2023 Québec Budget Highlights

Québec Minister of Finance Éric Girard tabled the province’s 2023 Budget (the budget) on Tuesday, March 21, 2023. This year’s budget, titled A Committed Québec, is focused on initiatives to build a more prosperous and greener Québec, including investments in health care and education support.

Business tax measures

Corporate income tax rates

No new corporate income tax rate changes were announced in this year’s budget. The current corporate income tax rates for 2023 are summarized below:

M&P – Manufacturing & Processing

* Rates applicable to income not eligible for the temporary rate reduction for manufacturers of qualifying zero-emission technology.

New tax holiday relating to large investment projects

One of the main tools Québec has to stimulate business investment is the tax holiday for large investment projects, a tax measure that will expire on December 31, 2024. To attract more investment to Québec and stimulate productivity gains, the budget introduces a new tax holiday for large investment projects, which will replace the existing tax holiday.

The below summarizes the principal parameters of the current and new tax holiday for large investment projects^[1].

There are a number of requirements that must be met in order for a corporation or partnership to qualify for the new tax holiday. In addition, a corporation is required to obtain an initial qualification certificate from the Minister of Finance before incurring significant expenditures in respect of the large investment project.

Overall, the new tax holiday for large investment projects will provide businesses with more predictable tax assistance that is easier to claim. The assistance may be applied to all eligible tax expenses rather than just those arising from the investment project. For the purposes of calculating the tax assistance, the eligible investment amount will be reduced by the value of any government assistance received for the project.

These changes will apply as of the date of the budget speech, March 21, 2023.

Changes to refundable tax credit for Québec film or television production

The refundable tax credit for Québec film or television production applies to the labour expenditure incurred by a corporation in respect of a property that is a Québec film. This credit will be amended to recognize the contribution of certain market intermediaries in the online distribution of certain productions and to ease the current rules to facilitate the acquisition of stock footage.

These changes will apply in respect of a film or television production for which an application for an advance ruling — or an application for a qualification certificate if no advance ruling was previously filed for that production — is filed on or after March 22, 2023.

Enhanced refundable tax credit for book publishing

The refundable tax credit for book publishing is intended to support Québec publishers so that they can develop foreign markets for Québec works, carry out large-scale publishing projects, and develop the translation market.

This tax credit is calculated based on qualified labour expenditures. Given the highly competitive market in which Québec publishers operate, and the significant increase in their operating costs, the refundable tax credit for book publishing will be enhanced as follows:

• the 50 percent limit on qualified labour expenditure attributable to preparation costs and digital version publishing costs will be raised to 65 percent.
• the rate of the refundable tax credit for book publishing will be increased from 27 percent to 35 percent with respect to qualified labour expenditure attributable to printing and reprinting costs.

These amendments will apply in respect of an eligible work or an eligible group of works for which an application for an advance ruling — or an application for a qualification certificate if no advance ruling has been filed in respect of that work or group of works — is filed on or after March 22, 2023.

Enhancement of the refundable tax credit for production of multimedia events or environments presented outside Québec

The refundable tax credit for the production of multimedia events or environments presented outside Québec, the rate of which is 35 percent, applies to certain labour expenditures of a corporation regarding a property that is a qualified production.

The qualified labour expenditure of a corporation giving rise to this tax credit may not exceed 50 percent of the production costs incurred by the corporation and must be directly attributable to the production of the qualified production.

In order to improve the competitiveness of Québec multimedia event or environment production corporations, the tax legislation will be amended to broaden the base for labour expenditures for the purposes of this tax credit and to increase the limit on qualified labour expenditures from 50 percent to 60 percent.

These changes will apply in respect of a qualified production for which an application for an advance ruling — or an application for a qualification certificate if no advance ruling has been filed in respect of that production — is filed on or after March 22, 2023.

