On March 21, the Québec government released its 2023-2024 budget. The following are highlights of the key tax measures.

Personal tax measures

Personal income tax rate changes were announced in this year’s budget to the first two tax brackets. The current personal combined income tax rates for 2023 are outlined below:

Personal income tax reduction

The budget contains a general tax reduction that will result in a decrease in the tax rates applicable to the first two taxable income brackets of the personal income tax table. The tax legislation will therefore be amended so that as of the 2023 taxation year:

• The tax rate for the first taxable income bracket ⁠–⁠ which does not exceed $49,275 for the 2023 taxation year ⁠–⁠ will be reduced by one percentage point, from 15 per cent to 14 per cent
• The tax rate for the second taxable income bracket ⁠–⁠ which is the bracket over $49,275, but not exceeding $98,540 ⁠–⁠ will also be reduced by one percentage point, from 20 per cent to 19 per cent

For individuals to benefit from this general tax reduction in the 2023 taxation year, adjustments will be made to the methods of calculating source deductions of income tax that must be made on wages and certain other amounts paid after June 30, 2023.

Individuals who are required to pay their income tax in installments may adjust, in accordance with the usual rules, any installment payment due after March 15, 2023, in order to take into account the general tax reduction applicable for the 2023 taxation year.

Other source deduction clarifications, because of the general tax reduction, are as follows:

• Single payments under a RRIF or a RRSP will be subject to a 14 per cent rate
• Other single payments (i.e., retiring allowance, RESP, pension plan, DPSP, etc.)
  • that do not exceed $5,000 will be subject to a 14 per cent rate
  • that exceed $5,000 will be subject to a 19 per cent rate
• Government work‑incentive project payments will be subject to a 14 per cent rate
• Assistance payment made under a RDSP will be subject to 14 per cent
• Bonus and retroactive increases made after June 30, 2023, will be subject to a 7 per cent rate
• Self-employed fishers making a source deduction election will be subject to a 14 per cent rate

Personal tax credits

Starting in the 2023 taxation year, the conversion rate applicable to the various amounts for calculating personal tax credits will be reduced from 15 per cent to the new rate applicable to the first taxable income bracket of the personal income tax table, 14 per cent. These amounts are:

• The basic amount
• The amounts for persons living alone
• The amount with respect to age; the amount for retirement income
• The amount for a severe and prolonged impairment in mental or physical functions
• The amount for children under 18 enrolled in vocational training or post‑secondary studies
• The amount for other dependants
• The amounts for calculating the transferred amount representing the recognized parental contribution

Other tax credits that will be reduced due to the new first taxable income bracket tax rate of 14 per cent are:

• Career extension
• First-time home buyers
• Volunteer firefighters
• Search and rescue volunteers

Certain other tax credits ⁠–⁠ for families with children enrolled in vocational training or post‑secondary studies ⁠–⁠ will be increased to derive the same tax reduction when factoring in the new general tax reduction.

Clarification regarding the adjustment relating to a covered benefit

The adjustment respecting a covered benefit determined by the Commission des normes, de l’équité, de la santé et de la sécurité du travail and the Société de l’assurance automobile du Québec can be established by these bodies as if 15 per cent were still the rate applicable to the first taxable income bracket, and 20 per cent were still the rate applicable to the second taxable income bracket.

Presumption of residence

For the purposes of the tax system, individuals who are not resident in Québec at the end of a particular taxation year are nonetheless deemed, in certain circumstances, to have been resident in Québec throughout the year.

Currently, the tax legislation states that the child of an individual who is deemed to be resident in Québec because of his or her duties is also deemed to be resident in Québec, provided the child is the individual’s dependant and the child’s income for the year does not exceed a certain threshold.

For the purposes of this presumption, the limit on the child’s income for a taxation year ⁠–⁠ after the 2022 taxation year ⁠–⁠ will be established based on an income of $12,638, which will be automatically indexed each year as of January 1, 2024.

Refundable tax credit for childcare expenses

Childcare expenses paid in respect of an eligible child with a view to, in particular, enabling an individual or the individual’s spouse to work, pursue studies or actively seek employment may be converted into a refundable tax credit at a rate established based on family income.

