2020 QC Provincial Budget tax changes

On March 10, 2020, the Québec government released its  2020-2021 budget, announcing proposed changes to the provincial tax laws.

Income taxes

Personal tax measures

No personal income tax rate changes were announced in this year’s budget. The current personal income tax rates for 2020 are outlined below.

Introduction of a refundable tax credit for caregivers

The four existing components of the tax credit for informal caregivers of persons of full age will be replaced by the “tax credit for caregivers.” This new refundable tax credit will apply for the 2020 tax year and will be comprised of the following two components:

• Component one: universal basic tax assistance of $1,250 (in the case of co-residency) and additional assistance of $1,250 (no co-residency requirement) for a caregiver providing care to a person aged 18 or older, who has a severe and prolonged impairment and needs assistance in carrying out a basic activity of daily living.
• Component two: universal tax assistance of $1,250 for a caregiver who supports and co-resides with a relative aged 70 or older.

As of January 1, 2021, two existing tax credits for informal caregivers will be eliminated:

• the tax credit for respite of caregivers
• the tax credit for volunteer respite services

Simplification of payment of the refundable tax credit for solidarity to the surviving spouse

The budget eliminates the requirement for a surviving spouse qualifying as the cohabiting spouse of the applicant for the tax credit at the end of the base year, relating to a particular payment period to normally apply to Revenu Québec to continue receiving amounts of the solidarity tax credit to which the couple is entitled for the payment period relating to that base year. This change is intended to facilitate the administration of the solidarity tax credit and allow surviving spouses to continue receiving the government assistance provided by this tax credit as soon as possible following the death of their spouse.

The new simplification measure for the surviving spouse will apply in all files where the death of the spouse claiming the solidarity tax credit occurs on or after July 1, 2020.

Corporate tax measures

No corporate income tax rate changes were announced in this year’s budget. The current corporate income tax rates for 2020 are outlined below:

Introduction of the tax credit for investments and innovation

To further encourage productivity gains of businesses in various sectors of activity and in all regions of Québec, while specifically promoting investments in low economic regions, a new “investments and innovation tax credit” will be introduced. This tax credit will be granted to a qualified corporation that acquires one of the following after March 10, 2020 and before January 1, 2025:

• manufacturing or processing equipment
• computer equipment
• certain management software packages

This credit will be calculated on the portion of the expenses incurred to acquire the property in excess of $5,000 for computer hardware (class 50) and management software packages (class 12) or $12,500 for manufacturing and processing equipment (class 43 or 53).

The applicable tax credit rate, in respect of a particular property, may reach up to 20 per cent and will be determined based on the economic vitality index of the region.

All or a portion of the tax credit will be refundable. Any non-refundable portion of the tax credit may be carried over to another taxation year. The eligible expenses may not, however, exceed a cumulative limit of $100 million.

The tax credit for investments and innovation will replace the tax credit for investments. A corporation may nevertheless, on certain conditions, elect to receive the tax credit for investments according to its current terms and conditions.

With the introduction of this new tax credit, the refundable tax credit relating to IT integration will be eliminated. Any application submitted for a certificate in respect of an IT integration contract will not be accepted after March 10, 2020, except under special circumstances.

Extension of the eligibility period for tax holiday for large investment projects

Currently, to claim the tax holiday, a corporation or partnership must file the application for an initial or amended qualification certificate before the investment project (or second investment project when applying for an amendment) begins to be carried out and before December 31, 2020.

To enable more investment projects to qualify for the tax holiday for large investment projects, the time limit for submitting an application for an initial qualification certificate or for amending the initial qualification certificate will be extended by four years. As a result, the December 31, 2020 date will now become December 31, 2024.

Introduction of an incentive deduction for the commercialization of innovations

To encourage the competitiveness of Québec businesses while fostering the retention and valorization of intellectual properties developed in Québec, a new tax measure will be introduced.

This measure will take the form of a deduction in calculating the taxable income of a qualifying innovative corporation for a taxation year. The incentive deduction for the commercialization of innovations (IDCI) in Québec will apply as of 2021. This deduction will enable a corporation that commercializes a qualified intellectual property asset developed in Québec to benefit from an effective tax rate of 2 per cent on the qualified portion of its taxable income attributable to that qualified intellectual property asset. Currently, the corporate income tax basic rate is 11.5 per cent in Québec.

