Important Changes to the Tax Credit for the Development of E-Business (CDAE)

The Ministère des finances du Québec published Friday October 29th 2010 the Information Bulletin 2010-7. This document defines changes to the refundable tax credit for the development of E-business (also known as CDAE), a credit I’ve already talked about in the past:

1. Adjustment to the tax credit for activities transfer and business start-up situations

2. Changes to the Refundable Tax Credit for the Development of E-Business (CDAE) set up in the Provincial Budget of March 19, 2009

Many changes related to the qualification criteria of the credit are contained in the bulletin. In this blog, I’m going to summarize the most important changes related to IT staffing services.

  • The criteria concerning the nature of 75% and 50% of the activities carried out by a corporation are modified to include two NAICS codes concerning personnel leasing activities. These codes are 561320(Temporary Help Services) and 561330 (Professional Employer Organizations.) However, the activities of NAICS codes 561320 and 561330 will be considered only if they relate to the supply of employees carrying out mainly activities covered by one or other of the following seven NAICS codes, namely codes 334110, 334220, 417310, 443120, 511210, 51821 and 541510.
  • The corporation’s gross revenue from the activities covered by these two NAICS codes for the taxation year is less than the gross revenue from the activities covered by NAICS codes 511210 and 541510 for such taxation year.

This change is important for IT corporations whose revenues come mainly or in part from staffing services. If your revenues meet the 75% and 50% criteria and it’s still less than the revenue gained from publishing your own software (511210) or designing computer systems (541510,) you will qualify for the tax credit from now on. If you ask me, a lot of IT corporations will now qualify following these changes.

  • An adjustment will be made to the definition of eligible employee to take into account cases where the employee is the object of personnel leasing to a customer of the corporation Thus, the expression “eligible employee” of an eligible corporation, for a taxation year, shall mean an employee, other than a specified shareholder of the eligible corporation, of an establishment in Québec of the eligible corporation for which Investissement Québec has issued an eligibility certificate for such year, certifying that the employee  held a full-time job, involving a minimum of 26 hours of work per week, for a stipulated minimum of 40 weeks and that at least 75% of his duties consisted in carrying out, supervising or directly supporting the work relating to the execution of an eligible activity by the eligible corporation or, if the employee is the object of personnel leasing to a customer of the corporation, by such customer.

Before these changes, employees who were leased to clients for a short or long period of time did not qualify for the tax credit for the development of E-business. They now do.

These changes will apply only to any taxation years that ended after January 1st 2010.

These changes will automatically apply to any taxation years that began after October 29th

  • These changes can also be applied to a taxation year that began in 2010 no later than October 29th or to a taxation year that ended in 2010 but did not begin after October 29th. In such cases, a written election mentioning the corporation’s choice will have to be submitted to Investissement Québec.

In the case of a corporation whose taxation year ended in 2010 and whose related tax credit request is already being treated by Investissement Québec, it is advised to ask in written form for the changes to be applied on your request as well. As for corporations that started their activities on October 29th and that have taxation years ending between that date and September 30th 2011, they will have to choose if they want their qualification possibility to be determined based on the new criteria or not.

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