Last week's announcement of Québec's 2016-2017
Budget included an exciting new tax relief initiative for
qualifying innovative Québec manufacturing corporations. The
Innovative Companies Deduction (ICD), also commonly referred to as
the patent box or IP box, provides tax relief to manufacturing
firms for patent attributable revenue from products marketed in
Québec that include a feature protected by patent and
developed in Québec. The measure is designed to promote
Québec commercialization. It aims to ensure that patented
innovations developed in Québec will also be marketed in
As of January 1, 2017, eligible manufacturing companies
generating revenues on goods (either from sale or rent) that
include a patented innovation developed in Québec will
benefit from a tax rate decrease of 11.8% to 4.0% for income
attributable to that patent. The income generated from the patent
however cannot exceed 50% of the revenue of the goods manufactured
The Budget report estimates that the ICD is expected to provide
$135 million in tax breaks over the next five years to innovative
The Budget report highlights some interesting examples and
includes a comparison of the competitiveness of Québec's
and Ontario's tax systems. In the hypothetical example, at
least for the scenario provided, the conclusion is that the tax
burden would be similar.
Who is eligible?
The ICD specifically targets companies that cannot claim the
small business deduction1. It is available to companies
which have more than $15 million in paid-up capital and which
operate a business in Québec whose Québec activities
consist primarily of manufacturing and processing
What patents are eligible?
To be eligible, the patent must protect an invention that
resulted in whole or in part from R&D work that was carried out
in Québec by either the company accessing the tax credit, or
by an entity with which the company accessing the tax credit was
associated with at the time the R&D was being carried out. In
both cases the R&D must have been carried out in Québec.
Also, the company or associated entity must have been granted
a refundable R&D tax credit in respect of the R&D
A qualifying patent does not have to have been granted, but must
have been applied for in any competent jurisdiction on or after
March 18, 2016. Further, the applicant must be a corporation with
an establishment in Québec.
Other innovation assistance measures
The ICD complements other existing measures supporting
innovation including Québec's R&D tax credits, the
First Patent Program, the Development and transfer support Program,
the Design tax credit and the Créativité
The ICD differs from R&D tax credits and the First Patent
Program. The ICD is directed to the later steps of
commercialization whereas R&D tax credits incentivize companies
to invest in research while the First Patent Program, launched in
2015, and reported
here, offers financial and technical assistance to
Québec-based SMEs that are filing their first patent
This initiative, while limited in several aspects, is
undoubtedly a welcome addition for the innovative manufacturing
community. Some details remain to be fine-tuned. The measure, which
is believed to be the first of its kind in Canada, should help to
achieve the government's stated goals of encouraging investment
in innovative manufacturing, retaining intellectual property in
Québec, encouraging production and marketing of goods that
result from patents protecting Québec inventions, and
improving competitiveness of Québec businesses.
The 2016-2017 Budget as well as the ICD initiative (see in particular section 5.2 of the Budget and section 2.5 of Additional Information on the Fiscal Measures) can be found here.
1. The small business deduction is a tax rate reduction
available to eligible Canadian-controlled private companies with
paid-up capital of $10 million or less for the first $500 000
of annual income.
2. A company having primarily manufacturing and
processing activities in Québec means that at least 50% of
its activities, as measured by labour cost, carried out in
Québec consist in activities in the manufacturing and
3. For the five-year period preceding the year in which
an application for a patent was filed, the total eligible R&D
expenditures paid by the company or associated company must be at
least $500 000.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A recent Saskatchewan Court of Queen's Bench decision allowed a court-appointed receiver to sell and transfer intellectual property rights free and clear of encumbrances, finding that a license to use improvements of an invention was a contractual interest and not a property interest.
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