Finance Minister, Éric Girard presented the 2021-2022 Quebec budget on March 25, 2021. Below are the tax highlights of the budget.
SMBs may be eligible for the small business deduction (SBD), which reduces the corporate income tax rate on the first $500 000 of taxable income.
Since January 1, 2017, companies in the service and construction sectors must have provided at least 5 500 paid hours to fully benefit from the SBD. To ensure that a corporation does not lose all of its SBD because of a minor discrepancy with the required threshold, a corporation's SBD rate for a taxation year is reduced linearly, where the total number of remunerated hours is between 5 500 and 5 000, and reaches zero when the total does not exceed 5 000 hours.
To further ease the tax burden on SMBs, the current SBD rate will be raised so that the maximum rate available to a corporation for the period that begins on the day following the day of the budget speech is 8.3%, which lowers the tax rate applicable to the first $500 000 from 4% to 3.2%, as illustrated in the table below:
If a taxation year of a corporation straddles periods to which different SBD rates apply, the SBD rate that will apply to the corporation for that taxation year will correspond to an average rate calculated taking into account the number of days in the taxation year included in each period and the SBD rate applicable to each of these periods.
As part of the measures put in place to mitigate the effects of the COVID-19 pandemic, some corporations were forced to temporarily cease operating, which may have reduced the number of remunerated hours and, as a result, decreased the SBD rate that they would otherwise have been able to benefit from. Some corporations may even lose all of their SBD as a result.
For a given fiscal period that ends after June 30, 2020 and before July 1, 2021, a corporation may apply to the Minister of Revenue for the number of remunerated hours that were used to determine whether it was eligible for the SBD or to establish its SBD rate, for its taxation year immediately preceding the given year, to be used to determine whether it qualifies for the SBD or to establish its SBD rate for the given year.
A corporation may apply to the Minister of Revenue when filing its tax return, or if the tax return has already been sent, submit its request separately.
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 low.
In order to encourage the realization of investment projects and to stimulate Québec's economic recovery, the tax credit relating to investment and innovation will be temporarily increased.
The tax legislation will therefore be amended to temporarily double the rates of the tax credit relating to investment and innovation so that the tax credit rate is equal to:
The result of this proposition is as follows:
This increase will apply if:
However, the increase will not apply to:
Briefly, a corporation that carries out a large investment project in Québec may, under certain conditions, benefit from a tax holiday in respect of the income from its eligible activities relating to the project and a holiday from employer contribution to the Health Services Fund (HSF) regarding the portion of wages paid to its employees that is attributable to the time they devote to such activities.
In order to help Québec businesses complete their projects and increase their productivity and production capacity, the government has provided the following in Budget 2021-2022:
The tax legislation will be amended so that:
These amendments will apply to qualified expenditures incurred after the day of the budget speech and before May 1, 2022 in respect of a qualified training period beginning after the day of the budget speech.
Currently, a taxpayer can benefit from a R&D university tax credit only if a favourable advance ruling has been given by the Minister of Revenue regarding the research contract.
Furthermore, an individual who is a member of a partnership may only benefit from his portion of the R&D salary tax credit or the R&D university tax credit if a favourable advance ruling by the Minister of Revenue has been given confirming that the objectives of these tax credits and formalities for obtaining financing have been met.
In order to reduce the administrative procedures for R&D tax credits, the tax legislation will be amended to eliminate the requirement to obtain a favourable advance ruling from the Minister of Revenue to benefit from these tax credits.
This requirement will be replaced by changes to the information collected by Revenu Québec to verify the conditions for applying these tax credits and continue to ensure the integrity of the measures.
The changes will apply as of the day following the day of the budget speech.
Where an application for an advance ruling has already been sent, but no ruling has yet been given, the Minister of Revenue will give the applicant the opportunity to withdraw the application.
Several tax incentives, particularly in the cultural sector, include specific restrictions, such as those on content intended for an adult audience that contains explicit sex scenes. Other tax measures also include restrictions on content that promotes, among other things, discrimination, racism or violence.
For most incentives provided by the Québec tax system, these restrictions are sufficient. However, the changes in digital technology necessitated a review of the current restrictions in terms of the objectives of this tax assistance and brought to light the need to introduce specific restrictions to ensure that those objectives are achieved.
Accordingly, amendments will be made to the tax legislation and the Act respecting the sectoral parameters of certain fiscal measures (hereinafter, “the Sectoral Act”) so as to add the restrictions needed for various tax incentives, taking into account the context of each of the measures and whether or not there is a department or sectoral body attesting beforehand to the compliance with certain conditions.