Personal tax measures

Personal income tax rates

This year’s budget announced a one percent decrease in the provincial tax rates applicable to the first two marginal tax brackets. Specifically, for 2023:

• income up to $49,275 will be taxed at a rate of 14 percent
• income over $49,275 and up to $98,540 will be taxed at a rate of 19 percent

The tax rates applicable to all other income brackets remain unchanged. The top marginal personal income tax rate for Québec is 25.75 percent for 2023. The current top combined federal and Québec marginal rates for 2023 are summarized below:

Personal tax credits and other amounts

In conjunction with the reduction of one percent to the tax rates applicable to the two lowest tax brackets, the budget announced the following additional changes:

• The rate applied in determining amounts for various personal tax credits will be reduced from 15 percent to 14 percent, including (but not limited to) the basic personal amount, pension amount, age amount, and amount for dependants.
• There will be an offsetting increase to the eligible amounts, where applicable, which form the basis of these above-mentioned credits, so that the dollar amount of the maximum available tax credit remains unchanged over the prior year. Further, beginning in 2024, these eligible amounts will be adjusted for inflation.
• Other credits impacted by the reduction to the lowest marginal tax rate include:
  • Tax Credit for Career Extension
  • Tax Credit for Volunteer Firefighters and Tax Credit for Search and Rescue Volunteers
  • First-Time Home Buyer’s Tax Credit
• Source deductions on various types of payments received by individuals, which were previously made at 15 percent, will be reduced to 14 percent. Similarly, certain payments previously requiring withholding at 20 percent will be reduced to 19 percent. For example, these source deduction changes will apply to payments made under a registered retirement income fund and other lump-sum payments from registered and non-registered sources.
• Bonus payments and retroactive pay increases previously eligible for an eight percent withholding rate will be replaced with a seven percent required withholding.

Other enhancements to tax credits

The budget announced enhancements to certain additional refundable and non-refundable tax credits, as follows:

• The Refundable Tax Credit for Childcare Expenses is amended to increase the income threshold for the child to $12,638 (2022 - $11,081). This amount will be adjusted for inflation beginning in 2024.
• To address the high inflationary environment in 2022, the housing component of the Refundable Solidarity Tax Credit will be enhanced by providing for double the normal indexation, or 12.88 percent. This enhancement will apply to the payment period beginning July 1, 2023.
• The Tax Credit for Volunteer Firefighters and Tax Credit for Search and Rescue Volunteers are increased from $3,000 to $5,000, where the resulting tax credit will be 14 percent of $5,000. The enhanced amount will be adjusted for inflation beginning in 2024.

Changes to Québec Pension Plan contributions

To encourage job retention for seniors in the workforce, beginning January 1, 2024, workers aged 65 and over will have the option to discontinue contributions to the Québec Pension Plan (QPP) if they are receiving QPP or Canada Pension Plan (CPP) retirement pension. The change will also introduce pension protection for those workers earning less than their career average earnings. This change aligns the obligations and options available under the QPP to those which exist under the CPP for workers aged 65 or older, but under 70. Various conditions must be met, and an election must be made in order to cease paying QPP contributions.

In addition, effective 2024, the obligation to contribute to the QPP will cease for workers over 72 years of age.

Changes to the intervention framework for tax-advantaged funds

The Québec government supports the growth of three tax-advantaged investment funds by allowing them to raise capital that provides a tax benefit in the form of a non-refundable tax credit granted to individuals who become their shareholders. Amendments will be made to the constituting act of these tax-advantaged funds as well as to the tax legislation and will:

• Simplify the investment requirement applicable to the three tax-advantaged funds by reorganizing the investment categories provided for in each of the constituting acts into the following three new categories:
  • Québec businesses
  • Québec investment funds
  • Other investments for the benefit of Québec
• Clarify the mission of the three tax-advantaged funds by updating and enhancing the functions currently set out in each of the constituting acts — in particular, to introduce the concept of savings
• Maximize the economic impact of labour-sponsored funds’ investments by increasing the minimum holding period for shares in labour-sponsored funds gradually from two years to five years
• Refocus tax assistance on taxpayers with greater savings needs by introducing a rule limiting access for high-income individuals to the non-refundable tax credit for a labour-sponsored fund

The constituting acts of the three tax-advantaged funds will be amended in relation to the first three measures above as of June 1, 2024, in the case of the labour-sponsored funds, and January 1, 2024, in the case of the Capital régional et coopératif Desjardins (CRCD) Fund. The fourth measure with respect to limiting access for high income individuals will apply to a claim for the non-refundable tax credit for a taxation year after the 2023 taxation year in respect of shares acquired after December 31, 2023.

