Highlights From the Québec Government's 2013-2014 Budget Relating to Businesses
Tax holiday for large investment projects
Under this new program, corporations and partnerships that begin to carry out a large investment project in Québec after November 20, 2012 may, under certain circumstances, obtain a ten-year tax holiday.
A new tax holiday for large investment projects was announced in the November 20, 2012 Budget to replace the tax holiday for a major investment project that been held on moratorium since 2003. Essentially, the tax holiday enables eligible corporations to receive a holiday from income tax and a holiday from the employer contribution to the Health Services Fund regarding eligible activities that relate to such project for a period of ten years.
Generally, in order to qualify for the tax holiday, the investment project must involve a minimum of $300 million of investment expenditures. The investment expenditures that will be taken into account to compute the minimum threshold include: all the capital expenditures incurred to obtain goods and services with a view to the establishment, in Québec, of the business or the portion of the business under which the activities arising from the large investment project will be carried out, or with a view to increasing or modernizing the production of such a business or portion of a business in Québec. However, investment expenditures attributable to the carrying out of the project will not include expenditures relating to the purchase or use of land and those relating to the acquisition of a business already being carried on in Québec.
To benefit from the tax holiday, a corporation or partnership will generally have to:
Submit an application to obtain an initial certificate from the Minister of Finance and the Economy before November 21, 2015.
Obtain the initial certificate as well as the annual certificates issued by the Minister of Finance and the Economy.
Establish a project relating to manufacturing; wholesale trade; warehousing and storage; or data processing, hosting and related services. The new measures exclude mineral substance processing activities from activities relating to a large investment project.
Reach the $300 million minimum threshold for total investment expenditures attributable to the carrying out of the large investment project in Québec no later than the end of the 48-month period starting on the date the initial certificate relating to such project is issued.
It should be noted that the tax assistance relating to this new tax holiday will be limited to 15% of the total qualifying investment expenditures in respect of the project.
Improvement to the tax credit for investments relating to manufacturing and processing equipment
Budget 2013-2014 states that the tax credit for manufacturing and processing equipment investments will be amended to extend the tax credit’s eligibility period by two years. The rate of the tax credit will also be increased in certain circumstances.
The tax credit for investments relating to manufacturing and processing equipment will be extended for a period of two years, ending in 2017. Property acquired by a corporation may qualify as qualified property for the purposes of the tax credit for investments if it is acquired before January 1, 2018 and satisfies the other conditions stipulated in the tax legislation.
Moreover, qualifying corporations that acquire qualified property for use mainly in the eastern part of the Bas-Saint-Laurent administrative region or in an intermediary zone will see the tax rate of the tax credit for investments increase by 5%, attaining 35% in the former case and 25% in the latter.
Temporary increase in the rate of the refundable tax credit for R&D salary in relation to biopharmaceutical activities
In light of the challenges that the biopharmaceutical industry faces and given that this industry depends heavily on the results of its research and development, Budget 2013-2014 proposes to temporarily increase, for a period of five years, the rate of the refundable tax credit for R&D salary that an eligible biopharmaceutical corporation may receive.
The tax legislation will be amended so that an eligible biopharmaceutical corporation may receive, for a taxation year, a refundable tax credit for R&D salary equal to 27.5% of its eligible R&D expenditures for such year instead of the current 17.5% refundable tax credit.
SMEs will continue to benefit from a tax credit rate of up to 37.5%. An eligible biopharmaceutical corporation that, after November 20, 2012, obtains an eligibility certificate for a taxation year, may receive a refundable tax credit for R&D salary equal to 27.5% of its eligible R&D expenditures to the extent that such expenditures are incurred after November 20, 2012 and before January 1, 2018.
Increase in the contribution by financial institutions
The different tax rates relating to the compensation tax on financial institutions currently based on paid-up capital, amounts paid as wages and insurance premiums for the period of January 1, 2013 to March 31, 2019 will be increased.
Budget 2013-2014 proposes to increase the rates of the compensation tax applicable to the various tax bases for the period of January 1, 2013 to March 31, 2019. More specifically, the following rates will apply for the relevant period:
On amounts paid as wages:
In the case of a bank, a loan corporation, a trust corporation or a corporation trading in securities, 2.8%
In the case of a savings and credit union, 2.2%
In the case of any other person (saving certain exceptions), 0.9%
For insurance premiums and amounts established regarding insurance funds, 0.3%.
Amendments to the mining royalty regime deferred
Despite much discussion surrounding a potential increase in mining royalties, the 2013-2014 Budget Speech mentions that the government, in collaboration with the Minister of Natural Resources, will consult the industry and the stakeholders concerned about this issue before making a decision.
For further details in respect of the measures above and if you have any questions about the Budget 2013-2014, or how it may affect you, please contact any member of the Tax Group at McCarthy Tétrault or your regular McCarthy Tétrault lawyer.