The term 'government assistance' is defined in subsection 127(9) of the Income Tax Act. It includes any form of government assistance and, therefore, includes the provincial and territorial SR&ED tax credits.
Under paragraph 37(1)(d) of the Income Tax Act, amounts of government assistance that the claimant has received, is entitled to receive, or can reasonably expect to receive by the time the tax return must be filed, in respect of an expenditure described in paragraph 37(1)(a) or subparagraph (b)(i), will reduce the pool of deductible SR&ED expenditures under subsection 37(1) (see lines 429, 431 and 432 on Form T661(Jump Code: 661)).
The Québec R&D salaries tax credit program allows you to include in the amount of eligible salaries, certain salaries which may not qualify under the federal SR&ED program when the claimant has elected to use the proxy method, for example, salaries related to administrative support. The portion of the provincial tax credit earned on these salaries is not considered to be assistance under paragraph 37(1)(d), and should also be included in income under section 9 or paragraph 12(1)(x) of the Income Tax Act.
Therefore, override the amount shown on line 429a of Form T661 in order to reduce the federal SR&ED expenditures only by the amount corresponding to the Québec R&D tax credit on salaries for salaries claimed in Form T661 under paragraph 37(1)(d) of the Income Tax Act.
You should also add to the corporation’s net income for the next year, from the fifth line of column 295 in federal Schedule 1 (Jump Code: 1), the difference between the total Québec R&D tax credit claimed with regards to salaries in Schedule RD-1029.7 (Jump Code: 10297) and the amount deducted with respect to government assistance on line 429a of Form T661. When the taxation year starts on November 21, 2012, or after, the Québec R&D credit is taxable in Québec: this credit reduces the R&D expenditures deductible in the year using the calculation on line 71 of Form RD-222 (Jump Code: Q222). For more information on this topic, consult the section relating to the calculation on line 71 below. On line 80 of Form CO-17-A.1 (Jump Code: Q1), delete the amount updated from Schedule 1, because the tax credit for salaries and wages (R&D) has already been taken into account last year in the calculation of line 76 of Form RD-222 (version 2014-9) or in the calculation of line 71 of Form RD-222 (version 2016-9).
If you are using the Inducement Calculation Workchart (Jump Code: INDUCEMENT), should also add to the corporation’s net income for the next year, using the Inducement Calculation Workchart, the difference between the total Québec R&D tax credit claimed with regards to salaries in Form RD-1029.7 and the amount deducted with respect to government assistance on line 429a of Form T661.The amount of this difference must be entered on line Portion of the tax credit for salaries and wages (R&D) that is not included on line 429a of Form T661 of Form Inducements. When the taxation year starts on November 21, 2012, or after, the Québec R&D credit is taxable in Québec. However, you should not select column B either, because the Québec R&D credit reduces the R&D deductible expenditures for the year using the calculation on line 71 of Form RD-222. See the section relating to the calculation on line 71 below.
Calculation of the amount on line 71, R&D tax credits granted by Revenu Québec for the year
The refundable tax credits related to the Québec R&D (RD-1029.7, RD-1029.8.6, RD-1029.8.9.03 and RD-1029.816.1), are deemed to be government assistance amounts for the calculation of line 71.
The amount on line 71 is equal to the amount on line 429a (Québec credit, before any override on this line) of Form T661.
Calculation of the amount on line 76, Assistance, benefit or advantage related to the expenditures on line 55
The amount on line 76 is equal to the total of the amounts on the following lines of Form T661:
- line 429b (OITC)
- line 429b1 (OBRITC)
- line 429b2 (ORDTC)
- line 429c (B.C. credit)
- line 429d (Alberta credit)
- line 429e (other provincial credits)
- line 431 (other government assistance)
- line 432 (other types of assistance)
- line 440 (other deductions).
Payments made to arm’s-length subcontractors
A check box has been added to permit the transfer of information in Section, “Payments made to arm’s-length subcontractors,” of Form RD-222 (Jump Code: Q222), with regards to a given subcontractor to Section, “Information about subcontractors dealing at arm’s length with the taxpayer,” of Form RD-1029.7, Tax Credit for Salaries and Wages (R&D) (Jump Code: 10297), when the information required in those two forms pertain to the same person. A drop-down menu allowing you to select the copy of Form RD-1029.7 to link in order to transfer data has also been added. After having selected this check box, fill the lines Identification number (QST) and Total amount of consideration to complete the information required in Form RD-1029.7 with regard to this subcontractor. The status of this new check box and, where applicable, the election with regard to the destination form will be retained when rolling forward the client file.
See Also
Tax Assistance for Scientific Research and Experimental Development