Consumption tax measures

Increase in the specific duty on new tires for road vehicles

To ensure sustainability of the Québec Integrated Used Tire Management Program, the specific duty on new tires for road vehicles is proposed to increase as follows:

• $4.50 for new tires where the diameter of the rim is less than or equal to 62.23 cm and overall diameter is less than or equal to 83.82 cm
• $6.00 for new tires where the diameter of the rim is less than or equal to 62.23 cm and overall diameter is greater than 83.82 cm

The proposed increase will apply to tires acquired after June 30, 2023, including new tires provided as equipment on a road vehicle acquired in Québec.

New program to manage the tax exemption of First Nations

The budget proposes funding over five years to implement a computer system under a new program for managing the tax exemption of First Nations (the TEFNT program). This program, which will be phased in as of July 1, 2023, will allow persons with Indian status to benefit from a tax exemption on alcoholic beverages at the time of purchase. The TEFNT program will also be extended to the current fuel tax exemption management system.

Tax administration and other tax measures

Continuing implementation of Project VISION

In Budget 2022, $123.4 million was announced to be provided over five years to Revenu Québec for Project VISION, which is aimed at transforming the provision of services to individuals and businesses into a simplified, more efficient digital tax model. The government announced that it is providing an additional $62.8 million in funding over five years.

Consolidating government debt collection

The budget announced funding of $14.1 million over five years to Revenu Québec to consolidate all government debt collection activities within the agency. This initiative will align with the modernizing of collection activities as part of Project VISION.

Improving services to businesses

Revenu Québec is developing an electronic payroll service. This service involves the transmission of digital data directly from employers’ payroll systems to Revenu Québec each pay period. This digital transmission is intended to replace the multiple declarations, statements, and forms that companies are currently required to produce. Consultations will be held with various partners.

Introduction of pre-filled tax returns

Revenu Québec will set up a pilot project offering pre-filled personal income tax returns. This project will target a limited number of individuals identified as having a “simple tax situation” in order to allow for a quick, thorough, and secure deployment. These taxpayers will have the choice of confirming Revenu Québec’s proposal or completing their own return. Following this pilot project, the agency will adopt a phased approach by gradually expanding the target clientele. Note a “simple tax situation” is one where the tax authority acquires, through third-party statements, all the information necessary to assess the taxes and benefits to which an individual is entitled (employment income, pension income, RRSP income, scholarships, etc.).

New tax audit initiatives

The budget announced the deployment of new tax audit initiatives at Revenu Québec, including the hiring of additional staff. These initiatives are intended to strengthen the agency’s position against aggressive tax planning and step up its inspection activities.

Strengthening tax compliance on crypto assets

Revenu Québec announced that it will amend the tax legislation to authorize the Minister of Revenue to ask taxpayers whether they own or have used virtual assets to carry out certain transactions during a taxation year and, where applicable, to request the details of these transactions. This measure will apply as of the date of assent for the bill containing this measure.

The government also announced it will make legislative changes to better oversee ATMs used to trade crypto assets in Québec.

[1] Budget 2023-2024 Budget Plan, Table B.12, page B.22.

[2] Following the 2023-2024 budget speech, an alternative to separate accounting will be introduced as part of the current tax holiday for large investment projects.

[3] Montréal and Québec City metropolitan communities.

[4] La Matanie, La Matapédia, La Mitis, Les Basques, Témiscouata, Le Domaine-du-Roy, Maria-Chapdelaine, Charlevoix-Est, La Tuque, Maskinongé, Mékinac, Shawinigan, Les Sources, La Vallée-de-la-Gatineau, Papineau, Pontiac, La Haute-Côte-Nord, Le Golfe-du-Saint-Laurent, Avignon, Bonaventure, La Haute-Gaspésie, Le Rocher-Percé, Les Etchemins, Matawinie, Antoine-Labelle and Argenteuil.

[5] The list of excluded activity sectors is found in Section A of Additional Information – March 2023 (of the budget documents).