De Facto Control and Enhanced SR&ED Tax Credits in Quebec

February 26, 2026

Sector:

Markham, Canada, February 24, 2026

This week, I sat down with our very own Bal Katlai (Partner, Tax) to discuss a complex but highly consequential issue for SR&ED claimants, de facto control and its potential impact on access to enhanced SR&ED tax credits in Quebec.

While most businesses focus on the technical eligibility of their R&D work, fewer appreciate how corporate structure and control can directly affect their entitlement to enhanced credit rates.

Here is a summary of our discussion.

Why Control Matters for SR&ED

Under the Income Tax Act, Canadian controlled private corporation status is central to accessing enhanced federal SR&ED credits. In Quebec, enhanced provincial SR&ED credits may also depend on how control is interpreted.

Control is typically understood as de jure control, meaning ownership of sufficient voting shares to elect the board of directors, as established in Duha Printers (Western) Ltd. v. Canada and earlier jurisprudence. However, subsection 256(5.1) extends the concept to de facto control, which captures situations where a person has direct or indirect influence that, if exercised, would result in control in fact.

For growth stage and technology companies that rely on outside capital, this distinction is critical. Venture financing, options, contingent rights, and non-resident investors can all complicate the control analysis.

Revenue Quebec’s Interpretation

Revenue Quebec released a technical interpretation (17-037925-001, September 25, 2017) addressing whether a corporation that is non-CCPC under a strict de jure test could nevertheless be treated as a CCPC for the purposes of enhanced SR&ED credits.

The interpretation arose in the context of a corporation with significant non-resident ownership, where Mr. X, founder of Canco, who held 40% of its voting shares and was a non-resident of Canada. Canco’s financing arrangements required Mr. X to be continually involved with its operations. Canco was not a CCPC because more than 50% of its shares were held by non-residents. While the RQ auditor denied enhanced tax credits for Canco on the basis of de jure control, RQ (in their technical interpretation) considered the critical role of Mr. X at the operational level and applied de facto control to him; however, Canco was not a CCPC solely because Mr. X was a non-resident. Although the results of the RQ auditor and RQ were identical, their rationales were not. That raises the question; if Mr. X was in fact a resident, does this RQ rationale now allow the possibility of a non-resident corporation to be treated as a CCPC for the purposes of enhanced SR&ED credits? While the corporation failed the traditional de jure control test, Revenue Quebec considered whether de facto control analysis could produce a different outcome for provincial SR&ED purposes.

This position must be viewed in light of Federal Court of Appeal jurisprudence, including McGillivray Restaurant Ltd. v. Canada and Silicon Graphics Ltd. v. Canada, which emphasized that de facto control should be grounded in legally enforceable rights, particularly at the board level, rather than informal operational influence. The court in McGillivray ruled against using influence at the operational level as a test for de facto control, stating that interpretation based on operational control will lead to a certain level of subjectivity in the de facto control analysis; and this unpredictability goes against the spirit of the law.

The tension is clear. On one hand, the legislation broadens the test to capture influence. On the other, courts have cautioned against overly subjective interpretations of operational control.

Practical Implications for Quebec and Multijurisdictional Claimants

For Quebec based and Quebec active technology companies, the implications are significant.

First, access to enhanced SR&ED credits may depend not only on who holds voting shares, but also on financing arrangements, shareholder agreements, and contingent rights. A right to acquire shares on default, veto powers, or influence over board composition can all become relevant.

Second, mismatches may arise between federal and provincial treatment. The Act does not differentiate based on province of residence. If Quebec adopts a more expansive or distinct interpretation for SR&ED purposes, corporations operating across provinces may face inconsistent CCPC determinations.

Third, there are broader consequences beyond SR&ED. Control affects numerous provisions of the Act, including associated corporation rules and small business deduction eligibility. A shift in control analysis for SR&ED could have cascading tax implications.

A Strategic, Not Reactive, Approach

For innovative businesses seeking enhanced SR&ED credits, this issue underscores a broader point. SR&ED planning does not begin at the time of filing. It begins when structuring financing rounds, negotiating shareholder rights, and admitting new investors.

Companies that wait until the claim stage to assess control may discover unintended consequences that affect their eligibility for enhanced credits.

At Kreston GTA, our SR&ED and Tax teams work together to:

Review shareholder agreements and financing structures before and after transactions
Assess de jure and de facto control risks
Align federal and provincial SR&ED positions
Identify planning opportunities while managing compliance exposure

Enhanced SR&ED credits can represent a material source of funding for growth. Ensuring that corporate structure supports, rather than undermines, eligibility is essential.

If you are raising capital, restructuring ownership, or expanding into Quebec, it is worth assessing how control rules may affect your SR&ED position.

Connect with us.

Author

Sarmen Khatcherian
sarmen.khatcherian@krestongta.com
905.474.5593 ext. 115
Managing Director, SR&ED & Government Incentives

About Kreston GTA

Kreston GTA is a client-focused and forward-thinking accountancy firm; we understand that building a relationship based on trust is essential. We truly believe that people do business with people they know, like, and trust. That’s why our approach is always personalized. We invest the time to get to know you, understand your goals, and provide solutions that help you succeed. We provide a full suite of accountancy and financial services, including personal and corporate taxation, audits, consulting, SR&ED & other government incentives, and more