For the purposes of this tax credit, the definition of “eligible child” will be amended ⁠–⁠ as of the 2023 taxation year ⁠–⁠ to state that an eligible child of an individual for a taxation year means a child of the individual or the individual’s spouse, or a child who is a dependant of the individual or the individual’s spouse and whose income for the year does not exceed $12,638, if, in any case, at any time during the year, the child is under 16 years of age or is dependent on the individual or the individual’s spouse and has a mental or physical infirmity.

For greater clarity, the amount of $12,638 will be automatically indexed each year according to the same rules as those used to calculate personal tax credits as of January 1, 2024.

Solidarity tax credit

The housing component of the solidarity tax credit will be doubled and applied as of the next payment period, which begins on July 1, 2023. Accordingly, the amounts of the housing component of the solidarity tax credit applicable for the period from July 2022 to June 2023 will be indexed at a rate of 12.88 per cent (instead of 6.44 per cent) for the payment period beginning July 1, 2023.

Alternative minimum tax

Because of the general tax reduction, the alternative minimum tax rate of 15 per cent is replaced with the tax rate of 14 per cent as of the 2023 taxation year.

The Ministère des Finances du Québec is following the work currently being done by the Department of Finance Canada with regards to examining a new minimum tax regime.

Volunteer firefighters and search and rescue volunteers

The non‑refundable tax credit for volunteer firefighters and the non‑refundable tax credit for search and rescue volunteers will be increased as of the 2023 taxation year. The credit will increase to $5,000 (from $3,000) and the amount will automatically be indexed each year, starting with 2024. This new amount will be subject to the tax rate of 14 per cent.

Corporate tax measures

No corporate income tax rate changes were announced in this year’s budget. The current corporate income tax rates for 2023 are outlined below:

New tax holiday for large investment projects

The tax holiday relating to the carrying out of a large investment project ⁠–⁠ introduced with the November 2012 budget ⁠–⁠ has been replaced with a new tax holiday effective March 21, 2023.

With the introduction of this new tax holiday, the former tax holiday will be abolished as of the day of the budget speech and, as a result, no new application for an initial qualification certificate will be accepted for the purposes of the former tax holiday. However, the abolition of the former tax holiday will not affect the eligibility of corporations and partnerships that already hold a qualification certificate or have already applied for the issuance of an initial qualification certificate under the former tax holiday. A corporation or partnership that qualifies for the former tax holiday will be able to make an irrevocable election to benefit from a new alternative calculation method for the tax holiday. The election must be filed with the Minister of Finance on or before the later of the date of application for the first annual certification under the large investment project or March 31, 2024.

A corporation that, after the day of the budget speech, carries out a large investment project in Québec may, under certain conditions, benefit from an income tax holiday and from a holiday from the employer contribution to the Health Services Fund.

Similarly, a partnership that, after the day of the budget speech, carries out a large investment project in Québec may, under certain conditions, benefit from a holiday from the employer contribution to the Health Services Fund. A corporation that is a member of the partnership may benefit from the tax holiday regarding the tax in respect of its share of income from the partnership.

The new tax holiday will be defined according to new parameters, particularly in terms of the maximum annual amount of tax assistance applicable.

This new tax holiday will have a 10‑year duration, and it will be calculated by applying a rate of 15 per cent, 20 per cent or 25 per cent to the cumulative total eligible expenditures related to the project. This rate will be determined according to the economic vitality index of the territory where the large investment project will be carried out, subject to certain rules applicable if a large investment project is carried out in more than one territory. In addition, the cumulative total eligible expenditures relating to the project may not exceed $1 billion.

To qualify for the new tax holiday, a project must not be carried out in an excluded sector of activity and, in order to claim it, the corporation or partnership must not carry on activities in an excluded sector of activity, subject to certain applicable rules.

In addition, the project will have to satisfy a requirement to meet the $100 million investment threshold before the expiration of a 48‑month investment period, beginning on the date specified on the initial qualification certificate issued in respect of the project, as well as a requirement to maintain that threshold throughout the tax‑free period applicable to the investment project.

For further details, see Québec Budget 2023‑2024.