The tax incentives that are subject to these modifies restrictions are the following:
On April 30, 2020, the Ministère des Finances du Québec announced the introduction of the credit on the employer contribution to the HSF in respect of employees on paid leave, which complements the Canada Emergency Wage Subsidy (CEWS). Thus, an employer with an establishment in Québec that can, for a qualifying period, benefit from the CEWS may also, in respect of this qualifying period, benefit from the credit on the employer contribution to the HSF. The contribution credit that such an employer may claim is the amount of the HSF contribution it pays in respect of the wages for a specified employee, for a week included the qualifying period while the employee is on paid leave. The credit on the employer contribution to the HSF is granted for the same qualifying periods as the CEWS, with the first period beginning on March 15, 2020 and the last period ending on March 13, 2021.
As the federal government announced an extension of the CEWS until June 5, 2021, the credit on the employer contribution to the HSF will also be extended until June 5, 2021. Therefore, an employer may benefit from the credit on the employer contribution to the HSF in respect of employees on paid leave for the same qualifying periods as those for which it can obtain the CEWS.
The government is announcing that rather than being abolished on April 1, 2024, the compensation tax for financial institutions will be maintained and become permanent. The terms and rates of the compensation tax that were to apply for the period beginning April 1, 2022 and ending March 31, 2024 will continue to apply after March 31, 2024.
The refundable tax credit for home-support services for seniors is available for individuals aged 70 or over or for couples where both are aged 70 or over. The tax credit currently represents 35% of eligible expenses incurred for services paid for their personal needs or those of their domicile.
The amount of eligible expense is computed differently depending on the type of dwelling (house, rental apartment building, private residence for seniors, etc…) and the maximum amount that can be claimed varies depending on whether the claimants (individual or couple) are dependent or non-dependent seniors.
There currently exists a reduction mechanism of the eligible expenses, applicable only to non-dependent individuals or couples. The amount of the reduction for the 2020 year is 3% of the net family income in excess of the applicable threshold for the year, which is indexed yearly ($60 135 for 2021).
Budget 2021-2022 provides that, starting in 2022, the current 35% tax credit rate will be raised annually by one percentage point to reach 40% in 2026, as shown in the table below.
The additional credit generated by this increase will be addressed as the “amount of the enhanced tax credit for home-support services for seniors.”
Budget 2021-2022 provides that, starting in 2022, the tax legislation will be amended to introduce a reduction mechanism applicable to dependent seniors in regard to the “amount of the enhanced tax credit for home-support services for seniors.” This reduction corresponds to 3% for each dollar of family income exceeding the applicable reduction threshold for each of the taxation years subsequent to 2021, until the “amount of the enhanced tax credit for home-support services for seniors” is zero.
The reduction mechanism that applies to non-dependent seniors will also be modified starting in 2022. A second threshold will be added. This threshold will be set at $100 000 for 2022 and indexed annually starting in 2023, under the same parameters as those for the first threshold.
The eligible expenses incurred by non-dependent individuals or couples will be subject to a 3% reduction on the portion of net family income in excess of the first threshold but not the second threshold and by a reduction of 7% of the net family income for the portion in excess of the second threshold.
The following table illustrates the year-to-year application of the enhanced rate of the tax credit for home-support services for seniors and new reduction terms based on family income, for both non-dependent and dependent seniors.
For a senior living in a dwelling unit in a rental apartment building, the amount of the tax credit for home-support services for seniors is calculated by applying the 35% rate to eligible expenses, including those included in the rent. The amount of eligible expenses included in the rent corresponds to 5% of the monthly rent of the dwelling unit of which the senior is a tenant, co-tenant or subtenant, up to a rent of $600 per month. Budget 2021-2022 provides that the 5% rate that applies to the monthly rent will now apply to a maximum monthly rent of $1 200 (instead of $600).
Additionally, a presumption will be introduced in the tax legislation to provide that the minimum amount for any rent will be $600 per month, therefore establishing the lowest amount to which the 5% rate will apply in determining the deemed amount of minimum eligible expenses included in the rent for the purposes of the tax credit for home-support services for seniors living in a dwelling unit of a rental apartment building. This amount will be referred to as the “minimum eligible monthly rent.”
Finally, the tax credit for home-support services for seniors related to the amount of the “minimum eligible monthly rent” will be automatically paid by Revenu Québec to dependent seniors. The same will apply to non-dependent seniors whose family income entitles them to this, with the payment taking into account the applicable reduction based on their family income level.
Budget 2021-2022 provides that, to maintain the integration principle and considering the proposed increase to the small business deduction, the rate of the dividend tax credit for non-eligible dividends will be reduced from 4.01% of the grossed-up dividend amount to 3.42% of the grossed-up dividend amount of a dividend received or deemed received after December 31, 2021.
