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.

Budget highlights

  • 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.

Details:

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%.

Payroll tax:

  • 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.

Agri-food:

  • $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.

RénoVert investment:

  • 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].