Quebec Bill 5, which contains previously announced measures from Quebec's 2021 budget, received Assent on December 10, 2021. Specifically, the bill includes measures to effectively decrease the small business income tax rate to 3.2% (from 4%) effective after March 25, 2021, provide COVID-19 relief to businesses and reflect amendments related to certain recently enacted federal rules. The bill also includes consequential changes to the non-eligible dividend tax credit in 2022, and other measures that were introduced in various information bulletins published since 2019.
The corporate income tax measures included in Bill 5 are considered enacted for U.S. GAAP purposes, as of December 10, 2021 (the date the bill received Assent) and substantively enacted under IFRS and Accounting Standards for Private Enterprise since November 2, 2021, the date the bill received first reading (as Quebec has a majority government).
Corporate tax measures
Bill 5 includes measures to:
- Effectively decrease the small business income tax rate to 3.2% (from 4%) by increasing the small business deduction (SBD), effective after March 25, 2021
- Introduce an option for computing remunerated hours for the purposes of the SBD, effective for taxation years ending after June 30, 2020 and before July 1, 2021
- Temporarily enhance the refundable tax credit for on-the-job training periods
- Temporarily enhance the investment and innovation tax credit (C3i)
- Enhance the tax holiday for large investment projects
- Add restrictions to certain tax incentives regarding content that includes sexually explicit scenes or encourages violence or discrimination
- Maintain the compensation tax for financial institutions.
COVID-19 tax measures
Bill 5 includes measures to add temporary discretionary powers for the administration of certain tax incentives and to extend the employer contribution credit to the Health Services Fund (HSF credit) for employees on paid leave during COVID-19 until August 28, 2021.
Personal tax measures
Among other personal tax measures, Bill 5 includes consequential changes to the Quebec rules for certain intergenerational transfers following recent federal changes. These amendments ensure that eligible individuals can continue to qualify for existing provincial relief.
In addition, the bill includes a decrease to the provincial non-eligible dividend tax credit to 3.42% (from 4.01%), effective 2022. As a result, the combined top marginal rate on non-eligible dividends for Quebec residents in 2022 is set to increase to 48.70% (from 48.02%).
For more information, contact your KPMG adviser.
Information is current to December 20, 2021. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500