On Thursday, March 17, 2016, Finance Minister Carlos Leitao announced the 2016-2017 Quebec budget, presenting a balanced budget for the second consecutive year. Several initiatives are established or renewed in the 2016-2017 budget. Among the key investments being made in business are aid to manufacturing, employment, SMEs, the adoption of digital technology, the ICT sector and major sectors of the Quebec economy (aerospace, life sciences, environmental and food).
HERE ARE THE 2016-2017 BUDGET HIGHLIGHTS PERTAINING TO QUEBEC BUSINESSES:
- Energy policy: $ 4 billion over 15 years. The prime minister, accompanied by the Minister of Energy and Natural Resources, the Minister of the Environment and Sustainable Development, the Minister of Economy and Science and the Minister responsible for Aboriginal Affairs announced on Thursday, April 7th the introduction of an energy policy with a budget of more than $ 4 billion over 15 years. A "one stop shop" will be created to manage this budget where individuals and businesses will receive financial aid and information on the various programs offered. The new energy policy provides for the adoption of three action plans, the first, of which is scheduled for autumn 2016.
- Clean energy: $ 539 million over the period of 2016-2017 to 2020-2021 for the implementation of clean energy. The main parameters of these initiatives are aimed at converting production lines and improving productivity or energy efficiency by modernizing operating methods. The terms of the program will be specified later by the Minister of Finance.
- Environment & sustainable development: $ 100 million for the environment as part of the government’s Sustainable Development Strategy 2015-2020, including the enhancement of the ClimatSol-Plus program for the decontamination of land and new financial support to companies for the application of environment related technology linked to soil decontamination.
- Aerospace: An additional $ 70M over 5 years, including the establishment of the new Québec aerospace strategy. Details will be announced by the Minister of Economy, Science and Innovation
- Food industry: $ 45 million over 5 years for the development of the food industry, including $ 5 million to promote exports, $ 5 million to support research in food transformation, $ 5M for the use of best business practices, $ 25M for the program to support the positioning of Quebec liquor and $ 5M for supporting the Québec liquor industry.
- The Ministry of Agriculture, Fisheries and Food will announce the development of the Quebec agri-food strategy process. Life sciences: 33,8M $ over 5 years to fund certain life sciences sector initiatives (biopharmaceutical, medical devices and natural health products).
- In fall 2016, the government plans to announce an action plan to meet this sector. Some initiatives will be announced shortly by the Minister of Economy, Science and Innovation.
- Immigration & visible minorities: The improvement of the assistance program to the integration of immigrants and visible minorities in employment in order to promote the integration of newcomers.
- Innovation & commercialization: More than $ 280 million over five years to support Québec SMEs. The new export strategy is under development and will be unveiled during the year, but the highlight here is the introduction of a patent-related tax rate deduction aimed at promoting innovation in Quebec.
- Ayming published an article in August 2015 regarding the value and importance of a patent box regime on the growth of R&D and commercialization of new technologies developed in Canada (Patent Box: Will Canada Lag Behind?): We are pleased to announce that Quebec’s new budget moves towards addressing the lag in innovation by promoting the manufacturing and commercialization of innovative projects developed by Quebec-based companies. The announcement of the first patent-related tax rate deduction in Canada includes the introduction of a deduction for qualifying innovative manufacturing corporations (DIC) whose paid-up capital for the previous taxation year (including that of subsidiary companies) is $15 million or more. As of January 1st, 2017, the deduction will allow the manufacturing companies that commercialize a product incorporating a patent protecting an invention developed in Quebec to benefit from a reduction in tax rates on income attributable to that patent. The tax rate, which is currently at 11.8%, will be reduced to 4.0% for eligible companies. $ 32,5M over 3 years to promote the realization of Québec innovations’ commercialization projects, accompanying and supporting exporting SMEs, in particular, to take advantage of new trade agreements or the Comprehensive Economic and Trade Agreement between Canada and the European Union (CETA) and the Trans-Pacific Partnership (TPP). Additional credits are granted to the Ministry of Economy, Science and Innovation and Export Québec.
- Information technology: $ 162 million over five years to adopt a digital strategy pioneering. Some key initiatives in the IT sector will include: The scope of the tax credit for the integration of information technologies in manufacturing and primary sector SMBs will be expanded to also include companies involved in wholesale and retail. A company will be eligible for this credit if the proportion of its qualified activities, including manufacturing or processing activities, primary sector activities, wholesale trade activities or retail trade activities for the taxation year exceeds 50%. This change will apply to a company’s taxation year ending after March 17, 2016.
- The new budget also addresses expenditures qualifying for the refundable tax credit for technological adaptation services. For a given taxation year, businesses can benefit from a 50% tax credit on eligible expenses. However, this tax credit will now only be applicable if the expenditures are related to an eligible liaison and transfer service provided in Quebec or to participation in training and information activities given in Quebec in connection with an eligible liaison and transfer service. This will apply to expenditures incurred on or after March 18, 2016.
- The 2016-2017 provincial budget also introduces a temporary refundable tax credit for major digital transformation projects. This credit will apply to eligible digitization contracts finalized after March 17, 2016, and before January 1, 2019.
- The tax credit will apply to projects that will create at least 500 new jobs in Quebec and will be ongoing for at least seven years. To qualify as an eligible digitization contract, the contract must first be assigned a qualification certificate from Investissement Québec. The tax credit will cover 24% of the eligible salary paid to an eligible employee during the first two years of the eligibility period, without exceeding $20,000 per employee annually. For the remaining five years of the project, the company will be entitled to obtain a certificate for the e-business tax credit for an eligible employee, as long as all other applicable conditions are met.
- A credit of $ 10 million in 2016-2017 will be allocated to the Ministry of Economy, Science and Innovation for initiatives to stimulate the growth of digital manufacturing companies and to encourage the development of the information technology and communications (ICT) sector. Details of the strategy will be announced by the Minister of Economy, Science and Innovation.
NEW BUDGET CREATES NEW OPPORTUNITIES
In conclusion, the 2016-2017 Quebec budget creates new and interesting financial incentives for companies to invest in innovation, business development and the integration of updated technology. Following cuts and limitations introduced in the last two budgets, R&D Tax Credits are left untouched in 2016-2017. Ayming’s experts can explain how the overall budgetary changes may relate to your business, and can provide you with a deeper understanding of how they could be applied in conjunction with your SR&ED claim. For further information on how we can help, please reach out to your Ayming consultant, email us, or call us at 514-931-0166.