14 March 2024

Revising fiscal measures, prioritizing health, education, and state services

The new Budget Plan for Quebec was published by the Ministry of Finance on March 12, 2024, following the speech by the Minister of Finance, Eric Girard.

The government of Quebec aims to prioritize health and education, with significant investments to provide Quebecers with quality public services. In the current economic context, a budget of $1.9 billion is planned to promote the economic growth of Quebec and its regions, particularly in strategic sectors such as aerospace, the aluminum sector, digital and technological transformation, and the construction industry.

A notable point is the total of $2.9 billion in savings over the next 5 years, achieved by optimizing the government’s actions. As a result, the government plans to revise certain tax incentives for businesses to improve fairness and the impact of tax credits supporting jobs in the IT sector. This will involve gradually harmonizing the base rates of the tax credits for the development of e‑business (CDAE) and the Production of Multimedia Titles (CTMM), refocusing tax incentives in the IT sector on higher value-added jobs, modifying the production services tax credit, and abolishing the tax credit for companies promoting the retention of experienced workers, which did not have the expected incentive effects. FI-group offers an overview of the main elements related to IT, R&D, and innovation in connection with this new economic plan.

1 – Amending significantly the CDAE and CTMM

The following modifications will come into effect gradually starting in 2025:

  • The government plans to gradually harmonize the base rates of the CDAE and CTMM.
  • The government aims to realign tax incentives to prioritize higher value-added jobs in the IT sector. This will be achieved by removing the salary cap per employee of the CDAE ($83,333) and CTMM and introducing an exclusion threshold equivalent to the basic personal amount of the individual tax system. As an example, the budget includes a table that outlines the effective rate of the CDAE and CTMM after the elimination of the salary cap and the application of the exclusion threshold ($18,054 in 2024 and annually indexed).
Employee’s eligible salary20242028 20242028
$50 00030.018.1 37.522.7
$100 00025.024.1 37.530.1
$150 00016.726.0 25.032.6

Effective rates of the CDAE and CTMM based on an employee’s eligible salary, before and after Budget 2024-2025 (ultimately in 2028)

  • The non-refundable portion of the CDAE, currently at 6% of the 30% base rate, will increase by 1 percentage point each year until 2028, reaching 10%. Similar evolution will affect the CTMM. By 2028, the CDAE and the CTMM will consist of a refundable portion of 20% and a non-refundable portion of 10%.
  • The 7.5% refundable premium for CTMM titles available in French will be maintained to encourage the availability of video games in French.

2 – No modifications to the attribution method on R&D tax credits

The new economic plan did not lead to any change in the method of allocating tax credits for R&D. The rules during the previous year therefore remain in force regarding the obtaining and monitoring of these tax credits.

The Tax Credit for Salaries and Wages (R&D) therefore still represent 30% of eligible R&D expenditures for SMEs and 14% for large corporations. R&D tax credits will provide support of over $2.7 billion to Québec businesses during 2022-2027, benefiting approximately 4 000 businesses annually.

3 – Amending the tax credit for film production services (CSPC)

  • To attract foreign film shoots to Quebec, the base rate of the tax credit for foreign film and television shoots will be increased from 20% to 25% starting the day following the 2024-2025 budget speech. The CSPC currently allows foreign film producers to benefit from a refundable tax credit of 36% on the total cost of visual effects and animation contracts carried out in Quebec. From now on, only 65% of the value of such a contract will be considered an eligible expense under the CSPC. This 65% portion of eligible expenses will apply to the base rate, increased to 25%, and the 16% enhancement for visual effects and animation.
  • To support the Quebec film and television industry, the government plans to raise the cap on labor expenses from 50% to 65% of production costs starting the day following the 2024-2025 budget speech.

4 – Abolishing the Tax Credit for Businesses to Foster the Retention of Experienced Workers (CMETE)

Due to its lack of effectiveness, this program aimed at eligible businesses employing an individual aged 60 or older and offering up to $1,875 in assistance is being abolished.

5 – Supporting Strategic Sectors and Economic Growth

The government plans initiatives totaling 443.1 million dollars over five years. These initiatives aim to:

  • Provide $125.0 million dollars to set up industrial laboratories in innovation zones, enabling businesses to benefit more rapidly from innovations developed through applied research, address common industrial challenges, access top talent and a cutting-edge research ecosystem, thereby accelerating the commercialization of new products and processes.
  • Ensure the growth of Quebec’s aerospace sector by allocating 74.5 million dollars over five years to support the development of new aerospace technologies, enhance the competitiveness of sector companies, and attract talent.
  • Continue the development of the aluminum sector by allocating 31 million dollars over 3 years to accelerate the transition to Industry 4.0, integrate information technologies and automation into businesses, modernize sector companies, increase their exports, accelerate innovation, and research, and focus on Quebec’s green aluminum.
  • Promote the adoption of new technologies and research through initiatives totaling 203.6 million dollars over five years, aiming to further accelerate government digital transformation, support emerging technologies, modernize property tax to promote automation, and facilitate the completion of mandates for the Institut de la statistique du Québec. Significant support for Artificial Intelligence (AI) will continue as part of the Quebec Research and Innovation Investment Strategy 2022-2027 (QRIIS2). It is worth noting that AI stakeholders can benefit from advantageous tax incentives, including research and development (R&D) tax credits, e-business development tax credits, and tax breaks for foreign researchers and experts.
  • Supporting entrepreneurship and business acquisition: The 2023-2027 Strategic Plan of Revenu Québec includes an initiative to provide SMBs with information, education, and support regarding corporate tax credits (only 14% of SMEs apply for tax credits with Revenu Québec). Revenu Québec aims to inform at least 5,000 businesses in 2023-2024 and over 50,000 by 2026-2027.
  • Recapitalization of the Natural Resources and Energy Capital Fund: An additional amount of 500 million dollars will support structuring investment projects, in support of the Stratégie québécoise de développement de la filière batterie and Québec Plan for the Development of Critical and Strategic Minerals 2020-2025.

6 – Renewal of the Investment and Innovation Tax Credit C3i

Established in March 2020, the C3i encourages businesses in all sectors to acquire new technologies that enable the digitization of their production and management processes, as well as the modernization of their manufacturing equipment (eligible expenses include manufacturing and processing equipment, computer equipment, and the acquisition of management software).

The C3i has been renewed until 2029 and provides a simplified tax environment by offering harmonized rates with those of the tax holiday for major investment projects. It provides a fully refundable tax assistance corresponding to 15%, 20%, or 25% of eligible investments depending on the territory in which they are made.

The additional capital cost allowance of 30%, which essentially targeted the same types of investments as the renewed C3i, was abolished on January 1, 2024, in order to reallocate the resulting savings to the enhancement of the C3i.

7 – No Change for Export Assistance

No changes have been announced regarding export assistance. The announcement of the additional 25 million dollars communicated in the previous budget will expire in 2025. For example, the Commercialization and Exportation Support Program (PSCE) quickly reached its capacity due to high demand, and many companies report an extraordinarily strong need for this type of financing.

The FI-group team is at your disposal for any further information.

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