March 30, 2021
Canada: Highlights of Québec budget 2021–22
On 25 March 2021, Québec Finance Minister Éric Girard tabled the province’s fiscal 2021–22 budget. The budget contains tax measures affecting individuals and corporations. The budget contains no new taxes and no tax increases; however, it includes a reduction in the small business tax rate and a change in the rate of the tax credit for non-eligible dividends.
The Minister anticipates a deficit of CA$15.0 billion1 for fiscal 2020–21 and $12.3 billion for fiscal 2021-22, with reduced deficits for each of the next five fiscal years. The Government’s objective is to restore fiscal balance by 2021/2028.
The following are the highlights of the budget tabled by the Québec Minister of Finance. A summary of the key tax measures announced will be available in a separate EY Global Tax Alert — Canada: Québec issues budget 2021/2022.
Business tax measures
Corporate tax rates
No changes to the general corporate tax rate are proposed.
However, effective 26 March 2021, the small-business tax rate will decrease to 3.2% from 4.0%. The $500,000 small-business limit remains unchanged.
Furthermore, in order to limit the negative impact of a temporary suspension of a corporation or partnership activities that occurred after June 2020 on the calculation of the small business deduction (SBD), the tax legislation will be amended to introduce an option concerning the number of remunerated hours making it possible to use hours from its previous taxation year.
Amended tax measures
Temporary increase in the tax credit relating to investment and innovation (C3i)
The tax legislation will be amended to temporarily double the rates of the C3i so that the tax credit rate is equal to:
This temporary increase will apply to specified expenses incurred after 25 March 2021 but before 1 January 2023, to acquire a specified property after 25 March 2021 but before 1 January 2023, or to acquire a specified property after 25 March 2021 but before 1 April 2023, if certain conditions are met.
Changes to the tax holiday for large investment projects
The three following changes are proposed:
Temporary enhancement of the refundable tax credit for on-the-job training periods
The tax credit rates, other than the enhanced rates applicable to eligible trainees enrolled in an education program or a prescribed program, will be increased by 25%. The amendments will apply to qualified expenditures incurred after 25 March 2021 and before 1 May 2022 in respect of a qualified training period beginning after 25 March 2021.
Elimination of the requirement to obtain an advance ruling for R&D tax credits
Currently, a favorable advance ruling by the Minister of Revenue must be given for a taxpayer to be able to benefit from a research and development (R&D) university tax credit or for an individual who is a member of a partnership to benefit from his portion of the R&D salary tax credit or the R&D university tax credit. Elimination of the requirement to obtain such an advance ruling is proposed to be replaced by changes to the information collected by Revenu Québec to verify the conditions for applying these tax credits.
Addition of restrictions to certain tax incentives
Amendments are proposed to the tax legislation and the Sectoral Act so as to add the restrictions to ensure that their objectives of promoting certain activities or encouraging a given behavior are achieved.
The proposed additions relate to the following tax incentives:
In summary, the added restrictions are intended to exclude the possibility of using these tax measures where activities could reasonably be considered to be related to a digital platform that hosts, or allows for the sharing, or is intended to host or allow for the sharing, of content encouraging violence, sexism, racism or any other form of discrimination or comprising explicit sex scenes or graphic representations of such scenes, except under certain conditions.
Personal tax measures
Personal tax rates
There are no changes to personal income tax rates. However, the rate of the tax credit for non-eligible dividends, which is currently 4.01% of the grossed-up dividend amount, will be reduced to 3.42% of the grossed-up dividend amount of a dividend received or deemed received after 31 December 2021.
Enhancement to the refundable tax credit for home-support services for seniors
It is proposed that the current 35% tax credit rate be raised annually by one percentage point to reach 40% in 2026. New terms will also be introduced in relation to the mechanism for reducing the established tax credit for home-support services based on seniors' family income. Furthermore, it has been proposed to increase the eligible expenses for seniors living in a rental apartment building and to apply “minimum eligible monthly rent.”
Capital régional et coopératif Desjardins tax credit - Reduction in the non-refundable tax credit rate
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 to 30% from 35% in respect of any class “A” shares acquired after 28 February 2021.
Québec sales tax (QST)
Harmonization of the QST system with the federal legislative proposals tabled by the Government of Canada as part of its 30 November 2020 Economic Statement
To harmonize the QST with the legislative proposals with respect to the application of the goods and services tax and the harmonized sales tax (GST/HST) in relation to electronic commerce supplies tabled by the Government of Canada on 30 November 2020 as part of its economic statement (the federal proposals), the following amendments will be made to the Québec tax legislation with the required adaptations:
Cross-border digital products and cross-border services
Harmonization with the federal proposals relating to the application of GST/HST on cross-border digital products and cross-border services.
Goods supplied through fulfillment warehouses
Integration of the federal proposals for the application of GST/HST on goods supplied through fulfillment warehouses.
Distribution platform operators registered under the general GST/HST system
Integration of the federal proposals for the registration of operators of distribution platforms under the general GST/HST system.
Nonresident suppliers registered under the general GST/HST system
Integration of the federal proposals for nonresident suppliers requiring registration under the general GST/HST system.
Platform-based short-term accommodation
Integration of federal proposals relating to the application of the GST/HST to supplies of short-term accommodation in Canada facilitated by a digital platform operator.
The amendments to the Québec tax legislation will be adopted only following assent to any federal statute implementing the federal proposals, taking into account any technical amendments that may be made prior to assent. They will come into effect on the same date as the date retained to implement the federal proposals with which they are harmonized.
For a summary of the federal proposals announced as part of the 30 November 2020 economic statement, see EY Global Tax Alert, Canada announces specified GST/HST regime for e-commerce supplies, dated 4 December 2020.
Tax measures relating to trusts
Various administrative amendments have been announced to ensure compliance by trusts and their main players:
Other tax measures
Amendment to the Mining Tax Act
The 2021/2022 Budget proposes amendments to the Mining Tax Act so that an eligible operator may deduct from its annual profit an amount in respect of the allowance for the development of critical and strategic minerals. Critical and strategic mineral development expenses will refer to expenses incurred which consist of an expense primarily attributable to one or more critical and strategic minerals contemplated by the budget and relating to certain specific activities. Also, changes will be made to the refundable duties credit for losses of an operator to take into account the introduction of the allowance for the development of critical and strategic minerals. Lastly, the sustainable development certification allowance will be eliminated and corresponding changes will be made to the refundable duties credit for losses.
Maintenance of the compensation tax for financial institutions
The compensation tax for financial institutions, which was to be eliminated on 31 March 2024, will be maintained after that date. The legislation will be amended to adjust the maximum amount subject to tax, for a taxation year that includes 31 March 2024.
Further extension of the credit on the employer contribution to the Health Services Fund in respect of employees on paid leave
Similarly to the extension of the Canada Emergency Wage Subsidy, the credit on the employer contribution to the Health Services Fund will also be extended until 5 June 2021.
Autonomous application of the penalty for promoters of aggressive tax planning
It is maintained that the penalty will only be applied to a promoter once the Minister of Revenue has established an assessment against a taxpayer based on the application of the General Anti-Avoidance Rule (GAAR).
However, it is proposed that the legislation be amended so that the penalty applicable to a promoter is not determined on the basis of the penalty imposed on the taxpayer, but independently.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (Canada), Montréal
Ernst & Young LLP (Canada), Québec