Québec film or television production refundable tax credit

The Act respecting the sectoral parameters of certain fiscal measures (hereinafter referred to as the “Sectoral Act”) will be amended to provide that, for a film whose primary market is the online broadcasting market, there must be, in the case of an eligible online video service by a provider other than a broadcaster, an undertaking by a holder of a general distributor’s licence to exploit the film in Québec and an undertaking by the provider or the aggregator to that holder to make the film accessible in Québec through the eligible online video service.

The Sectoral Act will be amended so that costs related to stock footage will be excluded from production cost requirements, both for a film that is not an interprovincial co‑production and for a film that is an interprovincial co‑production.

These changes will apply in respect of a film or television production for which an application for an advance ruling ⁠–⁠ or an application for a qualification certificate if no advance ruling was previously filed for that production ⁠–⁠ is filed with the SODEC after the day of the budget speech, March 21, 2023.

Book publishing tax credit

The refundable tax credit for book publishing will be amended to increase the 50 per cent limit on qualified labour expenditure attributable to preparation costs and digital version publishing costs to 65 per cent.

The refundable tax credit for book publishing will be increased from 27 per cent to 35 per cent with respect to qualified labour expenditure attributable to printing and reprinting costs.

These amendments will apply in respect of an eligible work or an eligible group of works for which an application for an advance ruling, or an application for a qualification certificate if no advance ruling has been filed in respect of that work or group of works, is filed with the Société de développement des entreprises culturelles (SODEC) after the day of the budget speech, March 21, 2023.

Production of multimedia events or environments presented outside Québec

To enhance the refundable tax credit, the tax legislation will be amended to broaden the base of labour expenditures for services rendered in Québec by an eligible employee or an eligible individual. Specifically, the definitions of “eligible employee” and “eligible individual” will be amended to remove the requirement that services be rendered in respect of these nine functions: lighting designer, designer, environment designer, graphic designer, content and project manager for audiovisual and sound, programmer, writer, scriptwriter and scenographer.

The tax legislation will be amended so that this percentage of 50 per cent used to calculate the limit on qualified labour expenditure in respect of a qualified production will be raised to 60 per cent.

These changes will apply in respect of a qualified production for which an application for an advance ruling, or an application for a qualification certificate if no advance ruling has been filed in respect of that production, is filed with the SODEC after the day of the budget speech, March 21, 2023.

PROVINCIAL SALES TAX MEASURES:

Duty on new tires

Effective after June 30, 2023, on any new tire which is acquired by retail sale or by long‑term lease in Québec, the duty on new tires for road vehicles will be increased as follows:

• $4.50 for new tires for road vehicles for which the diameter of the rim is less than or equal to 62.23 cm (24.5 inches) and the overall diameter is less than or equal to 83.82 cm (33 inches)
• $6.00 for new tires for road vehicles for which the diameter of the rim is less than or equal to 62.23 cm (24.5 inches) and the overall diameter is greater than 83.82 cm (33 inches) but does not exceed 123.19 cm (48.5 inches)

Tax exemption of First Nations

The budget provides funding, over five years, for the implementation of a computer system under a new program for managing the tax exemption of First Nations from taxes (hereinafter referred to as the “TEFNT program”). This program, which will be phased in as of July 1, 2023, will allow persons with Indian status to benefit from the tax exemption, to which they are entitled with respect to the tax on alcoholic beverages, directly at the time of purchase. The TEFNT program will facilitate, for retail‑level sales on reserves, the application of the tax exemption under section 87 of the Indian Act to both the retail acquisition of fuel and the retail acquisition of alcoholic beverages for home consumption.

OTHER TAX MEASURES:

QPP contributions for workers aged 65 or older

As of January 1, 2024, an option allowing workers aged 65 or over to stop paying QPP contributions will be introduced, provided they are also receiving a QPP or CPP retirement pension.

As of 2024, the obligation to contribute to the QPP will cease for workers over 72 years of age, for all workers subject to the contributions provided for by this Act.

Cryptoassets

Effective the date of assent of the bill giving rise to this measure, amendments will be made to the tax legislation and regulations to give the Minister of Revenue the power to ask taxpayers whether they own or have used virtual assets to carry out certain transactions during a taxation year or a fiscal year, as the case may be, and to request, where applicable, the details of these transactions.

