Harmonizing Québec’s digital industry tax credits is worth a closer look

March 22, 2024

By Jean-François Harvey
CCI Director of Québec Affairs

For as long as CCI has been talking about innovation policy in Québec, a major focus for us has been on the Québec multimedia tax credit (CTMM). We’ve been critical about this policy for years, and we’ve occasionally received some serious pushback. People would question why we’d want to end a policy that is credited with maintaining a local video game industry that employs around 13,500 people — out of around 32,000 nationally.

At CCI, we’ve always advocated for governments to ensure that their economic policies support homegrown high-growth companies, because scale-up technology companies are vital for driving sustained growth and creating meaningful economic benefits.

And let’s be blunt: The CTMM has been awful at doing that. A recent study published by Université de Sherbrooke researchers Michaël Robert-Angers and Luc Godbout showed that the overwhelming majority of the companies that benefit from the tax credit are foreign multinationals. Furthermore, after the CTMM and other credits are taken into account, only 5% of companies receiving the CTMM are actually paying corporate income taxes to the province.

This is why we think the government made a move in the right direction with the 2024 budget. Essentially the government is planning on changing the CTMM tax credit, which focuses on video game and digital media production, and harmonizing it with the broader e-business tax credit which typically benefits other technology companies.

The specifics here are a bit technical, dealing with specific salary cap thresholds, refundable versus non-refundable tax credit ratios, and the kind of details that people hire accountants to figure out.

But overall, the government is right in saying that these changes will ensure greater fairness for the tech sector, given that the businesses which have typically benefitted from the digital media tax credits largely compete for the same skilled talent that tech companies are hiring. By giving a greater subsidy to video game studios, it put scale-up technology companies at an unfair disadvantage.

Beyond the specific changes to the really exciting thing about these policy changes is that they show that it is possible for the government to tackle ambitious policy reform during difficult economic times — even when there’s a significant number of jobs involved.

The truth is that the video game studio jobs which are supported by the digital media tax credit are generally the kind of people who will have no trouble finding work, even without a government subsidy. And by subsidizing foreign multinationals who record most of their revenue and profits outside of Canada, these tax credits have historically not done a great job of creating wealth and economic growth for Québec.

One interesting dimension of this situation is that the federal government is currently studying the Scientific Research and Experimental Development (SR&ED) tax credit. We hope Ottawa follows in Québec’s footsteps in reforming the SR&ED — optimizing the details with a focus on how to create the greatest benefit for the overall economy.

To learn more about CCI’s work in Québec, contact Jean-Francois Harvey at jfharvey@canadianinnovators.org

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