Quebec's Budget Plan: Responding to COVID-19

The Quebec government released their 2020-2021 budget on March 10th. We have reviewed the budget and summarized the most impactful economic stimulus programs that will be introduced this year for businesses in Quebec.

Here are three new measures to consider:

• $110 Million to attract foreign investment and job growth
• A new 10% - 20% capital investment tax credit for equipment and software
• $334 Million to accelerate product innovations and marketing of Quebec innovations

Through the introduction of such measures, the Quebec government is encouraging businesses to prepare for the economic recovery that will follow the COVID-19 pandemic. At this time, businesses should begin planning and refining their capital expenditures to have ‘shovel-ready’ projects as  program specific details are being developed now, and will be implemented in the coming months. Businesses will need to be ready to apply to these programs in order to maximize these government incentives. More details are listed below, and Fairtax will continue to provide updates as these programs are developed and introduced to businesses.

Quebec Budget

Investments in digital technology and automation will be critical to enable businesses to meet the labour shortage challenge. In order to boost business productivity and competitiveness, the Quebec government is providing, in Budget 2020-2021, more than $1 billion over six years to:

• Spur business investment;
• Foster innovation and its commercialization;
• Accelerate business and export growth

Spurring Business Investment

The government is therefore providing, in Budget 2020-2021, close to $556 million over five years to:

• Boost productivity through innovative investments;
• Extend the eligibility period for the tax holiday for large investment projects;
• Foster the development of innovative SMBs

Accelerating Business and Export Growth

To accelerate business and export growth, the government is providing, in Budget 2020-2021, $157.5 million by 2024-2025 to:

• Boost foreign investment and export growth;
• Accelerate SMBs' growth through better support;
• Implement Québec's new international vision

Boosting foreign investment and export growth

The government has set two ambitious objectives for the next five years:

• Doubling foreign investment in Québec;
• Increasing Québec's exports so they represent 50% of GDP.

To achieve these objectives, the government is providing $110.0 million in Budget 2020-2021 to implement the action plan for foreign investment and export growth.

Accelerating SMBs' growth through better support

The government is providing, in Budget 2020-2021, $25.0 million to allow them to implement best business practices and intensify their collaboration efforts with accelerators and incubators in the regions.

Main Parameters of the Investment and Innovation Tax Credit

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;
• Management software packages.

The tax credit rate will be 10%, 15% or 20%. It will be determined according to the location and the economic vitality index of the area where the investments are made.

• Tax Credit Rate: Montréal and Québec metropolitan communities: 10%, other territories or regions: 15%, territories with low economic vitality: 20%

The C3i will be fully refundable for SMBs and nonrefundable 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.

The C3i's implementation will support the investments of approximately 10,000 businesses annually. This measure will spur business investment by close to $1.3 billion by the time it expires, on December 31, 2024, and will encourage businesses to accelerate their modernization.

Tax Holiday

Tax holiday applicable to corporate income tax and employer contributions to the Health Services Fund (HSF) related to the investment project. The tax holiday is equivalent to a maximum of 15% of their investment, spread over a maximum period of 15 years.

• Eligible sectors of activity: Manufacturing, wholesale, warehousing, data processing and hosting, digital platforms
• Deadline: December 31, 2024
• Investment threshold: Central region: $100M; Designated region: $50M

Fostering the Development of Innovative SMBs

To foster the development of Québec innovative SMBs, 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 Québec SMBs.

Businesses that invest in an eligible SMB will be able to claim a nonrefundable 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.
• Eligible SMBs: Canadian-controlled private corporation with a permanent establishment in Québec, with paid-up capital of less than $15 million and gross income of less than $10 million. Corporation operating in an eligible sector for at least one year.
• Eligible Sectors: Green technologies, information technologies, life sciences, the innovative manufacturing sector, artificial intelligence
• Tax Credit Rate: 30%, applicable to the value of the eligible investment

Fostering Innovation and its Commercialization

Wishing to foster innovation and its commercialization, the government is providing, in Budget 2020-2021, close to $334 million, particularly to encourage the marketing of Québec innovations and speed up the development of innovative products.

Incentive Deduction for the Commercialization of Innovations (IDCI)

To be eligible for the IDCI, a business must have an establishment in Québec, commercialize intellectual property (IP) there and have incurred R&D expenses in Québec.

• Eligible intellectual property: IP resulting from expenditures incurred, in whole or in part, in Québec:
  • software copyrights
  • patents and certificates of supplementary protection
  • plant breeders' rights
• Eligible revenues: commercialization of such IP, including revenues from the sale or rental of goods, services and royalties
• Effective tax rate: eligible revenue will be subject to an effective tax rate of 2%

Eligible income will be subject to a combined tax rate of 17%, a lower rate than in the rest of Canada and the United States, thus making it the most competitive tax rate in North America.

The commercialization of innovations developed in Québec has significant economic potential, since close to 15,000 businesses will be eligible for the IDCI over the next few years.

Enhancing R&D Tax Credits Fostering Collaboration

Québec provides corporations with three R&D tax credits that foster collaboration with various innovation players:

1. University Research:
   1. Business type: SMB and large
   2. Rate: SMB (30%); Large (14%)
   3. Eligible Expenses: 80% of the amount of the subcontract entered into with a university, a public research centre or a research consortium
2. Private Partnership:
   1. Business type: SMB and large
   2. Rate: SMB (30%); Large (14%)
   3. Eligible Expenses: 100% of current expenditures related to R&D work in partnership or 80% of the amount of the subcontract
3. Research Consortium:
   1. Business type: SMB and large
   2. Rate: SMB (30%); Large (14%)
   3. Eligible Expenses: 100% of the amount of eligible fees and dues

Implementing Québec's new international vision

The government is planning to invest $22.5 million by 2024-2025.

Investments of $35.0 million are also provided for in the 2020-2030 Québec Infrastructure Plan to reinforce the presence of international organizations in Montréal, and to support those organizations and increase their visibility. These amounts are added to those provided for in the 2020-2030 Québec Infrastructure Plan to support Québec's new international offices, particularly the Délégation générale du Québec à Paris.

-The GrantMatch Team