Tax Insights: Update on Québec’s Economic and Financial Situation

Issue 2023-32

In brief

On November 7, 2023, Minister of Finance Eric Girard presented the Update on Québec’s Economic and Financial Situation (economic statement). The economic statement does not change corporate or personal tax rates, but does:

• extend and enhance certain parameters of the tax credit relating to investment and innovation
• abolish the additional 30% capital cost allowance
• adjust the exemptions allowed for the purpose of calculating the premium payable under the Public Prescription Drug Insurance Plan

This Tax Insights discusses these tax incentives as set out in the economic statement.

In detail

Amendments to the tax credit relating to investment and innovation

On March 10, 2020, the tax credit relating to investment and innovation was introduced to encourage productivity gains of businesses in all regions of Québec, while further promoting investments in regions where the economic vitality index is lower.

Briefly, the tax credit relating to investment and innovation is currently 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 qualified management software packages. It is calculated on the portion of the specified expenses incurred to acquire a specified property that exceeds $5,000 or $12,500, depending on the nature of the property.

The rate of the tax credit available to a qualified corporation in respect of a specified property is established based on the territory where the property is acquired to be used mainly. Those rates are subject to a temporary increase until December 31, 2023, to a maximum of 40%.

Therefore, to support Québec businesses in their objective to increase productivity and further encourage wealth creation in Québec, tax legislation will be amended to extend and enhance the tax credit relating to investment and innovation.

More specifically, these amendments will:

• extend the tax credit for an additional five-year period
• enhance the rates applicable as of January 1, 2024
• make the tax credit fully refundable for all qualified corporations
• shorten the period over which the $100 million cumulative limit is calculated
• ease certain conditions for claiming the tax credit

Amendments relating to the extension of the tax credit

The tax legislation will be amended so that an additional five-year period will be allowed for a qualified corporation to benefit from the tax credit relating to investment and innovation. The definitions of “specified property” and “specified expenses” will be amended so that these amounts may qualify if the property is acquired or the expenses are incurred before January 1, 2030. This credit will therefore be extended until December 31, 2029.

Amendments relating to the enhancement of certain parameters of the tax credit

The tax legislation will be amended to enhance the rates of the tax credit relating to investment and innovation applicable as of January 1, 2024, so that the rate of the tax credit will be:

• 25% for specified property acquired to be used mainly in a territory with low economic vitality
• 20% for specified property acquired to be used mainly in a territory with intermediate economic vitality
• 15% for a specified property acquired to be used mainly in a territory with high economic vitality

This enhancement will apply to specified expenses incurred:

• after December 31, 2023, or
• after March 25, 2021 and before January 1, 2024, for the acquisition of a specified property after December 31, 2023

Amendments to broaden the application of the refundability of the tax credit

For a qualified corporation to be able to benefit fully from the refundability of the tax credit relating to investment and innovation for a particular taxation year, its assets and its gross income, applicable for the taxation year, must not exceed $50 million.

To allow a qualified corporation to benefit from this tax credit, for a taxation year, regardless of its total taxes for that taxation year, amendments will be made to remove the requirement relating to assets as well as that relating to gross income.

This amendment will apply to specified expenses incurred in a taxation year that begins after December 31, 2023.

Amendment to the calculation of the balance of the cumulative specified expense limit

An amendment will be made to the calculation of the balance of the cumulative specified expense limit of a qualified corporation for the purposes of the tax credit relating to investment and innovation, so that the cumulative limit of $100 million currently calculated for a five-year period will now be calculated for a four-year period.

This amendment will apply to a taxation year that begins after December 31, 2023.

Amendments to ease certain conditions for claiming the tax credit

When specified expenses are incurred in a particular taxation year and paid after the end of the particular year, but no later than the last day of the 18-month period following the end of the particular year, the tax credit relating to these expenses must be claimed in respect of the particular year, that is, the year in which they were incurred.

In order to ease the conditions for claiming the tax credit relating to investment and innovation, the definition of “specified expenses” will be amended to provide that a qualified corporation may also claim this tax credit in respect of the taxation year in which the specified expenses are paid when they are paid after the end of the taxation year in which they were incurred, but no later than the end of the 18-month period following the end of such taxation year.

This amendment will apply in respect of expenses incurred by a corporation in a taxation year of the corporation that ends after the date of publication of this information bulletin, i.e. November 7, 2023.

Amendments will be made to the tax legislation to grant a corporation an extension of the deadline for submitting to the Minister of Revenue the prescribed form containing the prescribed information for claiming the tax credit relating to investment and innovation, in cases where such a claim has been submitted by the corporation but has been denied by the Minister on the grounds that the tax credit was not claimed for the taxation year in which the expenses were incurred.

To benefit from such an extension, a corporation must submit the prescribed application form to the Minister of Revenue no later than the latest of the following dates:

• the 183rd day following that of the mailing of the notice of assessment or notice of reassessment refusing in whole or in part the application for the tax credit
• June 30, 2024

Abolition of the additional capital cost allowance of 30%

On December 3, 2018, an additional capital cost allowance of 30% was introduced. As a result of the amendments to the tax credit relating to investment and innovation in the economic statement, which essentially targets the same types of investment as the additional capital cost allowance of 30%, this additional deduction will be abolished.

Accordingly, tax legislation will be amended to provide for the abolition of the additional capital cost allowance of 30% for property acquired as of January 1, 2024.

Adjustment of the exemptions allowed for the purpose of calculating the premium payable under the Public Prescription Drug Insurance Plan (PPDIP)

The basic prescription drug insurance plan established by the Quebec government guarantees all Quebecers fair access to the medications required by their state of health.

Adults who are not covered throughout a year by a group insurance contract, an individual insurance contract concluded on the basis of one or more of the distinctive characteristics of group insurance or by an employee benefit plan applicable to a determined group of persons must generally pay a premium for that year to finance the PPDIP when filing their personal income tax return.

Accordingly, to maintain the principles underlying the determination of the amount of the premium payable under the PPDIP, the government will adjust, for 2023, the amount of each of the exemptions currently allowed in the premium calculation.