The tax legislation will be amended to provide that the rate of the non-refundable tax credit for the acquisition of class “A” shares of the capital stock of Capital régional et coopératif Desjardins will be reduced from 35% to 30% in respect of any class “A” shares acquired after February 28, 2021.
A non-refundable tax credit of a maximum amount of $1 500 is available upon conversion of class “A” shares of the capital stock of Capital régional et coopératif Desjardins into class “B” shares of the capital stock of Capital régional et coopératif Desjardins. The tax legislation and the Act constituting Capital régional et coopératif Desjardins will be amended on the one hand to add two new conversion periods, to begin on March 1, 2021 and 2022 and end on the last day of February of the following year, and on the other hand to limit the maximum value of share conversions to $50 million for each of these conversion periods.
The tax legislation will be amended to add a trust's tax identification number as mandatory identification information. Thus, a trust will have to obtain its tax identification number from the Minister of Revenue if it does not have one. In addition, it will have to indicate its tax identification number in any return, report or other document it must file under a tax law.
This amendment will apply to any return, report or other document required to be filed under a tax law after the day of the budget speech.
The tax legislation will be amended to add the trust account number, as defined in federal tax legislation, as mandatory identification information. Thus, a trust will have to indicate its trust account number, as defined in federal tax legislation, in any return, report or other document it must file under a Québec tax law once that number has been assigned to it by the Minister of National Revenue.
On July 27, 2018, the Department of Finance Canada released draft tax legislative proposals to improve the collection of beneficial ownership information with respect to trusts. To achieve this objective, it is proposed that certain trusts be required to provide additional information on an annual basis, that certain trusts be required to file a tax return in cases where there is no such obligation at this time, and that a penalty be added, particularly in some events of non-filing. These new measures are expected to apply to taxation years of trusts ending after December 30, 2021.
Québec tax legislation and regulations will be amended to incorporate the changes made to the federal tax legislation and regulations relating to trusts, in accordance with their general principles, that were released on July 27, 2018. However, the amount of the new Quebec penalty will be $1,000 and there will be an additional penalty of $100 per day, calculated as of the second day that the omission or default lasts, up to a maximum of $5,000. For comparison purposes, the proposed federal penalty is equal to the greater of $2 500 or 5% of the fair market value of the property held by the trust.
In the 2012 Quebec Budget, changes to the tax regulations were announced such that a trust, other than an excluded trust, that, during a taxation year, is resident in Canada outside Québec and that, at any time in the taxation year, owns a specified immovable (or is a member of a partnership that owns a specified immovable) is required to file, for such taxation year, an information return with Revenu Québec. “Excluded trust” for a taxation year means, but is not limited to, the following trusts: (i) a succession; (ii) a testamentary trust resident in Québec on the last day of the year and that owns property the aggregate of the cost amounts of which is, throughout the year, less than $1 000 000; and (iii) a testamentary trust not resident in Québec on the last day of the year and that owns property situated in Québec the aggregate of the cost amounts of which is, throughout the year, less than $1 000 000.
Changes will be made to Québec's tax regulations regarding the expression “excluded trust.” Thus, a testamentary trust will no longer be an excluded trust. The same will apply to a succession, with the exception of a succession that is a graduated rate estate. These amendments to Québec tax regulations will apply to taxation years that end after December 30, 2021.
On March 27, 2018, the Québec government announced measures to require suppliers with no physical or significant presence in Québec (hereinafter, "non-resident suppliers") to register with Revenu Québec, under a new specified registration system for the purpose of collecting the Québec sales tax (QST) applicable to their taxable supplies of incorporeal movable property and services made in Québec to specified Québec consumers. These measures were implemented in 2019 to ensure the QST would be collected and remitted in the context of the digital economy.
Pursuant to the legislative proposals tabled by the Government of Canada on November 30, 2020 with respect to the application of the goods and services tax and the harmonized sales tax (GST/HST) in relation to electronic commerce supplies and the general intention to harmonize the QST system announced on December 21, 2020, the following clarifications and adjustments are presented:
The specified registration system will be changed to ensure the QST is collected and remitted on sales of corporeal movable property located in fulfillment warehouses in Canada but outside Québec or shipped from a place in Canada but outside Québec to a specified Québec consumer in Québec (hereinafter, “specified qualifying supplies”).
The amendments to the Québec tax legislation will be adopted only following assent to any federal statute implementing the federal proposals. In addition, they will come into effect on the same date as the date retained to implement the federal proposals with which they are harmonized.