Tweaking Three Québec Tax Credits and Making Them More Attuned to Scale-Up Reality

By Jean-François Harvey
CCI Director of Québec Affairs

A year ago, when Québec Finance Minister Éric Girard delivered his 2024 budget, he announced that the government would be launching a sweeping review of all government spending.

Minister Girard said the goal was to ensure that government services are providing good value, and align with the current economic context. At the time, the government harmonized several tax credits that cover the technology sector, and we welcomed the change.

The Québec National Assembly resumed sitting this week, which means that Minister Girard will soon be delivering his 2025 budget, and we are watching closely to see the results of his spending review. An encouraging sign, from my perspective, was a recent speech Minister Girard delivered, where he said that Quebec was lagging in “research, development, and innovation.” He added that he was preparing a “fiscal response” to do better.

CCI fully supports this line of thinking from the minister, and in our pre-budget submission to the Department of Finance, we included several proposals that would help the government do better on innovation.
‍

Adapt the eligibility criteria of the Synergy Capital Tax Credit to reflect the reality of Quebec’s technology companies

This tax measure aims to encourage business partnerships and synergy among Quebec companies. It allows a large, established company to receive a tax credit when they invest in a smaller, growing, innovative company. This measure is an excellent way to encourage risk-taking and stimulate investment.

However, the eligibility criteria is very restrictive and poorly adapted to the realities of technology companies. The specific criteria are complicated and technical, but the bottom line is, as the tax credit is written right now, most innovative companies don’t actually qualify, so the policy is not achieving its goal. We propose the following improvements:

1. Eliminate the requirement that a company’s activities in Quebec represent at least 75% of its total activities for the tax year to be eligible.
2. Increase the maximum paid-up capital threshold from $15M to $30M.
3. Increase the maximum gross revenue threshold from $10M to $20M.
   ‍

Level the playing field for Quebec-headquartered startups in CDAE E-Business Tax Credit

While harmonizing various tax credits in the tech sector was desirable, this has ultimately increased the non-refundable portion of the CDAE. As a result, expanding businesses are deprived of essential capital for their growth.

The development cycle of a technology company is often slow. It can take about a decade before a company generates taxable profits. Additionally, this creates an uneven playing field, as large foreign companies can easily employ various tax maneuvers to maximize the benefits of Quebec's programs and credits, while scale-ups are left out in the cold. We therefore recommend:

• Making the Tax Credit for the Development of E-Business (CDAE) fully refundable for companies headquartered in Quebec.

‍
Allow Quebec tech companies to issue flow-through shares

The development cycle of a tech company is often longer than that of a traditional business. Since there is no certainty of discovery or revenue, it is extremely difficult for companies in this field to finance themselves through traditional bank loans.

In the natural resources sector, another area of the economy with long development timelines and significant up-front investment requirements, the government has recognized this issue and developed a policy solution.

In essence, flow-through shares allow investors to fund risky startups and receive preferable tax treatment in certain ways. This financial structure is a significant part of why Canada has been able to build a successful and economically important natural resources sector.

This reality is very similar in the tech sector, where it is not uncommon to wait over ten years before a company can hope to achieve profitability. It only seems logical to allow tech companies to issue flow-through shares to stimulate growth and diversify their access to capital.

These three measures will ensure better support for Québec tech companies, enabling them to access more capital at critical stages of their development. It is well established that tech scale-ups are a vital ingredient for generating sustainable economic growth and significant economic benefits.

Our 2025 pre-budget submission includes several ambitious proposals to improve support for innovation in Quebec. You can view it here.

‍

About the Council of Canadian Innovators

The Council of Canadian Innovators is a national member-based organization reshaping how governments across Canada think about innovation policy, and supporting homegrown scale-ups to drive prosperity. Established in 2015, CCI represents and works with over 150 of Canada’s fastest-growing technology companies. Our members are the CEOs, founders, and top senior executives behind some of Canada’s most successful ‘scale-up’ companies. All our members are job and wealth creators, investors, philanthropists, and experts in their fields of healthtech, cleantech, fintech, cybersecurity, AI and digital transformation. Companies in our portfolio are market leaders in their verticals, commercialize their technologies in over 190 countries, and generate between $10M-$750M in annual recurring revenue. We advocate on their behalf for government strategies that increase their access to skilled talent, strategic capital, and new customers, as well as expanded freedom to operate for their global pursuits of scale.