Under s. 1135.1 et seq., a corporation may benefit from a non-refundable capital tax credit for a taxation year, equal to 5% of the amount of the qualified investment, but limited to the capital tax payable for the year, with the excess available for carry forward to subsequent taxation years. Regarding the federal treatment of the credit, CRA stated:
The Quebec capital tax credit is an inducement payment and represents government assistance … .. It is not to be included in income under paragraph 12(1)(x) but rather is to be applied against the capital cost of the property that generated the credit under subsection 13(7.1) … .
For the purposes of the investment tax credit, paragraph 127(11.1)(b) requires that the capital cost of the property that generated the credit also be reduced to take into account the government assistance. …
These reductions must be recognized when the capital tax credit is received. Income Tax Technical News No. 29 … [states]:
[A] tax credit or a reduction in the tax calculation is considered to be received at the earliest of:
when the amount is applied as a reduction of instalment payments to be paid by the taxpayer, if it is credited to his instalment account by the fiscal authorities; or
when all the conditions for its receipt are met, at the earliest of:
when it reduces the tax payable for a taxation year, or
when it is paid, if it allows for or increases a tax refund.