On March 28, 2017, the Quebec Minister of Finance, Mr. Carlos J. Leitão, tabled the government’s fourth budget, which contains several tax measures for businesses.
This bulletin summarizes the key measures included in the Budget. It should be noted that such measures must be passed by the National Assembly and receive royal assent before having force of law.
Measures for businesses
Extension of the compensation tax for financial institutions
The compensation tax for financial institutions is slated to end on March 31, 2019. Budget 2017-2018 proposes extending it for five years, until March 21, 2024.
Adjustment to the refocusing of the small business deduction
In Quebec, SMEs in the primary and manufacturing sectors benefit from a lower tax rate on the first $500,000 of annual income earned if they meet certain criteria.
Budget 2017-2018 proposes replacing the qualification criterion concerning the minimum number of hours worked with a criterion concerning the minimum number of hours paid.
In addition, the tax legislation will be amended so that a person who is, directly or indirectly, a majority shareholder of the corporation is deemed to have received compensation from that corporation for purposes of the "hours paid" criterion. These changes will come into effect for taxation years beginning after December 31, 2016.
Additional deduction for transportation costs of remote manufacturing SMEs
In Budget 2014-2015, an additional deduction in the calculation of net income was introduced to reflect the higher transportation costs incurred by remote manufacturing SMEs.
Budget 2017-2018 proposes increasing the deduction rate for manufacturing SMEs carrying on their activities in the "special remote area" from 7% to 10%. This amendment will apply to taxation years beginning after March 28, 2017.
Introduction of an additional deduction for transportation costs for SMEs located in the special remote area
To recognize the higher transportation costs incurred by SMEs located in the special remote area, Budget 2017-2018 proposes an additional deduction equal to 10% of an eligible corporation’s gross income1 for taxation years beginning after March 28, 2017.
Changes to refundable tax credits
Quebec film or television production
To stimulate Quebec film and television production, Budget 2017-2018 proposes raising the tax credit increases to 10% for productions incorporating special effects and computer animation, to 10% or 20%2 for regional productions, and to 16% for productions not receiving financial assistance from a public body. For productions receiving public financial assistance, the increase will be reduced linearly, rather than being proscribed.
These changes will apply in respect of any eligible production for which an application for an advance ruling or an application for a certificate is submitted to the SODEC after March 28, 2017.
Film production services
To facilitate eligibility for the tax credit and foster the emergence of virtual reality and augmented reality productions, Budget 2017-2018 proposes eliminating the small-budget production category, which was previously ineligible for the tax incentive, and lowering the minimum production-cost threshold to $250,000.
These changes will apply to eligible productions for which an application for an approval certificate is submitted to the SODEC after March 28, 2017.
Production of multimedia events or environments staged outside Quebec
Currently, for a multimedia environment to qualify as an eligible production, it must, among other things, be produced under a contract that a qualified corporation enters into with a person that does not have an establishment in Quebec and with whom it deals at arm’s length. To further support the international growth of Quebec companies, Budget 2017-2018 proposes eliminating the "no establishment in Quebec" condition for the co-contractor.
This change will apply to any eligible production the first public performance of which takes place after March 28, 2017 and for which an application for an advance ruling or an application for a certificate is submitted to the SODEC after that date.
Corporations specialized in the production of multimedia titles
In general, when a Quebec subcontractor produces a segment of a multimedia title, the part it produces is considered an eligible multimedia title for purposes of the refundable tax credit for corporations specialized in the production of multimedia titles if the title (i) is produced by a corporation that does not have an establishment in Quebec and (ii) is itself qualified as an eligible multimedia title. Budget 2017-2018 proposes eliminating the "no establishment in Quebec" condition for purposes of applying the "75% of the titles intended for commercialization" criterion and the parameters used to determine the applicable tax credit rate. As a result, Quebec subcontractors that produce a part of an eligible multimedia title for a Quebec qualified corporation will be able to more easily access the highest tax credit available (30%) instead of the reduced tax credit (25.25%).
This amendment will apply to applications for a specialized corporation certificate submitted to Investissement Québec after March 28, 2017.
New financial services corporations
Budget 2017-2018 proposes extending the time limit for submitting an application for a corporation qualification certificate to the Minister of Finance from December 31, 2017 to December 31, 2022 and adding two new eligible expenses to the 32% tax credit, namely (i) fees incurred in relation to the constitution of a prospectus required by a recognized regulatory or self-regulatory organization of a financial market, and (ii) fees paid to a compliance consultant to ensure compliance with the requirements of a recognized regulatory or self-regulatory organization of a financial market.
These changes will apply in respect of expenses incurred for a taxation year included, in whole or in part, in the five-year period of validity indicated on the corporation qualification certificate and after March 28, 2017.
Production of ethanol and biodiesel fuel in Quebec
Budget 2017-2018 proposes eliminating the maximum 10-year period during which the tax credit may be claimed, while keeping the expiry date of the eligibility period for the credit at March 31, 2018. This amendment will apply to taxation years ending after March 28, 2017.
Budget 2017-2018 also proposes expanding the tax credit to corporations producing biodiesel fuel in Quebec, subject to terms and conditions similar to those applicable for ethanol production (adapted as required). This amendment will apply to biodiesel fuel produced by an eligible corporation after March 31, 2017 and will also expire on March 31, 2018.
Tax holiday for large investment projects
Budget 2017-2018 proposes extending the time limit for applying for an initial qualification certificate until December 31, 2020 and introducing a new election enabling an additional phase to be added to a large investment project for which an initial certificate has already been issued.
This amendment will apply to large investment projects for which an application for an initial certificate is filed after March 28, 2017.
Capital Cost Allowance
Budget 2017-2018 proposes introducing an additional capital cost allowance for the acquisition of manufacturing and processing equipment and computer equipment. The additional CCA will be equal to 35% of the CCA claimed in respect of qualified property. Taxpayers who claim the additional CCA and do not use the qualified property in the course of carrying on their business during a period of 730 consecutive days will be subject to a special tax.
These changes will apply after March 28, 2017 in respect of property acquired after that date and before April 1, 2019.
Measures for individuals
Elimination of the health contribution
Budget 2017-2018 proposes eliminating the health contribution retroactively to 2016 for all taxpayers with an income equal to or less than $134,095 and for all taxpayers as of 2017.
1. Eligible corporations are Canadian-controlled private corporations with a consolidated paid-up capital of less than $15 million. The deduction is linearly reduced when the paid-up capital exceeds $10 million, becoming zero at $15 million. The corporation must show that more than 50% of its cost of labour and cost of capital are attributable to the carrying on of its business in the special remote area.
2. Depending on the type of production involved.