2021-2022 Quebec budget – Tax highlights

Issue 2021-06

In brief

On March 25, 2021, the Minister of Finance, Éric Girard, presented the 2021-2022 Québec government’s budget. Here are the highlights of the budget’s main tax measures.

In detail

Business tax measures

Increase in the small business deduction rate

To further ease the tax burden on SMBs, the current 7.5% SBD rate will be raised so that the maximum rate for the period that begins on the day following the day of the budget speech is 8.3%.

The following table shows the tax rates applicable to corporations that qualify for the full SBD.

Addition of an option for the number of remunerated hours

In order to limit the negative impact of a temporary suspension of a corporation or partnership activities that occurred after June 2020 on the calculation of the SBD, an option will be introduced concerning the number of remunerated hours.

Accordingly, for a given taxation year that ended after June 30, 2020, but before July 1, 2021, a corporation may apply to the Minister of Revenue for the number of remunerated hours that were used to determine whether it was eligible for the SBD or to establish its SBD rate, for its taxation year immediately preceding the given year, to be used to determine whether it qualifies for the SBD or to establish its SBD rate for the given year.

Temporary increase in the tax credit relating to investment and innovation

Briefly, the tax credit relating to investment and innovation is granted to a qualified corporation that acquires, after March 10, 2020 and before January 1, 2025, manufacturing or processing equipment, general-purpose electronic data processing equipment or certain management software packages.

In order to encourage businesses to carry out their investment projects and to stimulate Québec’s economic recovery, legislation will be amended to temporarily double the tax credit relating to investment and innovation.    

The table below shows the rates of the tax credit relating to investment and innovation.

This temporary increase will apply to specified expenses incurred after the day of the budget speech but before January 1, 2023.

Changes to the tax holiday for large investment projects

Changes will be made in order to, among other things:

• extend the 60-month start-up period for certain investment projects for 12 months in cases where an application for an initial qualification certificate or an application for amendment of an initial qualification certificate was submitted to the Minister of Finance before March 25, 2021;
• allow a corporation, under certain conditions, to choose the date of the beginning of the tax-free period for its investment project;
• add to projects that would qualify as a large investment project, investment projects involving any activity sector where the investment project is to modernize a business of the corporation through digital transformation.

Temporary enhancement of the refundable tax credit for on-the-job training periods

The enhanced rates applicable to eligible trainees enrolled in an education program or a prescribed program will be increased by 25%. The applicable rates are as follows:

Refundable tax credit rate for on-the-job training periods
(percent)

These amendments will apply to qualified expenditures incurred after the day of the budget speech and before May 1, 2022.

Elimination of the requirement to obtain an advance ruling for R&D tax credits

The tax legislation will be amended to eliminate the requirement to obtain a favourable advance ruling from the Minister of Revenue to benefit from the R&D salary tax credit for partnerships and the R&D university tax credit for corporations and partnerships.

This requirement will be replaced by changes to the information collected by Revenu Québec to verify the conditions for applying these tax credits and continue to ensure the integrity of these measures.

Addition of restrictions to certain tax incentives

The changes in digital technology necessitates a review of the current restrictions in terms of the objectives of the tax incentives. Amendments will be made to introduce specific restrictions to ensure that those objectives are achieved. These amendments are intended to ensure that these credits do not, in any way, encourage violence, sexism, racism or any other form of discrimination or comprise explicit sex scenes or graphic representations of such scenes. These amendments are aimed at but not limited to:

• the tax holiday for large investment projects;
• R&D tax credits;
• the tax credit for the development of e-business;
• the tax credit relating to investment and innovation;
• the tax credits for multimedia titles;
• the synergy capital tax credit.

Tax measures concerning individuals

Enhancement to the refundable tax credit for home-support services for seniors

To help individuals aged 70 or over to stay in their living environment for as long as possible, the refundable tax credit for home-support services for seniors (CHS) provides financial assistance corresponding to 35% of the amount of eligible expenses. Starting in 2022, the 35% CHS rate will be raised annually by one percentage point, reaching 40% in 2026.