Moreover, as of January 1, 2021, the IDCI will replace the deduction for innovative corporations (DIC), which has been in force since January 1, 2017.  Businesses currently eligible for the DIC will be eligible for the IDCI.

Elimination of the exclusion threshold for R&D tax credits

In 2014, the government amended the tax legislation to reduce the level of tax assistance concerning R&D expenditures. One of these amendments was the introduction of an expenditure exclusion threshold.

In the 2020 budget, the government wishes to stimulate innovation fostering the productivity and competitiveness of Québec businesses. The tax legislation will be amended to eliminate this exclusion threshold for qualified expenditures relating to:

• a university research contract
• an eligible research contract entered into with an eligible public research centre
• a pre-competitive research project carried out in private partnership
• fees or dues paid to an eligible research consortium

For greater clarity, the elimination of the expenditure exclusion threshold will not apply to the “R&D salary” refundable tax credit. However, for the purposes of calculating that tax credit, the rule providing for the splitting of the exclusion threshold among the various R&D tax credits will continue to apply as if the definition of reducible expenditures still applied to the other refundable R&D tax credits. 

These changes will apply to expenditures incurred by a taxpayer or partnership for a taxation year that begins after March 10, 2020, relating to R&D carried out after that day.

Introduction of the synergy capital tax credit

To support the growth of innovative businesses that need to have access to capital and business networks, in order to develop their full potential, a new tax credit will be introduced. The synergy capital tax credit will be granted to a corporation that subscribes for shares of the capital stock of a qualified corporation in the life sciences, manufacturing or processing, green technologies, artificial intelligence or information technologies sectors. The following businesses do not qualify:

• a financial institution
• a real estate sector corporation
• a corporation whose activities consist mainly of granting loans or making investments

The non-refundable tax credit will be calculated at a rate of 30 per cent on the amount paid by the corporation for subscription of shares. For a corporation, this can be up to $225,000 annually. In addition, the subscribed shares must be retained by the corporation for a minimum period of five years.

Introduction of a refundable tax credit for SMEs for persons with a severely limited capacity for employment

To further support Small Medium Enterprises (SMEs) and promote the hiring and retention of workers with a severely limited capacity for employment, a refundable tax credit for SMEs for persons with a severely limited capacity for employment will be introduced.

This refundable tax credit will be granted to qualified corporations that employ individuals with a severely limited capacity for employment. The refundable tax credit will be equal to the amount of the employer contributions paid by the corporation in respect of such an employee.

A qualified corporation that is a member of a qualified partnership can also claim this refundable tax credit in respect of its share of the employer contributions paid by the partnership regarding an employee with a severely limited capacity for employment.

These changes will apply in respect of a taxation year ending after December 31, 2019.

Changes to the refundable tax credit for Québec film or television production

1. Change to the definition of a film adapted from a foreign format

In order to ensure that the tax assistance provided by means of the tax credit will continue to prioritize original Québec productions, the Act respecting the sectoral parameters of certain fiscal measures (the “sectoral act”) will be amended so that the conditions defining a film adapted from a foreign format in the case of a film whose primary market is the television market also apply to a film whose primary market is the online broadcasting market.

More specifically, a film whose primary market is the television market or the online broadcasting market will be a film adapted from a foreign format if a licence for adaptation in Québec was issued for the film and the film grew out of an audiovisual concept especially designed and arranged for television or online broadcasting and created outside Québec.

For greater clarity, the licence must continue to specify the format elements of the program or of the episodes that will form a series, such as the title, idea, structure and subjects, the description of the plot and characters, the target audience and the duration of each episode.

This change will apply to a film or television production for which an application for an advance ruling, or an application for a qualification certificate if no application for an advance ruling was previously filed for the production, is filed with SODEC after March 10, 2020.

2. Change to the requirements for application of the higher rate for a French-language film

The refundable tax credit for Québec film or television production includes several base rates. In particular, the 40 per cent and 36 per cent base rates apply to the labour expenditure related to the production of certain films provided they are in French.

When the March 2018 Québec Economic Plan was tabled, the tax credit was changed so that a film whose primary market is online broadcasting is also eligible. To further encourage French-language film productions, the sectoral act will be amended so that, like films whose primary market is television broadcasting, certain French-language films whose primary market is online broadcasting will benefit from the higher base rate for French-language film productions. 

These amendments will apply to a film or television production for which an application for an advance ruling, or an application for a qualification certificate – if no application for an advance ruling was previously filed for the production – is filed with to SODEC after March 10, 2020.

