The Québec Budget 2021–2022 ("Budget") includes measures encouraging investment to accelerate technology adoption and strengthens several tax measures aimed at the technology sector. The three key tax measures that tech businesses and entrepreneurs should know about are discussed below.
For more details on these measures, see our latest article on Quebec's budget investment relief.
A. Temporary Increase in the Investment and Innovation Tax Credit (C3i)
The investment and innovation tax credit (C3i) encourages businesses across all sectors to acquire new technologies to digitize their production and management processes and upgrade their manufacturing equipment.
The government announced the doubling of C3i rates for specified expenses incurred to acquire a specified property after March 26, 2021, but before January 1, 2023.
Specified property includes manufacturing and processing materials (depreciation categories 43 or 53), computer materials (depreciation category 50) and management software (depreciation category 12).
B. Broadening of Eligible Sectors of Activity for the Large Investment Projects Tax Holiday
The Budget enhances the tax holiday for large investment projects by making digitization projects eligible for the tax holiday.
Tech companies that carry out digitization projects in Québec may now benefit from a tax holiday in respect of the income taxes and contributions to the Health Services Fund ("HSF") relating to the project.
Effective March 26, 2021, qualifying investment projects include projects aimed at developing and implementing a digital solution by integrating or upgrading an information system or technology infrastructure, resulting in organizational and operational changes within the business.
C. Harmonizing the QST rules to the GST/HST Rules for Digital Transactions
Under the existing Québec e-commerce measures introduced in 2019, suppliers without a presence in Québec making taxable supplies of incorporeal movable property (intangible property) or services to specified Québec consumers, as well as digital property and services distribution platforms allowing these suppliers to make such supplies, are required to register under a specified Québec Sales Tax ("QST") registration system.
The Federal 2020 Fall Economic Statement introduced several measures to collect the Goods and Services Tax/Harmonized Sales Tax ("GST/HST") on e-commerce transactions with Canadian consumers, and included measures pertaining to supplies of physical goods made by non-resident vendors through fulfilment warehouses in Canada, which were not included in the Québec e-commerce measures. These measures were expanded on in the 2021 Federal Budget.
The Québec Government proposes to make amendments to the existing rules to harmonize them with the GST/HST measures. Although Québec has not yet introduced draft legislation, the Budget proposes to adopt all of the Federal measures pertaining to supplies of physical goods made by non-resident vendors through fulfilment warehouses in Canada, and to harmonize certain other measures with the federal rules.
The new measures will take effect on July 1, 2021, and may apply to you if you are:
- A non-resident vendor making sales through fulfilment warehouses in Canada,
- A fulfilment warehouse business in Québec,
- A distribution platform operator, or
- A platform-based short-term accommodation business.
For more details on the Federal measures, read our article on the 2020 Canadian Federal Fall Economic Statement and our latest analysis of the 2021 Federal budget.
For more details on the current QST measures, click here.
For additional tax advice pertaining to this Budget or for other tax services from Gowling WLG, please contact any of the following authors: Malya Amghar, Laura Gheorghiu, Daniel Lacelle.
The authors wish to thank Yasmine Mekallach for her assistance in the preparation of this publication.