Labour shortages are a reality in most industries and regions of the Province of Québec, with major consequences: disruptions in essential public services, slowing down in the development of several strategic Québec economic sectors and a decrease in investments.
Tax incentives have already been put in place to boost employment, namely by making it easier and more attractive to recruit qualified foreign workers. Since 1999, the Québec government has been offering a tax incentive to help Québec companies attract foreign researchers and experts with the high-level skills needed to carry out innovation projects.
This particular category of workers encompasses two different types of profiles of individuals who are experts in their respective fields: "researchers" and "experts." These profiles are meant to support scientific research and experimental development (SR&ED) activities, as well as management and financing of innovation activities.
Eligible Foreign Researchers
A foreign researcher is eligible for this tax benefit when an employment contract is signed in the Province of Québec if:
- The employer runs a business in Canada and performs SR&ED work in the Province of Québec;
- The employer has a graduate degree with a major research paper recognized by a Québec university or has an equivalent level of knowledge;
- The researcher does not live in the Province of Québec or in Canada immediately prior to working for the eligible employer;
- The researcher works exclusively or almost exclusively for the eligible employer (90% or more of the researcher's time must be spent with the eligible employer) doing work related to SR&ED activities;
- The researcher has a background in pure or applied science or a related field;
- The researcher has the required skills to carry out SR&ED activities within the company.
Eligible Foreign Experts
A foreign expert is eligible for this tax benefit when an employment contract is signed in the Province of Québec if:
- The employer runs a business in Canada and performs SR&ED work in the Province of Québec;
- The employer has an undergraduate degree recognized by a Québec university or has an equivalent level of knowledge;
- The expert does not live in the Province of Québec or in Canada immediately prior to working for the eligible employer;
- The expert works exclusively or almost exclusively for the eligible employer (90% or more of the expert's time must be spent with the eligible employer) doing work related to SR&ED activities;
- The expert must be dedicated almost exclusively to SR&ED activities within the Québec company, either in management, financing or commercialization of SR&ED activities, or in technology transfer, and must have the required skills.
Amounts and Length of Tax Exemption
Tax exemption is granted to an individual through a Québec tax exemption according to the following terms and conditions:
- 1st and 2nd year of employment: 100% deduction of salary (0% of the salary paid by the Québec company is taxable)
- 3rd year of employment: 75% deduction of salary (25% of the salary paid by the Québec company is taxable)
- 4th year of employment: 50% deduction of salary (50% of the salary paid by the Québec company is taxable)
- 5th year of employment: 25% deduction of salary (75% of the salary paid by the Québec company is taxable)
This provincial tax exemption is only available for a maximum of 60 consecutive months.
Obtaining a Tax Exemption
The employer must apply for a certificate from the Québec government so that the employee can benefit from the tax exemption. However, it should be noted that such application must be filed with the government before March 1st of the calendar year that follows the given taxation year for the tax vacation to be applicable to that taxation year. As an example, to qualify for the tax exemption for 2021, the application must be filed by March 1, 2022.
Furthermore, it is up to the employer and the employee to make sure that all legal requirements are met.
Required documents to be provided by the employer in an application are:
- Application form for researcher or expert certificate (NB: the forms are different);
- Employee resume;
- Certified copy of the university degree recognized in the Province of Québec, in French or in English;
- — If the candidate doesn't have a degree that is recognized in the Province of Québec, an Évaluation comparative des études effectuées hors du Québec issued by the Ministère de l'Immigration, de la Francisation et de l'Intégration must be provided;
- Copy of the employment contract signed by both parties;
- Copy of the company's certificate of incorporation, if it is the employer's first application.
The Québec government will process the application and Revenu Québec will issue the certificate to the employer if the eligibility requirements are met. Once the certificate is received, the employer will be able to adjust the payroll deductions at source for the employee who is granted a tax exemption.
An annual renewal application form must be duly completed and signed by the employer and filed with the Québec government to benefit from the tax deduction for each following year. Also, the foreign researcher or expert must continue to carry out SR&ED activities with the employer.
Québec employers ought to know about and take advantage of this relatively simple tax measure, as it allows them to hire qualified workers while boosting their attractiveness in the eyes of foreign workers.
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.