Tax-advantaged funds

The three tax-advantage funds are:

• Fonds de solidarité des travailleurs du Québec
• Fonds de développement de la Confédération des syndicats nationaux pour la coopération et l’emploi
• Capital régional et coopératif Desjardins

In order to optimize the economic spin‑offs resulting from the interventions of these three tax‑advantaged funds, to limit the tax expenditure associated with them, to ensure a better match between the investment horizon of the labour‑sponsored funds and the minimum holding period of the shares entitling them to the non‑refundable tax credit and to enable a greater number of individuals to become shareholders of these funds, amendments will be made to the constituting act of the tax‑advantaged funds as well as to the tax legislation. These changes will:

• Simplify the investment requirement applicable to the three tax‑advantaged funds by reorganizing the investment categories provided for in each of the constituting acts
• Clarify the mission of the three tax‑advantaged funds by updating and enhancing the functions currently set out in each of the constituting acts to introduce the concept of savings
• Maximize the economic impact of labour‑sponsored funds’ investments by increasing the minimum holding period for shares in labour‑sponsored funds
• Refocus tax assistance on taxpayers with greater savings needs by introducing a rule limiting access to the non‑refundable tax credit for a labour‑sponsored fund

To ensure better governance of these requirements, the constituting acts of the three tax‑advantaged funds will be amended to allow for a reorganization of the current eligible investment categories into three new investment categories:

• Category 1: Québec businesses
• Category 2: Québec investment funds
• Category 3: other investments for the benefit of Québec

For further details of each category, see Québec Budget 2023‑2024.

An amendment will be made to the constituting acts of the tax‑advantaged funds to provide that the calculation of the minimum 65 per cent requirement (value of average net assets) will now consider an additional year for the purpose of establishing the average. As a result, the calculation of the requirement will take into account three years rather than two and will consider in this determination the eligible investments of a fund at the beginning of the previous fiscal year as well as the assets of a fund at the beginning of the second previous fiscal year. These changes will be the subject of a specific announcement in the coming months.

Finally, the Capital régional et coopératif Desjardins constituting act will be amended to increase from 35 per cent to 50 per cent the proportion of investments eligible for the fund’s investment requirement that must be made in eligible cooperatives or in entities situated in the resource regions of Québec, and to provide that the regions eligible for the calculation of this investment requirement specific to the fund will include all of Québec’s regions, with the exception of the municipalities of the Communauté métropolitaine de Montréal and the Communauté métropolitaine de Québec.

The constituting acts of the three tax-advantaged funds will be amended so that the new eligible investment categories and other terms and conditions can be incorporated into the respective legislation to take effect on June 1, 2024, in the case of the labour-sponsored funds, and January 1, 2024, in the case of the Capital régional et coopératif Desjardins.

Non‑refundable tax credit for a labour‑sponsored fund

Amendments will be made to the constituting act of each labour‑sponsored fund to provide that the current minimum holding period of two years be gradually extended to five years. Accordingly, the minimum holding period for shares of a labour‑sponsored fund will be increased to three years for shares acquired as of June 1, 2024, to four years for shares acquired as of June 1, 2025 and to five years for shares acquired as of June 1, 2026.

High‑income individuals will no longer be eligible for the non‑refundable tax credit. In particular, an individual will no longer be able to benefit from this tax credit, for a taxation year, as long as the individual’s taxable income is subject to the highest tax rate of the personal income tax table for the base year. For greater clarity, it will not be possible to carry forward the unallocated amount of the non‑refundable tax credit.

The base taxation year will mean the taxation year that ends on December 31 of the second calendar year preceding the taxation year for which an individual claims the non‑refundable tax credit for a labour‑sponsored fund.

This change will apply to a claim for the non‑refundable tax credit for a taxation year after the 2023 taxation year in respect of shares acquired after December 31, 2023.

Next steps

Contact your Baker Tilly advisor to learn more about how we can help you navigate the complexities of the Canadian tax system.

Meet the Author

Brenda L. Scott
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