Context and Reasons for the Change

The Quebec government, as part of the 2025-2026 budget, announced an optimization of tax measures for businesses to redirect aid towards high value-added activities. This initiative aims to increase the productivity of Quebec businesses and achieve wealth creation goals by leveraging the strengths of Quebec’s ecosystem in cutting-edge fields.

In this context, the Quebec government has decided to redirect the Tax Credit for the Development of E-Business (CDAE) towards a new tax credit integrating artificial intelligence: the CDAEIA, which will apply to corporate tax years beginning after December 31, 2025. This decision aims to better align tax aid with rapid technological developments and current business needs.

Since its creation in 2008, the CDAE has supported activities related to the design and development of computer systems and software. However, recent technological advances, particularly in the field of artificial intelligence (AI), have transformed services and solutions in information technology (IT). Some activities supported by the CDAE no longer represent high added value in the service offerings of specialized IT companies.

To encourage higher value-added technological activities, the government has decided to strengthen tax aid in the field of artificial intelligence (AI). This change will redirect tax aid towards AI solutions, thus promoting innovation and competitiveness of businesses. The CDAE reform also aims to maximize the economic benefits of this measure in Quebec by adjusting the level of aid for companies with their headquarters outside Quebec.

Eligible Activities

Activities eligible for the CDAEIA must be closely related to information system design or software publishing and significantly integrate AI functionalities. Among the main eligible activities are:

• IT consulting services: This service must be related to technology, system development, or e-business processes and solutions. It includes activities such as needs analysis, technology solution design, and implementation of computer systems. These activities are essential to ensure that businesses can effectively adopt and integrate advanced technologies.
• Development and integration of information systems and technological infrastructures: This activity covers the creation and implementation of complex computer systems, including databases, networks, and software platforms integrating AI functionalities. By developing these systems, businesses can improve their operational efficiency and their ability to manage large amounts of data.
• Development of security and identification services: This activity includes the design of cybersecurity solutions, authentication systems, and data protection technologies, integrating AI algorithms to improve security and efficiency. These solutions are necessary to protect sensitive information and ensure user trust.

It is important to note that maintenance and evolution activities of information systems and technological infrastructures will no longer be eligible, even if they are ancillary to the main activities. This restriction aims to encourage innovation and the development of new technological solutions.

More specifically, in the government’s budget plan, AI solutions are defined as applications or software using advanced technologies, such as machine learning and neural networks, to accomplish specific tasks. These tools can automate business processes, analyze large amounts of data, provide recommendations based on machine learning algorithms, and offer personalized experiences to customers. AI solutions can therefore include:

• AI-Automated chat systems and virtual assistants: Powered by artificial intelligence, these systems use voice recognition and natural language processing to interact smoothly and quickly with users. They can answer questions, provide information, and even solve common problems, thus improving the user experience.
• Personalized recommendation systems: By analyzing purchasing behaviors and customer preferences, these systems can suggest products or services tailored to each individual. This not only increases sales but also enhances customer satisfaction by offering personalized recommendations.
• Data analysis tools: These tools can process large amounts of data to extract useful and meaningful information. For example, they can predict future demand trends, helping businesses make more informed and strategic decisions. This allows for optimized operations and better response to market needs.

In summary, AI solutions must facilitate decision-making, solve problems, increase productivity, and allow employees to focus on higher value-added tasks. By integrating these technologies, businesses can not only improve their efficiency but also offer better quality services to their customers.

Eligible Companies 

To be eligible, a company must meet several specific conditions. First, it must have a physical establishment in Quebec and employ at least six eligible persons. It must also meet certain gross revenue criteria, which will be adapted to better match the business models of companies specializing in artificial intelligence (AI), where a significant portion of revenue may come from hosting or data processing.

The new gross revenue criteria will be as follows:

• 75% of gross revenue must come from the IT sector.
• 50% of gross revenue must derive from development, software publishing and data processing and hosting activities.
• 75% of its gross revenue from eligible activities must come from services ultimately provided to third parties or from services relating to applications developed for use exclusively outside Québec.

These criteria aim to ensure that tax aid is granted to companies truly engaged in high value-added activities, integrating AI solutions in Quebec. By targeting these companies, the government aims to encourage innovation and technological development in the province, while supporting companies that significantly contribute to the local economy.

Eligible Expenses 

As with the CDAE, only labor expenses will be eligible for the CDAEIA. Specifically, these will be labor expenses that exceed an exclusion threshold per eligible employee. To be eligible, the employee must hold a full-time position within the company and devote at least 75% of their working time to eligible activities, as defined by the program. The exclusion threshold will correspond to the basic personal amount of the individual tax system. Only labor expenses that exceed this threshold will be considered eligible.

Tax Aid Rate 

After December 31, 2025, the overall tax aid rate, set at 30%, will remain unchanged. However, changes will be made to the distribution between the refundable tax credit and the non-refundable tax credit. Currently, the refundable tax credit portion is 23%, but it will gradually decrease to 20% after 2028. At the same time, the non-refundable tax credit portion, currently 7%, will gradually increase to 10% after 2028.

It should be noticed that to maximize economic benefits in Quebec, the level of tax aid will be halved for subsidiaries of foreign companies that provide IT services to their parent company outside Quebec when such services represent at least 50% of their gross revenue. This measure aims to ensure that tax aid primarily benefits companies that directly contribute to the local economy, while encouraging foreign subsidiaries to increase their commitment and investments in Quebec.

Impact and Objectives

The CDAEIA aims to create a more favorable business environment for innovation by simplifying and making the tax aid system more efficient. The changes will provide additional financial support totaling $271.5 million over five years. By redirecting tax aid towards high value-added activities, the government hopes to maximize economic benefits and strengthen the competitive position of Quebec companies on the international stage.