In an attempt to support Quebec businesses against the recently imposed tariffs announced by the Trump government in the United States, the Quebec government, on August 15th 2018, introduced two new measures, a temporary increase in the tax credits for investments in manufacturing and processing equipment and an acceleration in the reduction of Health Services Fund contributions.
Temporary Increase in the Investment Tax Credit (“ITC”) for Manufacturing and Processing Equipment (“M & P Equipment”)
Currently, businesses investing in qualified M & P Equipment are entitled to claim an ITC against taxes payable ranging from 4% to 24% depending on the location and size of the business and the amount of the investment. It has only been available for new equipment used mainly in certain areas and used solely in Quebec. As a temporary measure equipment purchased outside previously prescribed locations will be eligible for the credit provided the equipment is used solely in Quebec. The base credit will increase to 10% and will be as high as 45% depending on the location of the investment and the nature of the industry. The base rate for Montreal will be 10%.
This temporary increase will apply to the purchase of qualified property acquired after August 15th 2018 and before January 1, 2020. It will not, however, apply to qualified property acquired after August 15th if there was a contractual obligation to purchase the property before on or before August 15th or if construction on a qualified property commenced on or before that date.
Reduction of the Health Services Fund (“HSF”) Contribution for all Small and Medium Sized Businesses (“SMB”)
Currently the HSF contribution is 4.26% with a reduced rate for SMBs in the primary and manufacturing sectors that have a total payroll of less than $5,000,000. The Quebec government had previously announced in its 2018 budget that the rate for SMBs in the primary and manufacturing sectors could decrease to as low as 1.25%. The reduction was to be gradually phased in. As well the $5,000,000 threshold was to gradually increase to $7,000,000 by 2022 and, thereafter, be automatically indexed.
To provide further relief to SMBs the increase in the threshold will be phased in faster than had been previously announced as will the reduction in HSF contribution rate. Notably, the rate for all employers under the $1,000,000 threshold decreases to 1.75% for all wages paid after August 15th.
Please do not hesitate to contact our Tax Team for any specific questions relating to these measures that impact you or your business.