2018-2019 Quebec budget — Tax highlights

In brief

The honourable Carlos Leitão, Quebec Minister of Finance, delivered today, March 27, 2018, the 2018-2019 Budget of the Government of Quebec. Below are the highlights of the principal tax measures included in the budget.

In detail

Measures concerning businesses 

Gradual reduction of the Health Services Fund contribution rate for all small and medium-sized businesses (SMBs)

• As of 2019, the $5-million threshold applicable to a specified employer’s total payroll for the purpose of determining whether the employer is eligible for the rate reduction available to SMBs will be gradually raised over four years, reaching $7 million in 2022. This threshold will then be automatically adjusted each year beginning in 2023. 
• As of March 28, 2018, a new plan to reduce the Health Services Fund contribution rates for SMBs in the primary and manufacturing sectors, as well as the service and construction sectors will be implemented.
• For SMBs, the applicable rate for calculating the Health Services Fund contribution of eligible specified employers having a total payroll of $1 million or less will decrease gradually from 1.5% to 1.25% over a five-year period for SMBs in the primary and manufacturing sectors and from 2.3% to 1.65% for SMBs in the service and construction sectors.
• Eligible specified employers whose total payroll for a year is in excess of $1 million will also see a gradual reduction in their contribution rate from 1.65% to 4.26% when the payroll reaches $7 million for SMBs in the primary and manufacturing sectors, and from 1.65% to 4.26% when the payroll reaches $7 million for SMBs in the services and construction sectors. 

Standardization of the tax rates for SMBs

• For SMBs in sectors other than primary and manufacturing, the small business deduction (SBD) rate will be gradually raised so that the tax rates applicable to the portion of a corporation’s income qualifying for the SBD reaches 4% in 2021. Consequently, the rate of the additional deduction for SMBs in the primary and manufacturing sectors will be gradually reduced and the additional deduction will be entirely eliminated in 2021.  
• The SBD rate of 3.7% will be raised so that the maximum rate available to a corporation is the following:

- For the period that begins on the day following the day of the budget speech and ends on December 31, 2018: 4.7%;

- For the period that begins on January 1, 2019 and ends on December 31, 2019: 5.6%; 

- For the period that begins on January 1, 2020 and ends on December 31, 2020: 6.5%; and

- As of January 1, 2021: 7.5%

Replacement of the additional capital cost allowance of 35% by an additional capital cost allowance of 60%

• The additional capital cost allowance of 35% on manufacturing or processing equipment and general-purpose electronic data processing equipment introduced in 2017 will be replaced by an additional capital cost allowance of 60%. The property in question must be new and acquired after March 27, 2018 but before April 1, 2020. 

Broadening the sectors of activity eligible for the tax holiday for large investment projects

• Following the budget speech of 2013-2014:

- a corporation that carries out a large investment project in Quebec may, under certain conditions, claim an income tax holiday from its eligible activities relating to the project and a holiday from employer contributions to the Health Services Fund (HSF) regarding the portion of wages paid to its employees that is attributable to the time they devote to such activities. 

• As of March 28, 2018:

- An investment project regarding the development of an eligible platform may, under certain conditions, be recognized for the application of the tax holiday for large investment projects.

An annual certificate must be obtained confirming the project has been recognized for the year.

Enhancement of the refundable tax credit for on-the-job training periods

• An eligible employer may benefit from a raise in tax credits from 24% to 32% and from 32% to 50% in respect of a trainee enrolled in an education program or a prescribed program offered to Aboriginal peoples as well as prescribed programs offered in the resource regions. 
• Weekly limits will be raised to $875 per week for eligible trainees enrolled in a prescribed program, $1,225 if the eligible trainee is a disabled person who is enrolled in a prescribed program, and $700 per week in the case of any other eligible trainee.
• An increase in maximum hourly rates to $21 for eligible trainees and to $35 for eligible supervisors. 
• These amendments are applicable after March 27, 2018.

Introduction of a refundable tax credit to encourage qualifying training for workers employed in SMBs

• This refundable tax credit will enable a qualified corporation established in Quebec that carries on an SMB whose payroll is less than $7 million to receive tax assistance of up to $5,460 a year for each eligible employee who participates in eligible training.

Introduction of a refundable tax credit to support the digital transformation of print media companies 

• This refundable tax credit will provide companies with tax assistance of up to $7 million annually in respect of expenditures they incur after the day of the budget speech and before January 1, 2023 for the purpose of the digital transformation of their print media activities. 
• An eligibility certificate issued by Investissement Québec must be obtained confirming that, for the year, the company produced and broadcasted print or digital information containing original written content.

Change to the refundable tax credit for film dubbing

• The limit corresponding to 45% of the consideration paid to corporations for the performance of the dubbing contract for film dubbing will be eliminated effective March 28, 2018.

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

• The sectoral act amendments will apply to a film or television production and the minimum standard of comprising at least 30 minutes of programming can be broadened to include 20 minutes of audiovisual content. These modifications apply to any request presented to SODEC after March 27, 2018.

