Quebec also accelerating previously announced changes to the Health Services Fund
Quebec has announced that it will temporarily enhance the tax credit for investments relating to manufacturing and processing (M&P) equipment. The province says the credit may now be claimed on eligible expenses for qualified property used in all regions of Quebec (it was previously only available for property used in a limited number of areas in Quebec, referred to as "resource regions"). The province has also increased the credit rate for qualified property acquired before January 1, 2020. Quebec also says it will accelerate its previously announced changes to the Health Services Fund (HSF) employer contribution rates.
Quebec announced that these changes are intended to support Quebec businesses in response to recently imposed trade tariffs.
Manufacturing & processing equipment tax credit expanded
A corporation that makes an eligible investment in qualified M&P equipment may be able to claim an investment tax credit (ITC) on certain eligible expenses ranging from 4% to 24%. The applicable ITC 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 ITC rates are available for corporations whose PUC is less than $500 million, and these ITCs are fully refundable, but only on cumulative eligible expenses up to $75 million. Otherwise, the lower base 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.
Tax credit's availability expanded within Quebec
Quebec has announced it will amend tax legislation to temporarily expand the availability of the credit to include eligible expenses to acquire M&P property used solely in Quebec (but outside of resource regions). As a result, corporations in Quebec with a paid-up capital of $250 million or less that were previously ineligible for the credit may now be temporarily able to claim a 10% refundable tax credit on eligible investment in M&P equipment for cumulative eligible expenses up to $75 million. For corporations in the metal processing sector with a paid-up capital of $250 million or less, the maximum tax credit will be 20%.
Also, corporations in Quebec with a paid-up capital of $500 million or more (or to the extent eligible expenses incurred exceed the $75 million cumulative threshold), including metal processors, may now be temporarily eligible for a 5% non-refundable tax credit. The available credit for corporations with a paid-up capital more than $250 million, but less than $500 million, assuming the cumulative threshold has not been met, ranges from 5% to 10%, or from 5% to 20% (if a qualified metal processor), decreasing as paid-up capital approaches $500 million.
Quebec is also increasing the 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:
In addition, businesses with a paid-up capital of $500 million or more with qualified property in these resource regions (or to the extent eligible expenses incurred exceed the $75 million cumulative threshold) may now be temporarily eligible for an increased 5% tax credit (from 4%). For corporations with paid up capital in excess of $250 million, but less than $500 million, the available credit will range from 5% to 40%/30%/20% (depending on the zone in which the property acquired is mainly used), decreasing as paid-up capital approaches $500 million.
Where the qualified property is acquired for use mainly in a resource region by a corporation in the metal processing sector, the corporation may benefit from an additional temporary increase in the tax credit rate of up to 5%.
The enhanced tax credit will apply for eligible expenses to purchase qualified M&P property between August 16, 2018 and December 31, 2019, provided certain conditions are met.
Acceleration of Health Services Fund contribution rate and threshold changes
Quebec has also announced it will accelerate the timing of its 2018 budget announcement to gradually increase the $5 million health service contribution rate threshold that applies to a specified employer's total payroll and also to gradually reduce the contribution rate. Although the threshold is still slated to rise to $7 million in 2022, Quebec has announced that it will accelerate the increases to the threshold for 2018 and 2019 to $5.5 million and $6 million, respectively. The threshold will then increase to $6.5 million in 2021 and $7 million in 2022.
Quebec has also announced that it will reduce the HSF contribution rate of an eligible specified employer earlier than expected. Specifically, Quebec said that the reduction of the rate to 1.25% (from 1.45%) for employers in the primary and manufacturing sectors with a total payroll of $1 million or less for the year (originally scheduled for 2022) will apply to wages paid or deemed paid after August 15, 2018. Similarly, Quebec announced the acceleration of the reduction in the contribution rate of a specified employer in sectors other than primary and manufacturing sectors. Where the total employer payroll is $1 million or less for the year, the contribution rate will decrease to 1.75% (from 1.95%) for wages paid or deemed paid after August 15, 2018, with further reductions to 1.70% in 2019 and 1.65% in 2020. These reductions were originally scheduled to take place for 2020 through 2022.
Quebec announced that the HSF contribution rates for a specified employer whose total payroll exceeds $1 million, but does not exceed the total payroll threshold applicable for the year, will be adjusted accordingly.
For more information, contact your KPMG adviser.
Information is current to August 21, 2018. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500
© 2019 KPMG LLP, a Canada limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.