond Chabot Grant Thornton advisor who can help you determine the measures that apply to your situation.

For more information, download this document (pdf)

Next article

Online Tax Strategies, November 2017

Phasing Out of Restrictions on the Granting of Input Tax Refunds to Large Businesses as of January 1, 2018

In 2012, further to an agreement with the Government of Canada to harmonize the GST/HST and QST, the Government of Quebec announced that it would eliminate restrictions on the granting of input tax refunds (ITR) for large businesses. In the March 2015 Quebec budget, the Finance Minister announced that the restrictions would be phased out as of January 1, 2018.

On October 25, 2017, Revenue Quebec published QST bulletin TVQ. 206.1.10 to implement the new provisions and clarify the application of the Quebec Sales Tax Act (QSTA) with respect to the phase out of the restrictions starting on January 1, 2018 and ending on January 1, 2021.

Enterprises that are currently large businesses or will become one in the coming months or even in the next four years should be aware that the new measures will impact them and should have a system in place to closely monitor their ITR claims for QST purposes.

Download the document below.