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Canada: M&P equipment tax credit extended in Quebec

Canada: M&P equipment tax credit extended in Quebec

Quebec announced it will extend the provincial manufacturing and processing (M&P) equipment tax credit to certain property acquired before 1 January 2021, among other changes.

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In an information bulletin (20 February 2020), Quebec tax officials also advised that the province intends to harmonize with proposed federal legislation to extend certain amateur athlete trusts, but that it does not intend to harmonize with proposed federal legislation to increase the basic personal amount to $15,000* by 2023.

*$=Canadian dollar


Background

A corporation that makes an eligible investment in qualified M&P equipment may be able to claim a tax credit on certain eligible expenses, ranging from 4% to 24%. The applicable credit rate depends on where the qualified property is used, the corporation's paid-up capital (PUC) calculated on an associated-group basis, and the cumulative amount of eligible expenses the corporation has claimed. Higher tax credit rates are available for corporations whose PUC is less than $500 million, and these tax credit rates are fully refundable, but only on cumulative eligible expenses up to $75 million. Otherwise, the lower tax credit rates are available and are non-refundable.

Qualified M&P equipment must meet certain conditions, including that it is used mainly in specified "resource regions" of Quebec.

Quebec previously announced it would temporarily expand the availability of the tax credit to include eligible expenses to acquire M&P property used solely in Quebec (and outside of resource regions), and would temporarily enhance various tax credit rates. For example, Quebec announced that it would increase the M&P equipment tax credit rate for corporations in Quebec with a paid-up capital of $250 million or less for eligible expenses (up to the cumulative threshold) for qualified property used mainly in previously eligible regions (i.e., resource regions) as follows:

  • Property acquired for use mainly in remote zones—Credit increases to 40% (from 24%)
  • Property acquired for use mainly in the eastern part of the Bas-Saint-Laurent administrative region—Credit increases to 30% (from 16%)
  • Property acquired for use mainly in intermediate zones—Credit increases to 20% (from 8%)

These changes apply for eligible expenses to purchase qualified M&P property between 16 August 2018 and 31 December 2019, provided certain conditions are met.


Enhanced M&P equipment tax credit—one-year extension

Quebec tax officials stated that the tax credit for investments relating to M&P equipment will be extended to qualified property acquired before 1 January 2021 (from 1 January 2020) if certain conditions are met. To be eligible, the property must be acquired in accordance with a written obligation contracted after 15 August 2018 and before 1 January 2020, or the construction of the property by the corporation or on its behalf must have started after 15 August 2018 and before 1 January 2020.


Amateur athlete trusts expiration period—one-year extension

Quebec also announced that it will harmonize with federal proposals to extend the expiration period for amateur athlete trusts to nine years (from eight years), for trusts that would otherwise expire in 2019. Under the proposed federal measure, these trusts will expire in 2020 and any remaining trust property will be deemed to be distributed to the athlete (and included in their income) at the end of the 2020 taxation year.

Read a February 2020 report prepared by the KPMG member firm in Canada

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