2025-2026 Québec budget: Tax highlights

Issue 2025-16

In brief

On March 25, 2025, Minister of Finance, Éric Girard, tabled the Québec government's 2025‑2026 budget. This Tax Insight discusses the budget’s main tax initiatives.

In detail

Business tax measures

Introduction of a new tax assistance scheme for scientific research and experimental development activities

Businesses in Canada that carry out R&D activities in Québec can currently benefit from four refundable tax credits: the tax credit for salaries (R&D), the tax credit for university research or research carried out by a public research centre or a research consortium, the tax credit for private partnership pre-competitive research and the tax credit for an eligible research consortium. The rate of these refundable tax credits is 14%, but it can be up to 30% in the case of a qualifying corporation. Innovative businesses can also claim two other refundable tax credits: the tax credit for technological adaptation services and the tax credit for design.

To simplify and enhance existing tax measures, improve the competitiveness and productivity of Québec businesses, and provide a simpler, more effective tax assistance system, the following changes will be made:

• Consolidate the tax measures that are currently available into a new refundable tax credit;
• Provide a higher basic rate and more accessible increased rate;
• Make certain capital expenditures eligible for the tax credit;
• Give greater consideration to pre-commercialization expenses in the tax credit base;
• Introduce a modified exclusion threshold;
• Abolish less effective measures.

The budget introduces the R&D, innovation and pre-commercialization tax credit (hereinafter referred to as the "CRIC") for eligible corporations that incur "expenditures relating to R&D activities" or "expenditures relating to pre‑commercialization activities" in respect of a taxation year, or a fiscal year that begins after the day of the budget speech. The main CRIC parameters are as follows: 

Expenditures relating to R&D activities will include salaries and wages, considerations paid to subcontractors, payments made to certain research organizations as well as capital expenditures relating to the acquisition of property incurred in respect of R&D activities. Expenditures relating to pre-commercialization activities will include similar expenditures with respect to pre‑commercialization activities.

The tax legislation will be amended as a result of the implementation of the CRIC to make adjustments for the application of the incentive deduction for the commercialization of innovations in Québec ("IDCI") and the securities option deduction. In addition, the tax credit for salaries (R&D), the tax credit for university research or research carried out by a public research centre or a research consortium, the tax credit for pre-competitive research in private partnership and the tax credit for an eligible research consortium, the tax credit for technological adaptation services and the design tax credit - industrial design component, will be abolished.

Changes to the tax credit for the development of e-business

The tax assistance for the development of e-business consists of a refundable tax credit of 23% and a non‑refundable tax credit of 7% (hereinafter the “TCEB”). These tax credits target specialized information technology corporations that operate in the e-business sector. Briefly, the TCEB is calculated on eligible salaries incurred and paid to eligible employees.

With the aim of encouraging higher value-added information technology (IT) activities and focusing tax assistance on artificial intelligence (AI), the government plans, as part of the 2025-2026 budget, to replace the TCEB with the tax credit for the development of e‑business integrating AI (TCEB^AI). The TCEB^AI , which will replace the TCEB, will apply to corporate taxation years beginning after December 31, 2025.

The following changes will be made to modernize the activities eligible for the TCEB:

• Refocus TCEB‑eligible activities on e-business that incorporates AI functionalities;
• Relax the criteria relating to activities and the criterion relating to services provided by adding data processing and hosting activities, to promote the eligibility of AI businesses;
• Remove activities relating to maintenance or evolution.
• Tax assistance will be reduced by half when the corporation performs inter-company outsourcing to the extent of at least 50% of its gross revenue for services provided for use exclusively outside Québec by an ultimate beneficiary with whom the corporation does not deal at arm’s length.
  

Applicable TCEB^AI rates
(per cent)

Changes to the refundable tax credit relating to mining or other resources

A qualified corporation that incurs exploration expenses in Québec related to mining resources, expenses related to renewable energy and energy conservation in Québec, and expenses related to other natural resources in Québec may benefit from a refundable tax credit at a rate of up to 38.75%.

To better support exploration corporations at the development stage and encourage corporations to develop more projects related to critical and strategic minerals, the tax legislation will be amended as follows:

• add development expenses to the expenses eligible for the tax credit;
• revise the tax credit rates applicable to the eligible expenses relating to mining resources (22.5% in respect of such expenses incurred by a specified qualified corporation and 10% in respect of such expenses incurred by another qualified corporation);
• enhance the rates applicable to projects related to critical and strategic minerals until December 31, 2029 (45% in respect of such expenses incurred by a specified qualified corporation and 20% in respect of such expenses incurred by another qualified corporation);
• introduce a limit on eligible expenses of $100 million per five‑year period.

