Quebec incentives for SMEs
17 March 2015
Posted by: Author: Simon Dutil
Author: Simon Dutil (PricewaterhouseCoopers LLP, Quebec City)
Measures were introduced in Quebec to help Quebec small and medium-sized enterprises (SMEs), especially those in the manufacturing sector, by (1) reducing the small business tax rate for manufacturing SMEs, (2) providing an additional deduction from income for remotely located manufacturing SMEs, and (3) reducing health service fund (HSF) contributions in certain industry sectors. (See Quebec Bill 13, An Act To Give Effect to the Budget Speech Delivered on 4 June 2014 and to Various Other Fiscal Measures [first reading December 4, 2014]; other Quebec June 4, 2014 budget measures; and Information Bulletin 2014-11, "Fiscal Measures Announced in the Update on Quebec’s Economic and Financial Situation,” December 2, 2014.) However, SMEs may be adversely affected because the June 2014 budget also eliminated or reduced the rates of various tax credits.
Small business M & P rate. Quebec’s small business M & P rate decreased from 8 percent to 6 percent on June 5, 2014, and further declines to 4 percent on April 1, 2015. This rate applies to all active business income up to $500,000 if 50 percent or more of the CCPC’s activities are attributable to M & P (based on M & P assets and labour). If this percentage is more than 25 percent and less than 50 percent, the rate decrease is eliminated on a straightline basis; if this percentage is 25 percent or less, the rate is 8 percent (Bill 13).
Additional deduction for manufacturing SMEs located in remote areas. A new deduction from income for transportation costs incurred by manufacturing SMEs located in remote areas was introduced effective after June 4, 2014; subsequently, the deduction was enhanced and extended to all manufacturing SMEs, effective for taxation years beginning after 2014. The deduction, which is based on a percentage of gross income, depends on the location of the SME, the level of its manufacturing activities, its size, its gross income for the taxation year, and the regional cap (the maximum deduction that applies to the region) (Bill 13 and Information Bulletin 2014-11). (See the table below.)
HSF reductions. An SME with an annual payroll of $5 million or less can reduce or eliminate the HSF contribution attributable to hiring specialized employees from the natural and applied sciences sector, after June 4, 2014 and before 2021 (the June 4, 2014 budget). In addition, starting in 2015, the HSF rate of an SME in the primary and manufacturing sectors (1) is reduced to 1.6 percent (previously 2.7 percent) if its total payroll is $1 million or less, and (2) ranges from 1.6 percent to 4.26 percent (previously from 2.7 percent to 4.26 percent) if its total payroll is between $1 million and $5 million. For an SME to be eligible, over 50 percent of its total annual payroll must be attributable to activities in agriculture, forestry, fishing, and hunting; mining, quarrying, and oil and gas extraction; or manufacturing (Information Bulletin 2014-11).
Quebec business tax credits. About 25 tax credit rates or deductions were reduced by 20 percent, generally effective on or after June 4, 2014 (Bill 13). For example, Quebec’s M & P investment tax credit ranges from 4 percent to 32 percent (down from 5 percent to 40 percent) for M & P property acquired after June 4, 2014. That credit is also subject to an exclusion threshold of $12,500 for each qualified property; the threshold reduces expenses eligible for the tax credit, generally effective for qualified property acquired after December 2, 2014 (Information Bulletin 2014-11). Quebec’s June 4, 2014 budget also eliminated or put under review the following measures announced in Information Bulletin 2013-10 (October 7, 2013): (1) the tax credit for buildings used in M & P activities, which was available to a manufacturing SME (the credit is eliminated generally for expenditures incurred after June 4, 2014); (2) the tax credit for the integration of information technologies in M & P (the credit is under review, and Investissement Québec will not accept any requests for a certificate as of June 4, 2014, although a manufacturing SME that previously received a certificate can continue to claim the credit); and (3) the tax credit for the investment in M & P equipment (the rate increase of up to 10 percentage points for M & P equipment acquired after October 7, 2013 is eliminated generally for expenses incurred after June 4, 2014) (Bill 13). (See also the discussion in "Manufacturing SME: Quebec Incentives,” Canadian Tax Highlights, April 2014.) An SME may also be affected by recent changes to R & D tax credit rates and rules (Bill 13 and Information Bulletin 2014-11). A future article will discuss these changes.
This article first appeared on ctf.ca.