Your clients in Quebec that partake in e-commerce development may be eligible for tax credits. The Development of E-Commerce tax credit encourages advances in electronic commerce activity. This tax incentive rewards value-adding business activity related to information technology.
Tax Credit Computation
The tax credit is computed based on the amount of eligible salaries your client has paid to eligible employees. The total tax credit is equal to 30 percent of expenses; 24 percent of the credit is refundable, and 6 percent is nonrefundable. The credit is capped at an annual maximum of $25,000 per eligible employee.
Your client must operate in the information system design or software publishing industries to qualify for the tax credit. Additionally, it must primarily carry out its operations in Quebec. Your client has to demonstrate it operates a certain percentage of its business within certain North American Industry Classification System (NAICS) codes. And at least six full-time eligible employees must have been maintained. These employees must have devoted at least three-fourths of their time directly contributing to the execution of the eligible activity for which the credit is being applied.
Your client must partake in specific activities to be eligible for the tax credit. It must perform information technology consulting related to the development, integration, maintenance, or evolution of IS systems. Alternatively, it could work with designing and developing e-commerce solutions, security services, electronic imaging, artificial intelligence identification, or other identification services relating to e-commerce.
Specific transactions have been explicitly denied for eligibility for the credit. Any work related to the processing of electronic transactions over a website are excluded. Additionally, the management of information systems, operation of a customer relations centre, or hardware installation do not meet the requirements for the credit. Administrative tasks, marketing, and activities unrelated to e-commerce are also excluded.
After year-end, have your client complete the Development of E-Business application. The first of seven sections of the application starts with your client’s basic information including company name, website URL, address, and representative’s title. Part two simply asks for your client’s fiscal year, while part three asks about any reorganizations or acquisitions occurring during the fiscal year.
The fourth section asks about your client’s activities. Have your client give detailed descriptions of the products and services it provides. Although it is not required, providing additional documentation such as a company product brochure strengthens your client’s application. Your client must also describe its business model, income-generating activities, and income breakdown. The fifth section inquires about the services your company provides to ensure arms-length transactions are occurring.
Prior to signing the application in the seventh section, your client must provide all required documents outlined in the sixth section. Help your client organize its financial information including financial statements for the past two years, a trial balance for the past two years, supporting documentation from your client’s accounting system, and copies of the sales journal. Other requirements include a detailed organizational chart, shareholder information, records of employment, and power of attorney documents if applicable.
Financing Refundable Credits
Invest Quebec permits recipients of refundable credits to apply for financing. This allows your client to get cash in advance of actually receiving the refund. Project financing must be at least $20,000, and a loan guarantee for up to 80 percent of a net loss is provided. Capital payments are repaid directly from the tax credit payment. Your clients must elect to finance their credit and distribute a completed application to Invest Quebec.
Help your Quebec clients in the e-commerce business secure the Development of E-Commerce tax credit. If they are eligible, submit an application to Invest Quebec, distribute the required documentation, and consider applying for financing to receive cash faster.