Increase in the refundable tax credit for sound recordings

The refundable tax credit for sound recordings is calculated on the labour expenditures attributable to services provided in Québec for the production of qualified sound recordings, qualified digital audiovisual recordings and qualified clips (“qualified property”). In general, the qualified property eligible for this tax credit is property having a high Québec content.

The tax credit is equal to 35 per cent of the amount of qualified labour expenditures, which are capped by a limit corresponding to 50 per cent of the production costs of the sound recording, digital audiovisual recording or clip.

To further encourage the growth of this rapidly changing industry, the tax legislation will be amended to raise the limit on labour expenditures eligible for the refundable tax credit for sound recordings to 65 per cent of the production costs of a qualified property.  

This amendment will apply in respect of a qualified property for which an application for an advance ruling or an application for a qualification certificate – if no application for an advance ruling was previously filed – is filed with the Société de développement des entreprises culturelles after March 10, 2020.

Increase in the refundable tax credit for the production of performances

The refundable tax credit for the production of performances is calculated on the labour expenditures attributable to services provided for the production of qualified performances.

This tax credit is intended for musical, live theatre, comedy, mime, magic, circus, aquatic and ice shows. In general, the qualified performances eligible for this tax credit are performances that have a high Québec content. The refundable tax credit for the production of performances is equal to 35 per cent of the amount of qualified labour expenditures, which are capped by a limit corresponding to 50 per cent of the production costs of the performance.

To further support the creation of performances and better reflect the reality of the industry, the tax legislation will be amended to raise the limit of the qualified labour expenditures for the refundable tax credit for the production of performances to 65 per cent of the production costs of the performance. For greater clarity, the maximum amounts of the tax credit in respect of a qualified performance, whether it is a musical comedy, a comedy show or any other show, remain unchanged.

This change will apply in respect of a performance whose first eligibility period ends after March 10, 2020 and for which an application for an advance ruling – or an application for a qualification certificate if no application for an advance ruling was previously filed for that period – is filed with the Société de développement des entreprises culturelles after that day.

Change in activities eligible for the tax credits for the development of e-business

Website design and development have been removed from the list of activities eligible for the tax credit. More specifically, the activity involving the design or development of e-commerce solutions allowing a monetary transaction unless that activity is incidental to an eligible activity relating to the development or integration of information systems or of technology infrastructures.

This change will apply to a taxation year of a corporation beginning after March 10, 2020.

Changes to the compensation tax for financial institutions

The tax legislation will be amended so that the compensation tax rates of 4.14 per cent for the period from April 1, 2020 to March 31, 2022 and 2.80 per cent for the period from April 1, 2022 to March 31, 2024, as well as the maximum amount subject to tax of $1.1 billion only applies to:

• a bank
• a loan corporation
• a trust corporation
• a corporation trading in securities

As a result of this amendment, the following are now excluded from this compensation tax rate category:

• independent loan corporation
• independent trust corporation
• independent corporation trading in securities

These latter corporations will be subject to the compensation tax for financial institutions, as of April 1, 2020, at the following rates: 1.32 per cent for the period from April 1, 2020 to March 31, 2022: 0.90 per cent for the period from April 1, 2022 to March 31, 2024. As of April 1, 2020, the maximum amount subject to tax that will be applicable to these corporations will be $275 million.

Extension of the income-averaging mechanism and the carry-over period for certified forest producers

The income-averaging mechanism is extended from January 1, 2021 for an additional five years to January 1, 2026. The carry-over period is also extended from seven years to ten years.

Sales of timber made by a certified forest producer in respect of a private forest – completed after March 17, 2016 and before the day of the budget speech – will continue to benefit from the seven-year averaging period.

Other measures

The government is presently ensuring the continued financing (until March 31, 2021) of rebates of up to $8,000 on the purchase of an electric vehicle and $4,000 on the purchase of an all-electric used vehicle.

To support Québecers’ energy transition, the government is extending the Roulez vert program until March 31, 2026.

The parameters of the rebates for the acquisition of an electric vehicle that will apply after March 31, 2021 will be specified at a later date. These rebates will provide financial support in line with market developments.

To continue its efforts to strengthen corporate transparency, the government will:

• require businesses to declare information on beneficial owners to the Registraire des entreprises du Québec (REQ)
• make it possible to do searches in the enterprise register using the name of a natural person
• prohibit the issue of subscription warrants or stock options in bearer form