A qualified corporation that, during a taxation year, acquires qualified property relating to manufacturing and processing equipment may claim the tax credit for investment on eligible expenses in excess of $12,500 incurred in that taxation year to acquire such property.
The basic rate of the tax credit for investment is 4% when the eligible expenses have been incurred after December 31, 2019, but before January 1, 2023.
The maximum increased rate of the tax credit for investment can reach 24% for eligible expenses incurred after December 31, 2019, but before January 1, 2023.
The eligible expenses and the applicable tax rate are determined by taking into account:
- the region where the qualified property is mainly used;
- the corporation’s paid-up capital calculated on a consolidated basis; and
- the cumulative limit of $75 million.
The tax credit for investment to which a qualified corporation is entitled, for a taxation year, can be deducted from its income tax otherwise payable for that taxation year. The portion of the tax credit for investment relating to a taxation year that cannot be applied against income tax payable by the corporation for that taxation year may be refunded, in whole or in part, or carried over. Whether the tax credit for investment is refundable or not, for a taxation year, is determined according to the paid-up capital calculated on a consolidated basis and the cumulative limit of $75 million in eligible expenses in respect of the eligible corporation or the qualified eligible partnership of which the corporation is a member.
Eligible expenses incurred after March 10, 2020
In its 2020-2021 Budget tabled on March 10, 2020, the Government of Québec introduced a new tax credit for investment and innovation to replace the tax credit for investment. However, when a property, acquired after March 10. 2020, is a “qualified property” for the purposes of the tax credit for investment as well as a “specified property” for the purposes of the tax credit for investment and innovation, the corporation can elect for the property to be a “qualified property” for the first taxation year during which it incurs expenditures for the acquisition of the property. As a result, the property will not be a “specified property” for the purposes of the tax credit for investment and innovation. To indicate that the property should be a “qualified property” for the Tax credit for investment, select the check box for that purpose in Section 2.2 and have the section signed by the authorized representative.
Eligible expenses incurred in respect of property used in ore processing activities
The column Eligible expenses incurred in respect of property used in ore processing activities in Section 7 of the form is only useful in the event where qualified properties are used for ore processing activities. In order for this column to correctly calculate, answer “Yes” to the question Does the amount on line 31 include eligible expenses incurred in respect of property used for the purposes of ore processing and complete the line If yes, enter this amount, located under line 31 in each copy of the form.
Temporary additional increase in the rate of the tax credit for qualified entities in the metal processing sector
A qualified corporation or partnership operating in the metal processing sector for the taxation year (i.e., whose proportion of metal processing activities (PMPA) exceeds 50%), can benefit from an additional increase in the rate of the tax credit for investments of up to 5% with respect to its expenses eligible for the additional increase for the taxation year when the eligible expenses have been incurred after August 15, 2018, but before January 1, 2020, in respect of qualified property acquired during this period to be used mainly in a resource region. The temporary additional increase can reach 10% when the qualified property is acquired to be used mainly in a region other than a resource region.
A qualified corporation may benefit fully from this additional increase where its paid-up capital does not exceed $250 million. Such additional increase is reduced linearly where the qualified corporation’s paid-up capital is between $250 million and $500 million. A qualified corporation whose paid-up capital is greater than $500 million cannot benefit from this additional increase. Where the qualified corporation is associated with other corporations, in a taxation year, the rate of the additional increase it may claim, for the taxation year, shall be determined based on its paid-up capital and that of the corporations with which it is associated.
When the eligible expenses are incurred by a qualified partnership or an interposed partnership that is a member of a qualified partnership, the qualified partnership’s consolidated paid-up capital must be used to calculate the additional increase in the basic rate.
This additional increase is added to the rate of the tax credit for investments that the qualified corporation may claim regarding its eligible expenses or its share of the eligible expenses of a qualified partnership, for the taxation year, determined according to the rules applicable to the tax credit for investments.
Paid-up capital
Where a corporation is not associated with another corporation in a particular taxation year, the qualified corporation’s paid-up capital applicable to that particular taxation year will be the one determined for its preceding taxation year. Where a corporation is associated with one or more other corporations during a particular taxation year, the applicable paid-up capital, for that particular taxation year, corresponds to the total of the corporation’s paid-up capital determined for its preceding taxation year and the paid-up capital of the corporations with which the corporation is associated, during the particular taxation year, determined for their last taxation year ended in the twelve months preceding the start of the corporation’s particular taxation year.
When eligible expenses are incurred by a qualified partnership or an interposed partnership that is a member of a qualified partnership, the qualified partnership’s consolidated paid-up capital must be used to calculate the increase or the additional increase in the basic rate.
Note: The paid-up capital calculated on a global consolidated basis must include, under sections 1029.6.0.1.7 and 1029.8.36.166.41 of the Taxation Act, the paid-up capital that would be attributable to a partnership, a trust or an individual deemed associated with a corporation. If you are in this situation, enter on line 78 of the form, using an override, the appropriate paid-up capital of the associated group.
The paid-up capital used in the various calculations of this form comes from Section “Québec CO-1029.8.36.IN – Tax credit for investment” of Schedule 9 WORKCHART, Related and Associated Corporations Workchart (Jump Code: 9 WORKCHART).
Cumulative limit
When eligible expenses related to a qualified property are incurred in the taxation year, the corporation must comply with the cumulative limit of $75 million for eligible expenses. In a nutshell, this cumulative limit of $75 million is reduced by the eligible expenses incurred by the qualified corporation and by the corporations with which it is associated, during their taxation years ended during the 24-month period preceding the beginning of the particular taxation year of the qualified corporation, and that could enable the qualified corporation (or a corporation associated with it) to benefit from the refund of the tax credit, a higher rate, or both these benefits. Eligible expenses that could have enabled the corporation to qualify for the refund of the tax credit had the corporation not had income tax payable allowing the corporation to fully use the tax credit also reduce the cumulative limit.
In a taxation year, when the corporation’s expenses exceed the cumulative limit balance, the expenses in excess of this cumulative limit are not eligible for the increase or the temporary additional increase in the basic tax credit rate. In addition, the corporation will not be able to benefit from the refund on the tax credit related to the expenses incurred that exceed the cumulative limit of $75 million for that taxation year, but this amount can be carried forward to the next twenty taxation years or carried back to the previous three taxation years up to the income tax payable for the taxation year in which the amount is carried forward or carried back.
When the corporation is associated with one or more corporations, the group of corporations must agree on the cumulative limit allocation. As a result, the cumulative limit otherwise calculated of a qualified corporation for a taxation year will have to be reduced by all the amounts that will be used by its associated corporations based on this agreement. You must complete Form CO-1029.8.36.ID - Cumulative Limit Allocation Agreement for the Tax Credit for Investment (Jump Code: 1029836ID), to allocate, among the associated corporation, the cumulative limit balance of $75 million that will be used to calculate the tax credit for investment. The data on this form comes from Section “Québec CO-1029.8.36.ID - Cumulative Limit Allocation Agreement for the Tax Credit for Investment” of Form 9 WORKCHART, Related and Associated Corporations Workchart (Jump Code: 9 WORKCHART).
Tip: For more information on the T2 Data Connection, please consult the T2 Data Connection guide, available in the Professional Centre.
See Also
Guide de la déclaration de revenus des sociétés (available in French only)