Québec’s Shift Toward AI-Centered Innovation Funding

Quick Overview of the CDAEIA Reform

Québec’s 2025–2026 budget marks a major milestone in innovation funding. The current CDAE (Tax Credit for the Development of E-Business) will soon evolve into CDAEIA (Tax Credit for the Development of E-Business – Innovation and Automation). This pivot is designed to accelerate AI integration within Québec’s tech ecosystem while optimizing fiscal resources.

From CDAE to CDAEIA: A Strategic Shift Toward AI Innovation

Effective January 1. 2026

Current CDAE Structure (until December 31, 2025)

• 30% total tax credit:
  • 24% refundable
  • 6% non-refundable
• Eligible activities: development, systems integration, and IT consulting services

New CDAEIA Structure (starting January 1, 2026)

Projects must include a significant AI component to qualify.

New rates:

• 2025: 23% refundable / 7% non-refundable
• 2026: 22% refundable / 8% non-refundable
• 2027: 21% refundable / 9% non-refundable
• 2028: 20% refundable / 10% non-refundable

Routine maintenance work that doesn’t contribute to technological transformation is generally not eligible.

The Strategy Behind the Shift to AI

Québec is positioning itself at the intersection of:

• Rapid global AI adoption
• A need for fiscal discipline

By reallocating $540 million in projected savings toward high-potential AI projects, Québec is choosing targeted innovation over basic IT services.

Tighter Eligibility Framework: Focused, Future-Forward

Revenue Requirements

• At least 75% of total revenue must come from IT services
• 50% must come specifically from software development, data processing, or hosting
• 75% of services must be used outside Québec

Eligible Activities

Projects must integrate AI meaningfully. Qualifying activities include:

• IT consulting linked to tech development
• Development and integration of information systems
• Development of security and identity services

AI must not be a side feature — it must transform the service or product.

Employee Time Allocation

• At least 75% of employee time must be spent on eligible activities
• Detailed time tracking and documentation are mandatory

Foreign Subsidiaries

• 50% reduction in tax credit rates
• Emphasis is placed on Québec-born innovation over outsourced or captive service models

Strategic Implications: Winners and Challenges

Quebec’s innovation funding landscape shows a carefully structured bifurcation. The CDAEIA reform creates distinct winners and strategic challenges across the technology ecosystem.

Strategically Advantaged Organizations

Certain companies naturally align with Quebec’s vision:

• AI-Native Enterprises: Organizations built around AI capabilities enter this transition with inherent advantages, as their existing technical architecture and talent deployment already satisfy the new requirements.
• Advanced Software Development Teams: Companies with mature data science capabilities and established AI expertise face lower adaptation barriers. Their challenge consists of strategic reallocation of these resources rather than capability building.
• Export-Oriented Service Providers: The 75% external services threshold particularly advantages organizations with established international client bases rather than those focused on Quebec’s domestic market.
• Profitable Technology Firms: The gradual shift toward non-refundable credits privileges companies generating sufficient taxable income to utilize tax offsets effectively, creating an interesting paradox where more established, profitable firms may capture greater innovation support than early-stage ventures.

Organizations Requiring Strategic Repositioning

Several categories of companies face significant adaptation challenges:

• Maintenance-Focused Service Providers: Organizations whose revenue predominantly derives from system maintenance face dramatic disruption. The explicit exclusion of these activities represents a fundamental repudiation of their business model within Quebec’s innovation framework.
• Foreign Subsidiary Operations: Entities generating significant revenue from parent company services now face a calibrated disadvantage. The 50% reduction in available credit rates reflects Quebec’s preference for stimulating autonomous innovation rather than subsidizing captive service centers.
• Traditional Software Developers: Companies without established AI capabilities confront a complex capability-building challenge under tight time constraints.
• Cash-Flow Dependent Ventures: Early-stage companies that have structured their operational finances around refundable credits must reconsider fundamental aspects of their capital strategy.

Strategic Transition Framework: Preparing for 2026

With Quebec’s implementation timeline now clear, forward-thinking executives should consider this 12-month window a critical strategic opportunity. Conversations with technology leaders suggest several high-leverage approaches:

1. Map Your AI Capabilities

• What internal AI skills do you already have?
• Are there existing IPs that could be enhanced through AI?
• What partnerships could boost your AI maturity?

2. Recalibrate Your Portfolio

• Which current offerings could integrate AI?
• Which AI-driven projects could you accelerate?
• Which maintenance-heavy services should be rethought or phased out?

3. Realign Talent and Resources

• Build dedicated AI-focused teams
• Hire to close capability gaps
• Use time-tracking systems to meet the 75% rule

4. Explore Other Provincial Programs

• The CRIC (Research, Innovation and Commercialization Tax Credit) is a strong complementary or alternative option

The Broader Innovation Ecosystem Context

The CDAEIA transformation represents just one element in Quebec’s comprehensive innovation strategy realignment. The province’s new CRIC program deserves particular attention as either a complement to or alternative for companies adjusting to the CDAEIA changes.

CRIC: A Powerful Alternative to CDAEIA

Key Benefits:

• 30% credit on the first $1M in eligible R&D spending
• No AI requirement
• Capital expenditures (equipment purchases) are eligible
• Market testing and pre-commercialization activities are covered
• 5–10% bonus for projects in remote or intermediate regions
• Simplified application process (consolidates 8 former programs)

Best suited for manufacturing, engineering, and biotech firms investing heavily in R&D infrastructure.

Additional Innovation Support Programs

• $200M innovation fund replacing “Impulsion PME”
• $900M for automation, robotics, and digital transformation
• $54M for life sciences
• $22M for Montréal’s Mila AI institute

Strategic Recommendations for Navigating the Transition

Having guided numerous organizations through regulatory transitions, several high-value strategic perspectives emerge:

1. Treat this as transformation, not compliance: Companies viewing this merely as a technical eligibility exercise will miss the broader strategic opportunity. The most successful organizations will use this transition to fundamentally reassess their technical architecture and market positioning.
2. Consider talent acquisition strategically: The compressed timeline may make targeted acquisitions of AI-focused companies or talent teams more effective than building capabilities organically. Current market conditions may create advantageous acquisition opportunities before the 2026 implementation creates heightened competition.
3. Leverage the transition period strategically: Structure new client contracts and projects to maximize benefits under the current system while establishing the foundation for compliance with future requirements.
4. Adopt portfolio management principles: Not every existing project or service can or should adapt to the new framework. Strategic portfolio management requires making intentional choices about which offerings to transform and which to potentially sunset.

Practical Implications and Next Steps

Quebec’s pivot toward AI-centric innovation funding creates a defining moment for technology companies operating in the province. Your response to this transformation will substantially determine your competitive positioning and access to innovation capital for years to come.

Leading organizations will embrace this shift not simply as a compliance exercise, but as an opportunity to strategically evolve—aligning capability development, market positioning, and talent strategies with Quebec’s reimagined innovation framework.

Boast is here to simplify this journey. With bold, accessible, and AI-powered R&D tax credit solutions, we help you navigate Quebec’s evolving landscape, ensuring you unlock maximum value from your innovation investments.

Connect with one of our experts today and discover how Boast can streamline your path to AI-focused innovation funding.