In the 2025-26 Québec budget, presented on March 25, 2025, new tax measures were announced to drive Scientific Research and Experimental Development (R&D) and innovation in Québec tech companies.[1] The following is an overview of the two main programs announced, one of which is brand new, and the other which maintains current measures:
1. Basic Research, Experimental Development and Pre-commercialization Phase: Research, Innovation and Commercialization Tax Credit (“CRIC”)
- Program Description: This tax credit replaces eight separate tax measures that were previously available. The program standardizes the tax credits available for expenses incurred for R&D, innovation and pre-commercialization activities. The CRIC will be fully refundable.
- Eligibility: Any corporation claiming a CRIC must have both an establishment and carry on a business in Québec. Pre-commercialization activities must constitute a continuation of R&D activities carried out in Québec.
- Qualified Expenditures: Qualified expenditures will include labour costs, equipment costs, as well as 50% of the amount payable under a subcontractor agreement, which may include a university, research centre or research consortium. Pre-commercialization expenditures may include the following:
- any testing, validation process and studies conducted to meet regulatory requirements for obtaining the necessary approvals or certifications to market a product or process;
- product design, which may include the development of shape and aesthetics, functionality improvements and choice of materials.
- Available Tax Credit: The CRIC rate isn’t based on the size of the business, but rather on the amount of qualified expenditures. The rate is 30% for the first $1 million of qualified expenditures exceeding the exclusion threshold, namely the greater of $50,000 or the sum of the thresholds for each employee, and 20% for qualified expenditures above that $1 million limit.
In short, the new CRIC program aims to simplify the tax system by eliminating certain measures that are rarely used, while enhancing support for businesses that are most likely to maximize economic spinoffs in Québec.
2. Commercialization Phase: Incentive Deduction for the Commercialization of Innovations(“DICI”)
- Program Description: This program was introduced in 2021 and remains in effect for 2025-26. It provides a tax deduction when calculating a corporation’s taxable income and allows it to benefit from a reduced tax rate on eligible income.
- Eligibility: The corporation must carry on a business with an establishment in Québec and earn income from the commercialization of qualified intellectual property assets (see below).
- Qualified IP Assets: Types of qualified IP assets include any inventions protected by a patent (or patent application) filed in Canada or elsewhere, certificates of supplementary protection, or copyrighted software. Note that all such assets must result from R&D activities that are carried out in whole or in part in Québec and that have significantly contributed to the creation, development and improvement of those assets.
- Eligible Income: Eligible income includes (i) revenue derived from the sale or lease of the IP asset or any good that includes the IP asset, (ii) the provision of a service intrinsically related to the IP asset (for example, software as a service (SaaS)), (iv) fees for the use of, or the right to use, the IP asset (e.g., royalties or licensing revenue), or (v) any amount received as damages in a legal action related to the IP assets. Eligible income may be earned from activities in countries other than Canada.
- Available Amount: DICI reduces the effective tax rate on eligible taxable income to 2%.
This measure has the effect of lowering the tax rate for eligible income. This means that, in Québec, such income would be taxed at a rate of 2% rather than the current general tax rate of 11.5%. As a result, the combined federal and Québec tax rate would be 17% (15% federal + 2% provincial) rather than a combined rate of 26.5%.
Moreover, these tax measures may be combined with other federal tax measures, such as the Scientific Research and Experimental Development (SR&ED) tax incentives.
***
Fasken is available not only to answer any questions you may have and provide additional information about these tax measures, but also to help you navigate the paperwork required to benefit from these credits and deductions, so as to optimize both your tax situation and your R&D investments.
