Tax Highlights from the 2020 Quebec Budget

Finance Minister Eric Girard tabled the 2020 Quebec provincial budget on March 10, 2020. With the March 2020 budget plan, the government is planning to provide environmental leadership, continue to invest in education and increase labour market participation. The budgetary surplus amounted to $1.9 billion for the 2019-2020 fiscal year and the budget remained balanced. In 2019, Quebec’s economy grew by 2.8% and is expected to grow by 2% in 2020. Quebec, again this year, aims for a balanced budget with the objective of gross debt reduction.

The favourable budgetary situation allows the government to announce new initiatives to continue implementing its commitments. In Budget 2020-2021, the government is providing for additional investments of $947 million in 2019-2020, $1.7 billion in 2020-2021 and $2.6 billion in 2021-2022, to provide environmental leadership, increase the potential of the economy and create wealth, improve services and meet the needs of Quebecers. These investments are in addition to those announced in the November 2019 Update on Quebec's Economic and Financial Situation, that is, $857 million in 2019-2020, $876 million in 2020-2021 and $872 million in 2021-2022.

The following pages are a summary of the changes announced in the budget. Please note that these changes are still proposals until passed into law by the provincial government.

 

PERSONAL TAX MATTERS

 

Personal income tax rates and tax brackets

 

The 2020 budget leaves personal income tax rates unchanged from 2019. Tax brackets and other amounts have been indexed by 1.72% to recognize the impact of inflation. The table below shows Quebec tax rates and brackets for 2020.

 

Taxable income range	2020 tax rates
First $44,545	15.00%
$44,546 – $89,080	20.00%
$89,081 – $108,390	24.00%
$108,390 and over	25.75%

 

The table below shows the 2020 combined federal and provincial highest marginal tax rates for various types of income.

 

Type of income	2020 combined tax rates
Regular income	53.31%
Capital gains	26.65%
Eligible dividends	40.10%
Non-eligible dividends	47.14%

 

Introduction of refundable tax credit for caregivers

 

The government is announcing the introduction of a new refundable tax credit for caregivers to replace the existing refundable tax credit for informal caregivers of persons of full age. As of 2020, the tax assistance provided by the new tax credit will be streamlined, higher and available to a greater number of caregivers. The new refundable tax credit for caregivers will provide assistance up to $2,500 per year. Caregivers will receive $102.3 million more tax assistance in 2020-2021 through the new tax credit: $56.4 million for enhancement of the amounts granted to the 82,000 people who receive the current tax credit and $45.9 million for extension of eligibility for the tax credit to caregivers of a spouse under age 70 and caregivers of a person with whom they have no family relationship.

 

To enable persons eligible for the new refundable tax credit for caregivers to receive this tax assistance faster, it will be possible to receive the basic universal amount by advance payments on a monthly basis as of 2021.

 

Providing stronger support to families

 

The government wants to provide stronger support to Quebec families. For that purpose, it is investing $449.3 million over five years through Budget 2020-2021 to add 6,000 subsidized childcare spaces, support child development, protect vulnerable persons and counter bullying.

 

Simplifying payment of the solidarity tax credit to a surviving spouse

 

To reduce the administrative burden following a death and enable a surviving spouse to quickly receive the amounts to which he or she is entitled, the solidarity tax credit will henceforth be paid automatically to the surviving spouse as soon as Revenu Québec is informed of the other spouse's death. Automatic payment will apply in respect of deaths that occur on or after July 1, 2020.

 

CORPORATE TAX MATTERS

 

Corporate income tax rates

 

There were no changes proposed to corporate income tax rates. The table below shows Quebec tax rates and the small business limit for 2020.

 

Category	2020 tax rates
General rate	11.5%
Manufacturing and processing rate	11.5%
Investment income rate	11.5%
Small business rate	5.0%
Small business without 5,500 hours	11.5%
Small business limit	$500,000

 

The table below shows the 2020 combined federal and provincial corporate income tax rates for various types of income earned by a Canadian-controlled private corporation (CCPC).

 

Type of income	2020 combined tax rates
Small business income	14.0%
Small business without 5,500 hours	20.5%
Active income over $500,000	26.5%
Manufacturing and processing income	26.5%
Investment income	50.2%

 

Implementing the Investment and Innovation Tax Credit (C3i)

 

To boost the productivity of businesses in all sectors of activity, including the services sector, Budget 2020-2021, intends to introduce the Investment and Innovation Tax Credit (C3i), aimed at supporting the acquisition of new technologies enabling the digitization of production processes, promoting the modernization of manufacturing equipment in order to increase recourse to robotization and automation and supporting businesses’ investment efforts in all regions of Quebec.

The C3i will benefit businesses in all sectors of activity, particularly the manufacturing and services sectors, for their acquisitions made before January 1, 2025 relating to manufacturing and processing equipment, computer hardware and management software packages. The tax credit rate will be 10%, 15% or 20%, 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 small and medium size businesses (SMBs) and non-refundable for large businesses. Eligible expenses for property will be those exceeding $12,500 for the acquisition of manufacturing and processing equipment. The threshold will be set at $5,000 for computer hardware and management software packages.

