ACCELERATING GROWTH AND STIMULATING THE ECONOMY
The new Quebec Economic Plan was published by the Ministry of Finance on March 25, 2021, following the speech by Finance Minister Eric Girard.
To ensure the post-pandemic recovery, a pandemic that has forced many companies to review or postpone their investment plans, the plan focuses on two main objectives: increasing productivity and stimulating business investment. Almost 2.2 billion dollars over six years are planned to encourage businesses to acquire new technologies, improve their competitiveness and support their innovation process. Reduction in the tax rate for SMEs, improvement of the C3i and the tax holiday for investment projects, simplification of the tax credit for university research and development, these are some of the tax measures proposed in this plan.
FI Group offers you an overview of the main changes related to R&D and innovation proposed with this new economic plan.
1/ Elimination of the requirement to obtain an advance ruling for R&D tax credits
Last year, the government decided to remove the qualifying expenditure thresholds for the three university R&D tax credits. This year, it is proposed to simplify the tax credit for university R&D:
- This tax credit (30% for SMEs and 14% for large companies) applies to a research contract awarded by a company to a university, a public research center or a research consortium required to obtain an advance ruling from Revenu Québec.
- The new budget proposes the withdrawal of this prior requirement. It will therefore be possible to submit the tax schedules for this tax credit without making this preliminary request to Revenu Québec. Additional information will be collected instead by Revenu Québec to verify the conditions for applying the credit.
- Note that for the R&D salary tax credit (SR&ED), there is no change.
2/ Support the implementation of innovative projects
A budget of $ 29 million over two years is proposed to :
- Continue the deployment of innovation zones: to attract private investment, facilitate the transition from idea to market and bring together researchers, businesses and employees in dynamic and attractive living environments. These areas will be unveiled over the next few months.
- Support QC accelerators and incubators: $ 6.0 million is planned to increase assistance to the most efficient incubation and acceleration organizations, offer a range of specialized services to technology companies and help organizations support for technological entrepreneurship to forge links with their international counterparts.
3/ Support infrastructure and research centers
The government is providing $ 133.4 million to Invest in infrastructure and research centers:
- Invest in research and innovation infrastructures in Quebec;
- Renew financial support for the National Optics Institute;
- Support the Montreal Computer Research Center.
4/ Support innovation in strategic sectors
The 2021-2022 budget provides for $ 55.5 million over three years to:
- Encourage innovation in the forest industry: $15 million in 2 years to encourage innovation in the forest industry.
- Increase funding for the organization FPInnovations: the government is planning a sum of $ 3 million.
- Encourage the development of innovations in the tourism sector: an envelope of $ 10.0 million, which will be managed by MT Lab3, will finance the development of innovations (technological, process, etc.) applicable to many tourism businesses located throughout Quebec, to meet the needs expressed by the community.
- Extend and improve the Quebec Cybersecurity Innovation Program: managed by Prompt-Quebec, this program aims to increase the competitive advantage of Quebec SMEs in the information and communications technology sector. A sum of $ 27.5 million will be granted to Prompt-Québec in 2020-2021.
5/ Temporary increase in the tax credit relating to investment and innovation C3i
Introduced in the 2020-2021 budget, the tax credit related to investment and innovation aimed at encouraging productivity gains of businesses in all regions of Québec, while further promoting investments in regions where the economic vitality index is low.
The tax credit relating to investment and innovation will be temporarily increased until December 31, 2022:
- From 10% to 20% for investments made in the metropolitan communities of Montreal and Quebec;
- From 20% to 40% for investments made in areas facing low economic vitality;
- From 15% to 30% for investments made in another territory or another region.
This temporary improvement applies to specified expenses incurred after the day of the Budget Speech but before January 1, 2023.
6/ Addition of restrictions to certain tax incentives
Several tax incentives, particularly in the cultural sector, also 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.
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:
- R&D tax credits: The tax legislation will be amended to add a new exclusion for the application of the various refundable tax credits for R&D. Thus, a salary and consideration paid or an eligible expense paid or made in respect of scientific research and experimental development will not include the expenses incurred in respect of either a digital content platform containing scenes of explicit sexuality. or graphic representations of such scenes, either a multimedia title which includes scenes of explicit sexuality or graphic representations of such scenes.
- Tax credit for the development of electronic business (CDAE): non-eligible activities also include activities that could reasonably be considered to be related to a digital platform that hosts or allows the exchange, or that is intended to host or to allow the exchange of content encouraging violence, sexism, racism or any other form of discrimination or comprising scenes of explicit sexuality or graphic representations of such scenes.
- Tax credit relating to investment and innovation: property acquired to be used or that will be used during the period of 730 days following the start of its use by the eligible corporation to house, produce or allow the exchange of content comprising scenes of explicit sexuality or graphic representations of such scenes can no longer qualify as a specific good.
- Multimedia Titles Tax Credits: A title that encourages violence, sexism or discrimination cannot be recognized as an eligible multimedia title or as an eligible related title. This restriction will be amended to add titles which contain scenes of explicit sexuality or graphic representations of such scenes.
These changes will apply to expenses incurred after the day of the Budget Speech.
7/ Increase in the small business deduction rate
In Québec, the general tax rate applicable to corporations is 11.5%. A Canadian-controlled private corporation (whose paid-up capital is $10 million or less and whose adjusted aggregate investment income is $50 000 or less) will now benefit from a lower tax rate of 4% applicable to the first $500 000.
8/ Tax holiday for large investment projects
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.
The following changes will be made:
- Extension of the start-up period for certain investment projects;
- Addition of a choice for a corporation or a partnership with respect to the date of the beginning of the tax-free period for its investment project;
- Possibility for a project to modernize a business through digital transformation to
- Be recognized as a large investment project.
- Broadening the eligible sectors of activity: Eligible investment projects will now include any project involving any activity sector where the investment project is to modernize a business of the corporation or partnership, through digital transformation.
9/ Temporary enhancement of the refundable tax credit for on-the-job training periods
A taxpayer who carries on a business in Québec, has an establishment in Québec and hires a student or apprentice for a qualified training period may, under certain conditions, benefit from the refundable tax credit for on-the-job training periods.
The tax credit is based on the qualified expenditure in respect of an eligible trainee, which consists of wages or salary paid to a trainee as part of a qualified training period and wages or salary paid to an eligible supervisor for the hours devoted to the supervision of the trainee. However, the qualified expenditure is curtailed by various factors based on the training period and trainee involved.
The tax legislation will be amended so that:
- The basic rate of the tax credit is increased from 24% to 30% where the eligible taxpayer is a corporation;
- The basic rate of the tax credit is increased from 12% to 15% where the eligible taxpayer is an individual;
- Where the eligible trainee is a disabled person, an immigrant, an Aboriginal person or where the on-the-job training takes place in an eligible region:
o the tax credit rate is increased from 32% to 40% where the eligible taxpayer is a corporation,
o the tax credit rate is increased from 16% to 20% where the eligible taxpayer is an individual.
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.
The FI Froup team is available for any further information you may have. Feel free to contact us!