What is CDAE?
Among the most popular provincial tax credits is Revenu Quebec’s Tax Credit for the Development of E-Business, which is commonly referred to as CDAE (from its French-language abbreviation). This program is only available to activities in Quebec, and while the program isn’t mutually exclusive from the federal government’s SR&ED tax credit, there are qualifying criteria specific to CDAE that can make it a tricky application to navigate.
A mix of refundable and non-refundable credits for SaaS development in Quebec.
For starters, while both SR&ED and CDAE are tax credits, SR&ED is typically dispersed as a refundable tax credit for Canadian-controlled Private Corporations (CCPCs), while CDAE offers a mix of refundable and non-refundable taxes credit for any Quebec-based companies (CCPC or otherwise).
Restructuring for the future…
The Quebec government announced they will scale up the non-refundable share of CDAE—that is, the portion of the credits where businesses must pay tax to Quebec for qualification—from 6% today to 10% by 2028. Simultaneously, the refundable portion of the tax credit will be scaled down from 24% in 2024 to just 20 percent by 2028.
| YEAR | REFUNDABLE | NON-REFUNDABLE |
| 2024 | 24% | 6% |
| 2025 | 23% | 7% |
| 2026 | 22% | 8% |
| 2027 | 21% | 9% |
| 2028 | 20% | 10% |
Source: Government of Quebec
What are CDAE-qualified employee activities?
The software-specific caveat for CDAE is perhaps the most important distinction between Quebec’s innovation tax credit and the federal government’s SR&ED program. Although SR&ED has no revenue or minimum employee requirements, it’s also geared toward expensing R&D costs in almost any industry, making it a much broader mandate than CDAE (beyond just geography).
On the flip side, while the CDAE’s revenue requirements are more restrictive, its eligible activities are less rigid and can include routine development (as opposed to the highly-vetted “Why?” and “How” requirements put forth by SR&ED that prioritize net-new innovation).
CDAE does not, however, offer tax credits for any programs that involve hardware, including software that controls hardware or is built into hardware, ala Internet-of-Things (IoT) systems or robotics. Similarly, projects that rely on external data sets—namely, Artificial Intelligence (AI)—are ineligible for CDAE, as data used during R&D must be internally owned and generated by the company’s
A vehicle for expensing technical salaries
When to use CDAE vs. SR&ED — or both?
CDAE is most beneficial to more mature companies that have made progress in their development but need additional, non-dilutive funding to scale—especially as it relates to bringing software-based innovations to market.
A classic scenario for many startups is that they’ll receive more SR&ED tax credits as their R&D projects first ramp up and then eventually increase their CDAE funding as fewer of their activities are covered by SR&ED. In that same vein, because CDAE covers more routine development activities versus SR&ED’s focus squarely on net-new innovation, businesses can reap CDAE tax credits when maintaining or improving existing technology.
Because CDAE tax credits are fixed regardless of size or ownership structure—unlike SR&ED which offers lower, non-refundable credits to non-CCPC and larger companies—it can be an attractive credit for large or foreign-owned businesses as well.
Stacking both CDAE and SR&ED
There are options for businesses that want to optimize both CDAE and SR&ED on the provincial level to maximize the tax credit amount.
Doing this is tricky, however, and requires not just deep knowledge of existing tax code, but the ability to communicate the nature of innovation both from the business-side and technical-side of R&D.