 

Abolition of the tax credit for the integration of information technology in SMBs

 

Considering that the acquisition of management software packages will be eligible for the C3i, the government is announcing the abolition of the tax credit for the integration of information technology in SMBs. This tax credit covered business management package integration contracts for expenses incurred before January 1, 2021. Businesses that have a written prior agreement for such a contract will be able to continue benefiting from it.

 

Eligibility period for the tax holiday for large investment projects extended by four years

 

The tax holiday for large investment projects allows eligible businesses to receive a tax holiday on their income and on their contribution to the Health Services Fund (HSF). The tax holiday is equivalent to a maximum of 15% of their investments, spread over a maximum period of 15 years.

To qualify, an investment project must, among other things, consist of at least $100 million if it is carried out in a central region and at least $50 million if it is carried out in a designated region.

Businesses who want to benefit from the tax holiday for large investment projects currently have until December 31, 2020 to apply for an initial certification. In Budget 2020-2021, the government is announcing the extension of the eligibility period for the tax holiday for large investment projects until December 31, 2024.

 

Introduction of the Synergy Capital Tax Credit

 

To foster the development of innovative SMBs in Quebec, the government is planning, in Budget 2020-2021, to create the Synergy Capital Tax Credit. This tax credit aims to encourage established businesses to invest in the share capital of Quebec SMBs.

Businesses that invest in an eligible SMB will be able to claim a non-refundable tax credit equivalent to 30% of the value of their investment in eligible shares. Eligible investments will be limited to $750,000 per investor per year, for a maximum tax credit of $225,000.

 

Introducing the incentive deduction for the commercialization of innovations

 

Economically, Quebec is characterized by its ability to innovate in many cutting-edge fields, including life sciences and information technology. To further encourage the commercialization of Quebec innovations, the government is announcing, in Budget 2020-2021, the introduction of the incentive deduction for the commercialization of innovations (IDCI). The IDCI is based on the recommendations of the Organisation for Economic Co-operation and Development (OECD).

To be eligible for the IDCI, a business must have an establishment in Quebec, commercialize intellectual property (IP) there and must have incurred research and development expenses in Quebec.

Software protected by copyrights, patents, certificates of supplementary protection for drugs and plant breeders' rights will be eligible for this new deduction. Revenues from the commercialization of such IP, including revenues from the sale or rental of goods, services and royalties, will be eligible for the IDCI. These revenues will be taxed at an effective rate of 2.0%, a reduction of 9.5 percentage points compared to the general rate.

 

Introduction of a refundable tax credit for SMBs for persons with a severely limited capacity for employment

 

To further support SMBs and promote the hiring and retention of workers with a severely limited capacity for employment, a refundable tax credit for SMBs for these persons will be introduced. Briefly, this refundable tax credit will be granted to qualified corporations that employ individuals 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. A qualified corporation that is a member of a qualified partnership can also claim this refundable tax credit in respect of its share of the employer contributions paid by the partnership regarding an employee with a severely limited capacity for employment.

 

OTHER PROPOSALS

 

Supporting the development of green industrial sectors

 

Fighting climate change and adapting to its effects brings many challenges. However, this situation does offer business opportunities, particularly with respect to the development of structuring niches for the Quebec economy. To help businesses take advantage of these economic development opportunities, the government is providing $59.0 million over five years:

• $14 million to continue developing the green hydrogen sector, which will contribute to the funding of demonstration projects for hydrogen production and use,

• $27 million to support innovative product research, innovation and commercialization in the electric vehicle industry,

• $18 million to support the development of an industrial sector specializing in battery recycling, by funding demonstration projects of new processes in Quebec.

 

Ensuring tax fairness

 

To fund public services and promote healthy economic competition, the government needs to fully recover lost tax revenue. The Tax Fairness Action Plan represents the government’s strategy to fight tax evasion and tax avoidance, and to ensure the integrity of the tax system. In addition to continuing with the actions announced in the previous budget, the government is introducing initiatives to strengthen corporate transparency, step up actions to fight tax evasion and tax avoidance and combat fraud against the government more effectively.

 

Collection of the Quebec sales tax (QST) by suppliers outside Quebec

 

Since 2019, foreign and Canadian suppliers have been required to register for the QST in order to collect the tax on their taxable sales to Quebec consumers and remit it to Revenu Québec.

This requirement applies to services and incorporeal property for foreign and Canadian suppliers. The same requirement applies to Canadian suppliers for corporeal property as well. Regarding corporeal property from abroad, the Quebec government, in collaboration with the federal government, took part in a pilot project for the purpose of improving collection of the QST on these goods. Since the pilot project did not have the desired results, the Quebec government is reiterating its determination to see the QST collected on corporeal property from abroad. To that end, Quebec will work with the federal government to implement a harmonized solution in 2021.

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