2020-2021 Quebec budget – Tax highlights

Issue 2020-12

In brief

On March 10, 2020, the Minister of Finance, Mr. Eric Girard, delivered the 2020-2021 Budget of the Government of Québec. Below are the highlights of the most important tax measures included in the budget.

In detail

Measures concerning businesses

Introduction of the tax credit for investments and innovation

To further encourage productivity gains of businesses, the government is implementing the investment and innovation tax credit (C3i), which will encourage businesses from all sectors of activity to acquire manufacturing and processing equipment, computer hardware and management software packages:

• The credit will be calculated on the portion of the expenses incurred to acquire the property that is in excess of $5,000 or $12,500, depending on the property;
• The applicable tax credit rate will go from 10% to 20% and will be determined according to the location and the economic vitality index of the area where the investments are made;
• The C3i will be fully refundable for SMEs and non-refundable for large businesses, based on the qualified corporation's assets and gross income;
• 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, under certain conditions, elect to receive the tax credit for investments according to its current terms and conditions.

In view of the introduction of the new tax credit for investments and innovation, the refundable tax credit relating to IT integration will be eliminated.

The tax credit will apply in respect of specified expenses, for the acquisition of a specified property, incurred after the day of the budget speech but before January 1, 2025.

Introduction of an incentive deduction for the commercialization of innovations in Québec

To encourage the competitiveness of Québec businesses while fostering the retention and valorization of intellectual properties developed in Québec, a deduction is introduced for the calculation of the taxable income of a qualifying innovative corporation: the incentive deduction for the commercialization of innovations in Québec (hereafter, the ‘’IDCI’’).

• The IDCI will enable a corporation that commercializes a qualified intellectual property asset developed in Québec to benefit from an effective tax rate of 2% on the qualified portion of its taxable income attributed to that qualified intellectual property asset;
• The expression “qualified innovative corporation” will mean, for a taxation year, a corporation, other than an excluded corporation, that has an establishment in Québec, carries on a business in Québec and from which it derives income from the commercialization of a qualified intellectual property asset to which it holds the rights.
• The expression “qualified intellectual property asset” of a qualified innovative corporation, for a particular taxation year, will mean a legally protected incorporeal property that is:
  • An invention protected by a patent or a certificate of a supplementary protection;
  • An invention protected by a plant breeder’s rights; or
  • Software protected by copyright.

Also, to qualify as a qualified intellectual property asset, the property must result from scientific research and experimental development activities (R&D) carried out in whole or in part in Québec.

This new deduction will apply in respect of a taxation year commencing after December 31, 2020.   As a consequence, the deduction for innovative manufacturing corporations (DIC) has been eliminated.

Elimination of the expenditure exclusion threshold for certain income tax credits for scientific research and experimental development

• A person that carries on a business in Canada and carries out R&D in Québec, or causes such R&D to be carried out on the person’s behalf as part of a research contract, can benefit from various refundable tax credits.
• On December 2, 2014, in the Update on Québec’s Economic and Financial Situation – Fall 2014, the government announced an expenditure exclusion threshold. The threshold corresponds to an amount of $50,000 that increases linearly to $225,000 where the assets of the taxpayer vary between $50 million and $75 million.
• The tax legislation will be amended to eliminate the 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, or fees or dues paid to an eligible research consortium.

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

Introduction of the synergy capital tax credit

To support the growth of innovative businesses, the new synergy capital tax credit will be introduced. This tax credit will be granted to a corporation that subscribes to shares of the capital stock of a qualified corporation in the life science, manufacturing or processing, green technology, artificial intelligence or information technology sectors:

• The tax credit rate will be 30% on the amount paid by the corporation for the subscription of shares;
• The shares must be retained by the corporation for a minimum period of five years;
• The tax credit will be non-refundable and can attain up to $225,000 annually; and
• A corporation wishing to issue shares will have to obtain an authorized placement certificate from Investissement Québec and meet some requirements including a paid-up capital that is less than $15 million, a gross income that is less than $10 million and activities in Québec that represent more than 75% of all its activities.

Investissement Québec will be able to issue authorized placement certificates for an amount not exceeding $30 million annually and the authorized placement amount of a qualified corporation cannot exceed $1 million.

This credit will apply in respect of a share subscription carried out after December 31, 2020.

Introduction of a refundable tax credit for SMEs for persons 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.  The targeted contributions are the following:
  • Section 59 of the Act respecting parental insurance; 
  • Section 39.0.2 of the Act respecting labour standards;
  • Section 34 of the Act respecting the Régie de l’assurance maladie du Québec;
  • Section 52 of the Act respecting the Québec Pension Plan.

• ·A qualified corporation means a corporation that has an establishment in Québec and carries on a business in Québec, whose paid-up capital, for the year, is less than $15 million and, except where the corporation is a primary or manufacturing sector corporation for the year, whose total remunerated hours, for the year, exceeds 5,000;
• An excluded employee, at a particular time, will mean an employee who is, at that time, a specified shareholder.

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

Ensuring the effectiveness of tax assistance

Two tax assistance measures are being refocused to ensure their effectiveness and take into account changes in certain sectors of activity, including:

• removing website design and development from the activities eligible for the tax credit for the development of e-business; and
• changing the notion of interactivity for the purposes of the refundable tax credits for multimedia titles.

Other changes

• The refundable tax credit for Québec film or television production has been modified in regard to the definition of a film adapted from a foreign format, requirement for application of the higher rate for a French-language film and excluded amounts of assistance;
• The refundable tax credits for sound recordings and production of performances have been increased; and
• Changes have been made to the compensation tax for financial institutions.

Measures concerning individuals

Introduction of a refundable tax credit for caregiver

The new tax credit for caregiver will replace the tax credit for informal caregivers. The amount of assistance has been raised, and the criteria will be simplified to increase the number of caregivers who will be able to benefit from it.

The tax credit comprises the following two components:

• The first component can be up to $2,500 for a caregiver providing care to an adult who has a severe and prolonged impairment; and
• The second component is for a caregiver who supports and co-resides with a relative aged 70 or older and offers a refundable tax credit of $1,250.

As of January 1, 2021, two existing tax credits for informal caregivers will be eliminated: the tax credit for respite of caregivers and the tax credit for volunteer respite services.

This new credit will apply for the 2020 tax year.

Measures that require legislative or regulatory amendments

• Standardizing fees for childcare services at school
  • The fees for childcare services at school will be standardized and capped in all schools as of the 2020-2021 school year.

• Prolongation of the excluded period for the Québec Pension Plan (QPP) for parents of severely disabled children
  • The period excluded from the base contributory period of the QPP will be raised from 7 to 18 years for the parent who receives the supplement for handicapped child requiring exceptional care. As a result of this change, a parent who has to stop working in order to take care of his or her child will not see a reduction in the pension received for the 18 years taken into consideration and will remain eligible for all QPP benefits.

Other tax measures

Initiatives to ensure tax fairness

Budget 2020-2021 announced new measures to foster tax fairness and protect the integrity of the tax system:

• Strengthening corporate transparency by requiring the declaration of information on beneficial owners to the REQ and allowing searches to be conducted in the enterprise register using the name of a natural person.
• Stepping up actions to fight tax evasion and tax avoidance, particularly in at-risk sectors like construction and cryptocurrency.

Continuing the Roulez vert program until March 31, 2021

For a new year, the government is continuing the Roulez vert program, allowing a rebate of up to $8,000 on the purchase of an electric, plug-in hybrid and hydrogen-powered vehicles.  The program’s generosity is somewhat altered, since the rebate will be available only for new vehicles whose manufacturer’s suggested retail price is less than $60,000.