Introduction of a cut-off date for additional deductions for public transit and shared transportation and correlative adjustment for employees

Québec tax legislation provides two additional deductions for public transit and shared transportation. On the one hand, the additional deduction relating to public transit passes provides for a deduction for certain deductible amounts otherwise reimbursed to an employee for the purchase of an eligible transit pass. On the other hand, the additional deduction relating to the organization of an intermunicipal shared transportation service provides for a deduction of certain deductible amounts in respect of the setting up or operation of an intermunicipal shared transportation service. Given that very little use has been made of these measures, a cut-off date of December 31, 2027 will be introduced.

As a corollary to the introduction of a cut-off date for the two additional deductions, the tax legislation will be amended so that an individual must include the value of the benefit received from his or her employer after December 31, 2027.

Strengthening tax compliance with respect to foreign property held by Québecers 

Québec tax legislation will be amended to introduce a new reporting requirement for Québec taxpayers in respect of foreign property held outside Canada.

The designated foreign property that will be subject to the new reporting requirement will be essentially the same as the foreign property subject to the federal tax legislation.

This new Québec form will be similar to the federal form T1135. The requirements for filing a form equivalent to Form T1134 and for reporting information on foreign affiliates are not part of this announcement. No effective date has yet been announced.

Rules governing the extension of the Accelerated Investment Incentive and the immediate expensing measures 

Québec's tax legislation will be amended to incorporate the extension of the Accelerated Investment Incentive and immediate expensing measures announced in the Government of Canada's Fall 2024 Economic Statement.

Tax measures concerning individuals

Change in the age requirement for eligibility for the refundable tax credit for child care expenses

In general, child care expenses may give rise to a refundable credit based on the amount of child care expenses paid, which may be subject to an annual limit, the amount of which varies according to the eligible child's age and condition. To refocus tax assistance on families with younger children, the age included in the definition of "eligible child" for the purposes of the tax credit for child care expenses will be reduced from 16 to 14 as of the 2026 taxation year.

Exclusion of certain practitioners from medical expense tax credits and the application of the goods and services to support a disabled person deduction

The government wants to provide a better framework for the medical expenses paid to a health practitioners that give rise to tax assistance. As a result, starting in 2026, only medical expenses for health services provided by practitioners with a professional order in Québec will be eligible for medical expense tax credits. Québec tax legislation will be amended so that the term "practitioner" in the Taxation Act no longer includes homeopaths, naturopaths, osteopaths and phytotherapists.

Abolition of various tax measures

Québec tax legislation will be amended to abolish the tax shield and the non-refundable tax credit for political contributions as of the 2026 taxation year. In addition, no certificates will be issued after the date of the budget speech for tax holidays for foreign researchers, foreign experts, foreign specialists assigned to the operations of an international financial centre, foreign specialists working in the financial services sector, and seamen engaged in international transportation of freight. However, individuals who already hold a certificate will be able to benefit from the tax holidays under the current rules. The tax credit for patronage gifts has also been abolished. Finally, the deduction relating to the acquisition of an income averaging annuity respecting income from artistic activities will be abolished for new income averaging annuities respecting income from artistic activities acquired after the 2025 taxation year.

Other tax measures

Consequential adjustments of the tax benefits relating to the flow-through share regime

Briefly, the flow-through share regime allows a taxpayer (whether an individual or a corporation) who acquires a flow-through share to benefit from a base deduction equal to 100% of its acquisition cost. The flow-through share regime also allows individuals to benefit from an additional deduction of 10% in respect of certain exploration expenses incurred in Québec, and an additional 10% deduction for certain issue expenses. 

The tax legislation will therefore be amended to abolish the following two additional deductions:

• Mineral exploration expenses incurred in Québec by a corporation that does not exploit any mineral resources: 10%.
• Surface mining exploration expenses incurred in Québec by a corporation that does not exploit any mineral resources: 10%.

These abolitions will be effective for flow-through shares issued after the day of the budget speech. However, they will not apply in respect of shares issued after the day of the speech but before January 1, 2026 when issued following an application for a receipt for a preliminary prospectus made on or before the day of the budget speech.

Consequential abolition of the additional capital gains exemption in respect of certain resource properties

The Québec system provides for an additional capital gains exemption in respect of certain resource properties. To harmonize the treatment of the acquisition and disposition of flow-through shares with federal legislation, the budget provides for the elimination of the additional capital gains exemption on certain resource properties for disposition of flow-through shares after the day of the budget speech. 

Harmonization of the tax on insurance premiums with that of the Québec sales tax

The tax rate on insurance premiums will be set at the same rate as the Québec sales tax. The 9.975% tax on insurance premiums will apply to insurance premiums paid after December 31, 2026.