In a recent announcement, Quebec provides further changes to the eligibility requirements for the Incentive Deduction for the Commercialization of Innovations (IDCI). This provincial "patent box" tax regime generally allows a qualified corporation to benefit from a reduced 2% Quebec corporate income tax rate on certain income from qualified intellectual property assets. Quebec's announcement states that it will maintain the IDCI eligibility requirement that a business must incur R&D activities carried out in whole or part in Quebec (abandoning its previous plan to remove this requirement) and will add new qualifications for R&D activities. Quebec also says it is working to modify the Quebec nexus ratio to require a direct link between the R&D activities and the intellectual property asset. These changes were announced in Information Bulletin 2021-9, published on December 17, 2021.


Quebec announced the IDCI in its 2020 budget to replace the deduction for innovative manufacturing corporations (DIC). This regime, which complies with Action 5 of the Organization for Economic Co-operation and Development (OECD)'s Base Erosion and Profit Shifting (BEPS) framework, is intended to encourage taxpayers to retain intellectual property in Quebec. Generally, Canadian resident and non-resident corporations can claim the IDCI to benefit from a reduced Quebec corporate income tax rate of 2% (from the 11.5% general rate or 3.2% small business rate), provided they can attribute revenue derived from a "qualified intellectual property asset" to an establishment in Quebec.

Quebec subsequently announced its intention to relax the eligibility requirements and to amend the formula for calculating the IDCI in Information Bulletin 2020-15, published in December 2020. Specifically, Quebec stated that businesses with intellectual property assets that are not related to R&D activities would also qualify for the IDCI, and that consequential changes would be made for computing the deduction for the IDCI. Quebec did not introduce a bill to enact these changes.

Eligibility requirements

Quebec says that it now intends to maintain the requirement that the intellectual property asset must result from R&D activities carried out in whole or part in Quebec under the definition of "qualified intellectual property asset". As a result, Quebec indicates it will not proceed with its previous announcement to relax these eligibility requirements.

Quebec also states that it will require R&D activities carried out in Quebec to contribute significantly to the creation, development or improvement of the intellectual property asset under this definition. Quebec says it will consider all facts to make this determination. In addition, the R&D activities must reflect an active participation in the creation, development or improvement of the intellectual property asset and involve the deployment of financial and human resources in Quebec.

These changes to the definition of "qualified intellectual property asset" will apply for taxation years beginning after December 31, 2020.

Quebec nexus ratio

Quebec announces that it will modify the Quebec nexus ratio, which is part of the formula to calculate the IDCI deduction, to require a direct link between the R&D activities and the qualified intellectual property asset, which Quebec considers is consistent with OECD standards. Quebec also states that corporations will have to monitor their R&D expenditures per intellectual property asset, on a historical basis for purposes of applying the Quebec nexus ratio, and retain supporting documents for subsequent audits by Revenu Quebec.

Generally, the Quebec nexus ratio determines the portion of qualifying income entitled to the IDCI based on the ratio of qualifying R&D expenditures related to Quebec and overall amount of R&D expenditures. Currently, the nexus ratio is calculated on a cumulative basis according to a moving average of R&D expenditures including the particular year and the preceding six years.

Quebec states that it will clarify the new requirement in the future, which will apply for taxation years that begin after December 31, 2023.


For more information, contact your KPMG adviser.

Information is current to January 10, 2022. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500