On March 17, 2016, Quebec’s Finance Minister Carlos J. Leitão presented the new Quebec budget, a highly anticipated document at the dawn of the new fiscal year. Here we present the highlights related to key tax credits, grants, and other measures affecting businesses.
Temporary Refundable Tax Credit for Major Digital Transformation Projects
Any digital contract signed between March 17th, 2016 and January 1st, 2019, leading to the creation of more than 500 jobs in Quebec could enable a company to receive a tax credit equivalent to 24% of eligible employees’ salaries, up to a maximum of $20K per employee. These new jobs should last at least seven years.
Deduction for Innovative Manufacturing Companies
“Innovative manufacturing companies” are companies with at least 50% of activities in the production and transformation sectors in Quebec, and at least one patent resulting from R&D work done in Quebec. After December 31st, 2016, they are eligible for a deduction equivalent to 50% of the net income from sales or rentals at a Quebec location of merchandise incorporating a patented item, or a certain percentage of the total value of such merchandise, whichever is the least. In 2017, this percentage will be 66.1% and will grow towards 65.2% in 2020. An eligible innovative manufacturing company should have a consolidated paid-capital of $15M or more. It should also have at least $500K in R&D expenses in the 5 years leading up to the year of the patent application, and receive a refundable R&D tax credit applicable for those expenses.
CHANGES TO CURRENT MEASURES
Bonus on the Tax Credit for the Integration of IT in SMEs
Until after March 17th, 2016, only SMEs operating in the primary and manufacturing sectors were benefiting from a refundable tax credit on expenses relating to the integration of a management software. This tax credit is now also available to companies in the wholesale and retail sectors. Moreover, companies from an eligible sector with a consolidated paid-capital of less than $50M – instead of $20M – are now eligible. The tax credit rate of 20% will now linearly decrease towards zero between $35M and $50M of paid-capital, instead of between $15M and $20M. These changes will affect approximately 1,500 companies.
Bonus on the Tax Credit for Resources in Respect of Mining Exploration Expenses in the Near North or Far North
Companies with eligible mining exploration expenses can receive a refundable tax credit at a rate that varies with the region they are exploring in Northern Quebec. After March 17, 2016, this rate will increase from 31.00% to 38.75% for projects completed in the Near North, and from 15.00% to 18.75% for projects completed in the Far North.
New Excluded Amounts of Assistance in the Application of Certain Tax Credits in the Cultural Sector
Any financial aid, public or not, should be deducted from eligible expenses in the calculation of a tax credit. However, in the cultural sector, excluded amounts of assistance are the exception to this rule. Two new excluded amounts of assistance are now applicable: the Soutien à la production cinématographique et télévisuelle from the City of Quebec (applicable as of January 1st, 2015), and financial aid from Montréal’s 375th anniversary celebrations (applicable as of January 1st, 2012).
CLARIFICATIONS ON CURRENT MEASURES
Simplification of the Tax Credit for Quebec Film or Television Production
The tax credit for Quebec Film or Television Production generally applies on the labor costs of an eligible project from an eligible company. The eligibility of certain film categories relies on the audience’s age. This causes problems as it is sometimes difficult to distinguish certain age categories – especially at a younger age, and because viewing habits and definitions of film categories change over time. From now on, “children of less than 13 years old” are now referenced as “minors” in the tax credit and subsidy without financial aid eligibility criteria. Moreover, any eligibility criteria relating to a programming schedule, including distinctions between the Montreal area and the area outside of Montreal, are removed. Those same changes were also made with regards of the eligibility criteria of the tax credit for film dubbing and film production services.