Change to the refundable film production services credit

• The Act, respecting the sectoral parameters of certain fiscal measures will be amended so that a virtual reality documentary may comprise less than 30 minutes of programming or, in the case of a series, less than 30 minutes of programming per episode.

Change to the refundable tax credit for the production of multimedia events or environments presented outside Quebec 

• The tax legislation will be amended to remove the $350,000 limit applicable to the refundable tax credit that may be claimed in respect of a qualified production. 
• This amendment applies to qualified productions for which an application for an advance ruling, or an application for a certificate if no application for an advance ruling was previously filed for the production, is submitted to SODEC after March 27, 2018.

Extension of and changes to the refundable tax credit for the production of ethanol, for the production of cellulosic ethanol and for the production of biodiesel fuel in Quebec

• The tax legislation will be amended so that the eligibility period of the refundable tax credits will end on March 31, 2023. The rate at which the refundable tax credits will be calculated will be modified as of April 1, 2018 and will be calculated at a fixed rate of $0.03 per litre of production of ethanol, a fixed rate of $0.16 per litre of production of cellulosic ethanol and a fixed rate of $0.14 per litre for the production of biodiesel fuel. 
• The monthly ceiling of production, for a qualifying corporation, will be increased as of April 1, 2018 so that, for any particular month beginning after March 31, 2018, it is equal to the product obtained by multiplying 821 917 litres by the number of days in that particular month. 

Introduction of a temporary refundable tax credit for pyrolysis oil production in Quebec 

• A refundable tax credit for the production of pyrolysis oil in Quebec will be introduced. This refundable tax credit, at a rate of $0.08 per litre, will be granted to a qualified corporation in respect of eligible pyrolysis oil it produces in Quebec from residual forest biomass, which is sold in and intended for Quebec, of up to 100 million litres per year. A qualified corporation will be able to claim this tax credit for a period of five years beginning on April 1, 2018. 

Measures concerning individuals

Introduction of a first-time home buyers’ tax credit 

• An individual who has or will have purchased a qualifying housing unit at any time after December 31, 2017 will be able to benefit from a non-refundable tax credit equivalent to a maximum value of $750. The housing unit must meet the following criteria in order to qualify as an admissible first-home:

- The individual or the individual’s spouse, or a specified disabled person, who intends to inhabit the home as a principal place of residence no later than one year after the purchase;

- The individual and/or the individual’s spouse did not own, whether alone or jointly, a home that was occupied by the individual in the period that began at the beginning of the fourth preceding calendar year that ended before the acquisition of the home and that ended on the day before the acquisition of the home.

Extension to March 31, 2019 of the eligibility period for the RénoVert tax credit

• The period during which a renovation agreement may be entered into with a qualified contractor for the purposes of the RénoVert tax credit will be extended until March 31, 2019. As such, the qualifying expenditures will need to be paid before January 1, 2020. 
• The qualifying expenditures will remain the same as before the extension. 

Greater access to the tax shield

• As of the 2018 taxation year, the maximum increase in eligible work income relative to the previous year will increase from $3,000 to $4,000 for each member of a household.

Enhancement of the tax credit for experienced workers 

• As of the 2018 taxation year:

- The age of eligibility for the tax credit for experienced workers will now be 61 years. The maximum amount of eligible work income on which the tax credit will be calculated is $3,000. 

- The maximum amount of eligible work income on which the tax credit will be calculated for experienced workers in other age groups will be increased by $1,000.

Changes to the refundable tax credit for informal caregivers of persons of full age

• As of the 2018 taxation year, a fourth component will be added to the refundable tax credits for informal caregivers in order to recognize the involvement of a family member of a person with a severe impairment, even though the family member does not co-reside with the person. 
• The new component of the tax credit will consist of $533 for each eligible relative and this amount will be reduced at a rate of 16% for each dollar of the eligible relative’s income that exceeds a threshold of $23,700. An individual may claim the credit if they encounter the minimum period of care¹. 
• To be considered an individual’s eligible relative, a person must meet the following conditions: 

- The person has a severe and prolonged impairment as attested by a certification from a physician;

- The person does not live in a dwelling situated in a private seniors’ residence or in a public network facility; and

- The person is a member of the family  of the person claiming the tax credit.

• Nurse practitioners were added to the list of medical practitioners authorized to issue certifications for the purposes of the refundable tax credit for informal caregivers of persons of full age. 

Enhancement of the refundable tax credit for volunteer respite provided to informal caregivers 

• The annual envelope at a person’s disposal, for recognition purposes, in relation to each care recipient of whom the person is an informal caregiver for the year will be raised from $1,000 to $1,500. 
• The maximum amount of the envelope that may be attributed by an informal caregiver, in relation to a care recipient, to an eligible individual for a taxation year will be adjusted based on the number of hours of volunteer respite services provided to the informal caregiver ($250 for a minimum of 200 hours, $500 for a minimum of 300 hours and $750 for a minimum of 400 hours).

Enhancement of the refundable tax credit for the acquisition or rental of property intended to help seniors live independently longer

• The threshold at which the tax credit may be claimed in respect of the expenses paid for qualified property, will be reduced from $500 to $250. 
• The list of properties eligible for the tax credit will be extended to include other select properties.

