Published | Category: Income tax - businesses

Creation of a Deduction for Innovative Manufacturing Corporations

The deduction for qualified innovative manufacturing corporations (hereinafter referred to as the "DIMC") is particularly intended for corporations in the manufacturing and processing sector that cannot claim the small business deduction.

The purpose of the DIMC is to encourage a qualified innovative manufacturing corporation to profit in Québec from a patent it has been granted as the result of scientific research and experimental development (R&D) work that it carried out in Québec. The DIMC will enable such a corporation to reduce its taxable income for a taxation year by an amount equal to a portion of the value of a qualified patented part integrated into qualified property that the corporation sold, leased or rented that year.

Calculation of the DIMC

Fiscal legislation will be amended so that a qualified innovative manufacturing corporation can deduct, in calculating its taxable income for a taxation year, a specified annual percentage of the lesser of:

  • the total value of all qualified patented parts incorporated into qualified property that the corporation sold, leased or rented in the year; and
  • the DIMC ceiling.

The following table shows the specified annual percentages for 2017 to 2020 and subsequent years.

Specified annual percentages
Year(s) Percentage
2017 66.1
2018 65.8
2019 65.5
2020 and subsequent years 65.2

For a particular taxation year, the DIMC ceiling will correspond to 50% of the net income derived from the sale, lease or rental of the qualified property shown in the separate accounts that a qualified innovative manufacturing corporation will be required to keep in that regard for the year.

The term "qualified innovative manufacturing corporation" refers to a corporation of which at least 50% of the activities, for a particular taxation year, consist of activities in the manufacturing and processing sector carried out in Québec.

The proportion of a corporation's activities in the manufacturing and processing sector will be determined using the following formula: the labour cost for activities in the manufacturing and processing sector carried out in Québec divided by the labour cost for all activities carried out in Québec.

For a particular taxation year, a qualified innovative manufacturing corporation will be required to have at least $15 million in paid-up capital calculated either for its previous taxation year or, if the corporation is in its first fiscal period, on the basis of its financial statements prepared at the beginning of the fiscal period in accordance with generally accepted accounting principles.

The term "qualified property" of a qualified innovative manufacturing corporation, for a particular taxation year, refers to property:

  • that incorporates at least one qualified patented part for which the patent did not expire in the year;
  • that the corporation sold, leased or rented in the year;
  • in respect of which the corporation derived, for the year, gross income reasonably attributable to an establishment of the corporation located in Québec; and
  • in respect of which the corporation kept separate accounts.

The term "qualified patented part" of a qualified innovative manufacturing corporation, for a particular taxation year, refers to an invention for which the corporation owns or co-owns a patent under the Patent Act or any other legislation of a jurisdiction other than Canada having the same effect.

Also, for the five-year period preceding the year in which an application for a patent for the invention was filed under the Patent Act or any other legislation of a jurisdiction other than Canada having the same effect, the total qualified R&D expenditures paid by the qualified innovative manufacturing corporation and any corporation associated with it in the year in which the R&D work was carried out will have to have been at least $500,000.

Furthermore, the corporation or associated corporation, where applicable, will have to have benefited from a refundable tax credit for R&D in respect of those R&D expenditures.

In addition, the only patents that will qualify for the DIMC are those for which an application was properly filed with the competent authorities after March 17, 2016, under the Patent Act or any other legislation of a jurisdiction other than Canada having the same effect.

Effective date

This new deduction for innovative manufacturing corporations will apply in respect of a taxation year of a corporation beginning after December 31, 2016.

For more information, see pages A.49 to A.56 of the document entitled Additional Information 2016-2017 (PDF – 2.88 MB), published by the Ministère des Finances.

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