For non-dependent seniors, the CHS will be reduced based on two family income thresholds:

• A reduction of 3% for each dollar of family income exceeding $60,135 in 2021, indexed annually, reaching $65,420 in 2026.
• A reduction of 7% for each dollar of family income exceeding $100,000 as of the 2022 taxation year, indexed annually, reaching $106,980 in 2026.

A new mechanism is introduced for dependent seniors who were not required to reduce the amount of the CHS based on their family income. The amount of the CHS will be reducible at a rate of 3% for each dollar of family income exceeding the threshold of $60,135 as of 2022. This threshold will be indexed annually, reaching $65,420 in 2026.

Also, as of 2022, the government is providing for an increase in the expenses eligible for the CHS for seniors living in a rental apartment building (other than a private seniors’ residence, a public network facility of the public health and social services network or a private institution not under agreement that operates a residential and long-term care centre).

The 5% rate applicable to the monthly rent will now apply to a monthly rent of $1,200 (instead of $600). In addition, a presumption will be introduced in the tax legislation to provide that the minimum amount for any rent will be $600 per month, therefore establishing a “minimum eligible monthly rent.”

The CHS will be automatically paid to dependent seniors.

However, seniors living in a rental apartment building who wish to receive tax assistance for eligible expenses included in their rent based on the actual amount of their rent, subject to a maximum of $1,200, will have to apply for it.

Change in the rate of the dividend tax credit for non-eligible dividends

In light of the increase in the small business deduction (SBD) and to ensure a better integration of the Québec corporate tax system with the personal tax system, the rate of the dividend tax credit for non-eligible dividends will be reduced to 3.42% (currently 4.01%) of the grossed-up dividend amount of a dividend received or deemed received after December 31, 2021.

Other tax measures

Further extension of the tax credit on the employer contribution to the Health Services Fund in respect of employees on paid leave

The credit on the employer contribution to the Health Services Fund (HSF) will also be extended until June 5, 2021. An employer will therefore be able to benefit from the HSF credit in respect of employees on paid leave for the same qualifying periods as those for which it can obtain the Canada Emergency Wage Subsidy (CEWS). The credit continues to complement the reimbursement of employer contributions under the CEWS.

Measures concerning trusts

In order to harmonize with the federal tax system, Québec tax legislation and regulations will be amended to incorporate the changes made to the federal tax legislation and regulations relating to trusts that were released on July 27, 2018.

Changes will be made to Québec’s tax regulations regarding the expression “excluded trust.” Thus, a testamentary trust will no longer be an excluded trust, with the exception of a succession subject to a graduated tax rate.

The tax legislation will also be amended to add a trust’s tax identification number and the trust account number as mandatory identification information.

Autonomous application of the penalty for promoters of aggressive tax planning

The penalty applicable to a promoter of a transaction or series of transactions that includes the transaction reviewed under GAAR will apply autonomously, regardless of whether there is a penalty applied beforehand on the taxpayer who is subject to the GAAR-based assessment. However, the penalty will only be applied to a promoter once the Minister of Revenue has established a GAAR-based assessment against a taxpayer.

Clarifications to the December 21, 2020 announcement regarding the Québec sales tax for electronic commerce

In keeping with the general principle of harmonizing the QST system and the GST/HST system, changes will be made to the Québec tax legislation in order to incorporate into it, the federal proposals for the application of the GST/HST to the following goods and services obtained through electronic commerce:

• cross-border digital products;
• cross-border services;
• goods supplied through fulfillment warehouses; and
• the sale of corporeal movable property located in fulfillment warehouses in Canada but outside Québec or shipped from a place in Canada but outside Québec to a specified Québec consumer in Québec.

In addition, distribution platform operators and non-resident suppliers registered under the general GST/HST system will be required to register with Revenu Québec, and collect and remit the applicable QST.

Lastly, the Québec tax legislation will be amended to integrate all the federal proposals regarding application of the GST/HST to platform-based short-term accommodation.