Article written by Marie-Ly Dang, M. Fisc.
Quebec is a fertile breeding ground for companies operating in the manufacturing and processing sector: the province offers a number of attractive tax incentives. Here’s a non-exhaustive overview of the main incentives that could be of interest to your company if you operate in this sector.
Manufacturing companies: what does Quebec have to offer?
Quebec’s streamlined criteria for ECD
Firstly, manufacturing companies benefit from streamlined criteria to qualify for the small business deduction (“SBD”). As long as the company’s manufacturing activities account for 50% or more, it benefits from full ECD. Its tax rate will then be 3.2% in Quebec. Where the proportion of manufacturing activities is between 25% and 50%, the ECD rate will be progressively adjusted and the tax rate will vary between 3.2% and 11.5%. For this measure, the proportion of manufacturing activities represents the ratio of labor costs related to these activities to total labor costs.
Manufacturing and processing equipment for the manufacturing sector
Secondly, companies investing in manufacturing and processing equipment in Quebec, i.e. eligible Class 53 assets, can take advantage of accelerated depreciation and the additional 30% deduction. Accelerated depreciation and the additional 30% deduction are complementary measures: the first allows the full cost of manufacturing and processing equipment to be depreciated in the first year, while the second allows a depreciation allowance to be taken in the second year, corresponding to 30% of the deduction taken in the previous year. In other words, the same asset can be depreciated faster, by up to 130% of its initial cost.
Credit for investment and innovation (C3i)
Thirdly, these same companies are also eligible for the C3i investment and innovation credit. C3i is a credit that applies in particular to new manufacturing and processing goods used in the operation of a business. The credit rate, and therefore ultimately the credit amount, varies according to the territory, in terms of economic vitality, in which the good is mainly used and the period in which the good was acquired. For the purposes of this credit, only the portion of the cost of manufacturing and processing goods that exceeds $12,500 qualifies for the credit. In the end, up to $100 million in assets can be eligible for the credit. You can read our full article on the subject by clicking here.
Reduced contribution rate for Quebec industry
Finally, among the many other existing measures is the reduced contribution rate to the Health Services Fund (“HSF”) for companies in the primary and manufacturing sectors. This provision allows a specified employer eligible for the FSS to reduce its contribution rate from 4.26% to 1.25% if its total payroll is below the applicable threshold for the year.
Quebec offers a wide range of tax incentives to encourage manufacturing businesses in the province. Other measures for manufacturing companies have not been covered in this summary text, so we invite you to contact one of our associates to find out more about all the tax measures available to your company.
