On March 22, 2022, Minister of Finance Éric Girard presented Québec’s 2022–2023 budget. Projecting a deficit of $6.5 billion and touting significant spending increases on health care and education, this year’s budget also seeks to stimulate the province’s economic growth, support and strengthen communities, and address the rising cost of living.
The budget includes a somewhat controversial, one-time $500 cost of living support payment to approximately 6.4 million residents earning $100,000 or less. While no new taxes or tax increases were included in this year’s budget, several interesting tax changes were announced, as summarized below.
Corporate Income Tax Measures
New Refundable Tax Credit for Biofuel Production
To help reduce greenhouse gas emissions by promoting the production and use of alternative fuels, and with existing refundable tax credits for certain alternative fuels set to expire on March 31, 2023, the province is introducing a new refundable tax credit for the production of biofuel in Québec.
Under the new refundable tax credit, which will replace the expiring tax credits and be available between April 1, 2023, and March 31, 2033, qualified corporations will be able to claim the tax credit for eligible biofuels produced in Québec for sale and use in the province, up to a maximum volume limit of 300 million litres per year. Alternative fuels currently eligible for existing tax credits, such as ethanol and biodiesel, will qualify for the new biofuel production tax credit, as will other fuels derived from eligible materials (i.e., organic matter) that are considered to have low carbon intensity, subject to certain exceptions.
The tax credit rate will vary for specific types of biofuels, depending on the carbon intensity of each fuel relative to the conventional fuel (i.e., gasoline or diesel) that it is intended to replace, as well as several other factors.
Amendments to Pyrolysis Oil Production Refundable Tax Credit
To further support the reduction of greenhouse gas emissions, the province will extend the eligibility period for its refundable tax credit for the production of pyrolysis oil in Québec to March 31, 2033. Originally set to expire on March 31, 2023, the 10-year extension of this tax credit is intended to encourage the production of pyrolysis oil from residual forest biomass.
In addition, effective April 1, 2023, the tax credit rate will be adjusted (from the current rate of 8 cents per litre) to better reflect the reduction in carbon intensity attributable to a particular biofuel produced and the volume limit will be raised to 300 million litres (from 100 million litres) per year.
Temporary Increase to Investment and Innovation Tax Credit Extended
In light of continuing economic uncertainty, the government has decided to extend the temporary increase to its investment and innovation tax credit for an additional year, to December 31, 2023. In its 2021 budget, the government announced that the various tax credit rates under the program would be doubled to facilitate the province’s economic recovery from the COVID-19 pandemic. See Ryan Tax Alert | Québec Budget 2021 for further information on the temporary increase to this tax credit.
Tax Fairness Initiatives
The province’s commitment to its Tax Fairness Action Plan, which aims to ensure the reliability of Québec’s tax system by combatting tax evasion and preventing tax avoidance, was reaffirmed in this year’s budget. The government estimates that the province’s total tax gap (i.e., the difference between expected and actual tax revenues) for 2019 was approximately $5.3 billion, underscoring the need for further action on enforcement and compliance.
As part of its action plan, the government has indicated that it will implement various new measures designed to:
- Decrease trade in illicit cannabis and improve the management of seized alcoholic beverages through more efficient use of resources;
- Reduce tax evasion in the solid waste removal sector;
- Ensure compliance with tax requirements in the residential construction industry;
- Improve taxpayer service delivery by deploying a new project to simplify the taxpayer experience; and
- Reduce the administrative requirements on restaurants and bars via an upgraded, web-based sales recording module (SRM) system that does not require a physical device and allows customers to receive electronic invoices.
Fighting Economic Crime
The province intends to further combat certain economic crimes by focusing on cryptocurrency assets (“cryptoassets”) and introducing measures to:
- Increase audits and inspections of cryptoasset services businesses;
- Prevent tax evasion and money laundering schemes; and
- Develop investigative expertise related to cryptocurrencies.
For information on new and extended government funding initiatives included in this year’s provincial budget, please navigate to Mentor Works News | Quebec Budget 2022.
Further details on Québec’s 2022–2023 budget may be found on the province’s website at: http://www.budget.finances.gouv.qc.ca/budget/2022-2023/index_en.asp
If you have any questions about how these proposed changes might impact your organization, please do not hesitate to call the Ryan TaxDirect® line at 1.800.667.1600.