Update for members:
On March 17, Québec Finance Minister Carlos Leitão tabled the provincial budget for 2016-2017. There were no major surprises or announcements.
It is a balanced budget that promises more balanced budgets to come. As of March 31, the debt is set to decline by 0.1 percentage point, to 55% of GDP. The target remains steady at 45% of GDP by 2026.
The increase in consolidated expenses (excluding debt service) was 2.5% for the year that just ended, and the projected growth in expenses is between 2.3% and 2.4% from now to 2021:
- 2.4% increase in expenses for 2016-2017 and 2017-2018.
- 2.3% increase in expenses for 2018-2019 and the following years.
Education absorbs the largest share
The government’s proposed education plan calls for investments of $1.2 billion over three years, divided between investments in direct services and investments in infrastructure for the education network.
- Reduction in the contribution rate to the Health Services Fund (HSF) for all small and medium businesses (SMBs).
- Creation of a deduction for innovative manufacturing firms, by reducing the tax on income derived from a patent to 4%.
- Creation of a new refundable tax credit for large digital transformation projects.
- Several changes to income tax credits.
Payroll tax for the health services fund:
- Slight reduction in the contribution to the Health Services Fund for SMBs in the service sector (from 2.7% to 2.0% in 2021) – for businesses with a payroll under $1 million.
- For businesses with a payroll between $1 million and $5 million, the tax increases linearly to 4.25%.
- The tax rate for small businesses will stay at 8%, while the rate for the manufacturing and primary sectors is reduced to 4%. Québec’s small retailers will continue to be taxed at 8%, more than double the average in the rest of Canada, which is 3%.
Accelerate the digital transformation of the manufacturing sector and the adoption of e-commerce:
- $28.2 million will be invested in the next five years in several measures, including tax credits and software purchases.
- Part of this sum will also be invested in the Digital Strategy that will be tabled by May 2016.
- The tax credit offered on the cost of contracts awarded for the integration of management software packages will now be available to SMBs in the wholesale and retail sectors.
- A tax credit will be offered for major digital transformation projects, to support the transition to the digitized business processes. The rate will be 24% of salaries paid for certain categories of employees, on the condition that the project creates at least 500 jobs in Québec in the first two years of a contract that lasts at least seven years.
- $45 million will be spent in the next five years to promote the development of the agri-food industry (exports, food processing research, use of better agricultural practices, and oversight of the Québec alcoholic beverage industry).
- The Québec government intends to develop an agri-food strategy in 2016-2017, in cooperation with industry stakeholders.
- Introduction of a new refundable tax credit for green residential renovations, until March 31, 2017, equal to 20% of eligible expenses, including the replacement of septic tanks, to a maximum credit of $10,000.
If you have any questions or comments, don’t hesitate to contact Luc Tremblay, Director of government relations, at 514-982-0267, extension 339, or by email at [email protected].