Quebec’s SR&ED Tax Credit Overhaul: A Simpler, Stronger Incentive
Quebec has long been known for its generous tax incentives to promote innovation, and the Scientific Research and Experimental Development (SR&ED) tax credit has been a cornerstone of that strategy, helping businesses offset the costs of research and development (R&D). However, with the release of its 2025 provincial budget, Quebec is turning the page on its old model in favor of a streamlined, modernized system that aims to do more with less.
Whether your business is already benefiting from SR&ED tax credits or is just starting to explore these incentives, the announced changes could have a substantial impact on how much you can claim and the required documentation for qualifying expenditures in Quebec.
Quebec’s New Program
Businesses in Quebec can leverage both federal and Quebec SR&ED tax credit programs to mitigate the financial impact of their R&D investments. For years, the Quebec program was composed of a patchwork of credits that were effective, but also cumbersome. In this year’s budget, the province announced a wholesale restructuring of these incentives, with a goal of streamlining the program and enhancing its efficacy to provide more focused support for innovation.
For taxation years beginning after March 25, 2025, Quebec will consolidate various previously existing R&D tax credits and eliminate those deemed less productive and administratively burdensome, creating a new Research, Innovation and Commercialization Tax Credit (CRIC) focused on three primary areas:
- Salaries and Wages: As with the previous program, this is by far the largest component of the CRIC, which provides a tax credit for wages and salaries paid to employees engaged in R&D activities. For example, a technology firm developing new software can include the salaries of its developers and engineers in eligible expenditures for the tax credit. Consistent with the prior rules, 50% of amounts paid to arm’s-length contractors remain eligible for the tax credit.
- University Research and Public Research Centers: Research conducted by universities, public research centers, or research consortiums will continue to be eligible for the credit. For instance, a pharmaceutical company collaborating with a university on drug development can benefit from this incentive. However, the eligible portion of amounts paid to these organizations will drop from 80% to 50%, bringing it in line with all other subcontracting expenses.
- Private Partnership Pre-Competitive Research: The tax credit eligibility of private partnership pre-competitive research will also remain intact. An example would be a consortium of automotive companies working together on developing new battery technologies.
The province will eliminate the previously existing tax credit for fees and dues paid to research consortiums and tax holiday for foreign researchers and experts. The government is betting that, by consolidating and simplifying the system, it can deliver more predictable and effective support to businesses.
Simplified Tax Credit Rates
The CRIC rate structure offers a 30% refundable tax credit on the first $1 million of eligible expenses exceeding the exclusion threshold and then a 20% refundable tax credit on eligible expenses over $1 million.
This simplifies the previous system, under which the tax credit rate varied between 14% and 30% based on the type of corporation and the value of its worldwide assets. The new rates apply to all corporations, irrespective of their ownership or assets, making it easier for businesses to budget cashflows and access the tax credit.
While the tax credit rate structure has been simplified, calculation of the exclusion threshold has become a little more complicated. The exclusion threshold is now the greater of $50,000 or the basic personal amount per employee, prorated based on an employee’s time spent on R&D activities. For example, if a business has 10 employees working in R&D in 2025, and they are used 100% in R&D activities, then the exclusion threshold would be $18,751 (this year’s basic personal amount) times 10 or $187,510. However, if any of those employees are less than fully utilized in R&D activities, then the basic personal amounts in the calculation will need to be prorated to reflect their work in R&D, reducing the excluded amount. Indeed, in many cases, the exclusion threshold will now be a moving target.
Expansion of Eligible Expenditures
Traditionally, SR&ED tax credits in Quebec only applied up to the resolution of a technological uncertainty—often the end of a project’s core R&D phase. However, businesses will now be able to claim expenditures related to various pre-commercialization activities, such as testing, technological validation, and studies conducted to meet regulatory or certification requirements. This includes pre-commercialization work on prototypes and pilot plant production processes. Even activities related to product design—formerly covered by the industrial component of a separate tax credit for design—are now eligible for the CRIC.
In addition, for the first time in many years, capital expenditures used in R&D, such as depreciable equipment used in labs and software development, are now eligible for tax credits. While there are certain exclusions, including land, buildings, and used equipment, this change should benefit companies investing heavily in R&D infrastructure.
However, this shift in tax policy will also pose challenges. For instance, Quebec’s audit approach currently differs from that used under the federal SR&ED program, and the province may struggle to evaluate the eligibility of long-term assets without the addition of more technical expertise.
Watch out for Ryan’s upcoming article, “A New Era for Quebec’s SR&ED Program: Eligible Activities and Expenditures Expanded,” for further discussion on the challenges posed by this monumental change.
Implications for Business
The provincial government is optimistic that these structural changes to its incentives will reduce the administrative burden on businesses, provide more financial support for R&D, make Quebec more attractive for investment, and boost innovation, productivity, and economic growth in the province.
Unfortunately, while the consolidation of several different tax credits into the CRIC should simplify the application process and reduce the time and resources previously required to prepare multiple tax credit claims, any efficiencies gained might be offset by the challenge of correctly identifying and documenting newly eligible activities and related expenditures. Provincial government auditors may also find it difficult to verify and audit tax credit claims under the revamped program.
However, once eligibility has been established, the extension of the tax credit to pre-commercialization activities and capital assets should provide a much-needed boost in financial support for innovation to companies in Quebec. Furthermore, the simplified tax credit rates should provide businesses with a clear picture of the potential benefits, enabling more accurate financial planning.
Given the scope of these changes, businesses will be forced to adopt a more strategic approach to their R&D planning, aligning new project initiatives in Quebec with the CRIC eligibility criteria. Organizations are advised to undertake a comprehensive review of their R&D activities and documentation processes to ensure all eligible expenditures are captured and properly supported. By taking a proactive approach to funding R&D, organizations can take full advantage of Quebec’s new program, optimize the amount of government support received, and maximize the impact of their total R&D spend.
Peter Kustec
Principal, Scientific Research and Experimental Development
peter.kustec@ryan.com
Raphaël Joziak
Director, Finance and Tax, Scientific Research and Experimental Development
raphael.joziak@ryan.com