Broadening of the tax credit for persons living alone, in order to encourage intergenerational cohabitation

• For a taxation year post-2017, in the case where an eligible student lives with their grandparents or great-grandparents, the grandparent or great-grandparent is eligible for the tax credit.

Enhancement of the refundable tax credit for childcare expenses

• The annual ceiling applicable to childcare expenses paid in respect of a child with severe and prolonged impairment in mental or physical functions and the limit applicable to childcare expenses paid in respect of a child who is under seven years of age at the end of a year increased from $11,000 to $13,000 and from $9,000 to $9,500, respectively. 
• The annual ceiling will be automatically adjusted each year as of the 2019 taxation year. 

Extension of the tax credit for a first major cultural gift

• This tax credit will be extended for a period of five years. The first major cultural donation will have to be made before January 1st, 2023.

Correlative amendments respecting the implementation of the Aim for Employment Program

• As of April 1, 2018 the Youth Alternative Program will end and the Aim for Employment Program will be implemented. Benefits received under this new program will be taxable.

Changes to the rates of the dividend tax credit

Other tax measures

Measures relating to the Quebec sales tax and e-commerce

• The Quebec government announced the implementation of a new registration system whereby:

- As of January 1, 2019, suppliers without a physical or significant presence in Quebec will be required to register with Revenu Québec and collect and remit the QST with respect to the taxable supply of incorporeal moveable property and services they provide in Quebec; and

- As of September 1, 2019, suppliers without a physical or significant presence in Quebec and who are located in Canada will be required to register with Revenu Québec and collect and remit the QST on taxable supplies of corporeal movable property that they provide in Quebec.

• For this mandatory registration measure to apply to a supplier, the value of the considerations for all taxable supplies made by the supplier in Quebec to customers must exceed a threshold of $30,000. 

Changes to various parameters of Capital régional et coopérative Desjardins 

• The Act constituting Capital régional et coopératif Desjardins will be amended to create a new class of shares that will temporarily provide a non-refundable tax credit.
• The right to acquire shares of this new class will be reserved for current shareholders who have held shares of Capital régional et coopératif Desjardins for at least seven years, and the method of payment for these new shares will be through the exchange of shares held for at least seven years.
• An individual who acquires, after February 28, 2018 shares or fractional shares of the new class of capital stock of Capital régional et coopératif Desjardins in a conversion period beginning in a taxation year may deduct, in the calculation of the individual’s tax otherwise payable for that year, an amount equal to 10% of the value of the shares or fractional shares converted, up to $15,000 for a maximum non-refundable tax credit of up to $1,500.
• The rate of the non-refundable tax credit in respect of the acquisition of shares of the existing class of capital stock of Capital regional et cooperatif Desjardins will be reduced from 40% t0 35% in respect of all shares acquired after February 28, 2018.

Temporary maintenance of the increased rate of the tax credit in respect of the acquisition of shares in Fondaction

• The rate of the tax credit will be maintained at 20% for eligible shares acquired before June 1, 2021.

Adjustments to the compensation tax for financial institutions 

As of April 1, 2018:

• The compensation tax rates applicable to amounts paid as wages will be adjusted downwards.
• The tax legislation will be amended to introduce a maximum amount of amounts paid as wages subject to the compensation tax for the year.

- In the case of a bank, a loan corporation, a trust corporation or a corporation trading in securities: $1.1 billion;

- In the case of a savings and credit union: $550 million; and

- In the case of any other person: $275 million.

Introduction of an environmental studies allowance in the Mining Tax Act

• An operator may deduct, in the calculation of its annual profit for a fiscal year, an amount on account of the environmental studies allowance that may not exceed the balance of its cumulative environmental studies expenses account at the end of the fiscal year³.

Temporary increase in the refundable tax credit for holders of a taxi driver’s permit 

• For the 2017 and 2018 taxation years, the tax credit will be subject to an increase of up to $500 per year, from a maximum of $569 to $1,069 in 2017 and from $574 to $1,074 in 2018.

Harmonization with certain measures of federal legislation

• Quebec tax legislation and regulations will be amended to incorporate the federal legislative proposals relating to the income splitting of the News Release 2017-124 of the Department of Finance Canada as well as the measures on international taxation included in the February 27, 2018 federal budget by adapting them according to their general principles. 

^{[1]. During the period of at least 365 consecutive days commencing in the taxation year or the preceding year, of which at least 183 days are in the taxation year, the individual provided the person with regular and constant care.}

^{[2]. The person is either a child, grandson, granddaughter, nephew, niece, brother, sister, father, mother, uncle, aunt, grandfather, grandmother, great-uncle or great-aunt of the individual or of the individual’s spouse, or another direct ascendant of the individual or of the individual’s spouse.}

^{[3]. The balance of the cumulative environmental studies expenses account of an operator at the end of a fiscal year will correspond to the amount by which the aggregate of the amounts each of which represents 50% of environmental studies expenses incurred by the operator in the fiscal year or a preceding fiscal year, but after the day of the budget speech.}