Quebec Budget 2025-2026 – Our Summary

Article updated on March 26, 8:49 am

Budget 2025-2026: strategic investments and major changes for a resilient Quebec

On March 25, 2025, Quebec Finance Minister Eric Girard presented his seventh budget to the National Assembly, against the backdrop of a trade war with the United States and growing economic uncertainty. A few days ago, Mr. Girard pointed out:

It’s our role to be present and to make public investments when private investment is weak.

Faced with a record deficit and tensions with our neighbors to the south, the government is proposing increased investment in various sectors to bolster the Quebec economy.

Our team has analyzed the 2025-2026 Quebec budget and identified the main elements to keep an eye on.

Important changes to e-business tax credits (CDAE)

The CDAE consists of a refundable tax credit and a non-refundable tax credit that provide tax assistance to companies specializing in the information technology sector. The credit is calculated on salaries incurred and paid by an eligible company to eligible employees.

To benefit from the CDAE for a given taxation year, a company must obtain a certificate from Investissement Québec certifying that it meets the following criteria:

• Criteria for activities
• Criterion relating to “provided services“
• Criterion for maintaining a minimum level of employment

The company must also obtain, for a taxation year, an attestation for each employee for whom it wishes to claim the CDAE, certifying that the employee qualifies as an eligible employee.

During the March 12, 2024 budget speech, changes were made to favour companies that offer higher value-added jobs. An exclusion threshold has been introduced so that the credit is calculated on an amount corresponding to the salary exceeding the exclusion threshold.

The credit rate has also been modified so that the non-refundable credit rate increases by 1% per year (until a rate of 10% is reached in 2028) and the refundable tax credit rate decreases accordingly (until a rate of 20% is reached in 2028).

The Minister has noted that many of the activities supported by the CDA are no longer considered innovative, high value-added activities. Consequently, when the March 25, 2025 budget was announced, new modifications were introduced to favor e-businesses that significantly integrate artificial intelligence (“AI”) functionalities.

In addition, maintenance or evolution activities will be withdrawn, and tax assistance will be reduced for companies that provide services to persons related to an application intended for use exclusively outside Quebec.

Refocusing eligible activities

Currently, eligible activities include any activity primarily related to e-business.

The definition of a qualifying activity will be narrowed so that, for the purposes of employee certification, the activity will have to be primarily related to e-businesses that incorporate AI functionality in a meaningful way.

Specifically, an activity will be considered primarily e-business-related that significantly integrates AI functionality when the tasks performed by the employee are primarily e-business-related and relate to a mandate, project or product that significantly integrates AI functionality.

Data processing and hosting activities added to “provided services” list

To meet the activity criterion, a company must demonstrate that at least 75% of its gross income comes from eligible activities as defined in the Act, and that at least 50% of its gross income comes from activities included in four specific NAICS codes:

• 511210 (software publishers);
• 541510 (computer systems design and related services);
• 561320 (rental of substitute personnel);
• 561330 (employee leasing)

The activities of data processing, data hosting and related services, included in the group described under NAICS code 51821, will be added to the list of NAICS codes enabling compliance with the 50% test.

To meet the services criterion, the company must demonstrate that 75% of gross income from activities included in the four specific NAICS codes relates to either:

• Services whose ultimate beneficiary is a person unrelated to the company;
• Services related to an application developed by the company and used exclusively outside Quebec.

The activities of data processing, data hosting and related services will also be added as eligible activities considered in the analysis of the criterion relating to services provided.

Withdrawal from maintenance and evolution activities

For employee certification purposes, activities relating to the maintenance or evolution of information systems or technological infrastructures will no longer be eligible activities. Consequently, activities required to ensure the proper functioning of systems and infrastructures, or to resolve or prevent problems, will no longer be eligible activities.

Application date

These changes will apply to taxation years beginning after December 31, 2025.

However, a corporation may elect to apply these changes to a year beginning after March 25, 2025, by forwarding the election, in writing, to Investissements Québec within the prescribed timeframe (before the ninth month following the due date for filing its income tax return for the affected taxation year).

Reduced tax assistance for companies engaged in inter-company outsourcing

The company certificate must indicate the proportion of a company’s gross revenue (from NAICS codes 511210 (software publishers), 51821 (data processing, hosting and related services) and 541510 (computer systems design and related services)) that is attributable to services relating to an application that will be used exclusively outside Quebec by an ultimate beneficiary who is a person related to the company.

This proportion should also be indicated for activities included in NAICS 561320 (substitute employee leasing) and 561330 (employee leasing) that are ultimately attributable to services provided in connection with an activity included in the three NAICS codes mentioned in the previous paragraph.

When one of these proportions represents at least 50% of a corporation’s gross income, the credit rate will be halved for that taxation year.

These changes will apply, for both refundable and non-refundable tax credits, to taxation years beginning after December 31, 2025.

New refundable tax credit for scientific research, experimental development, innovation and the product introduction (CRIC)

There are currently four refundable tax credits for individuals who operate a business in Canada and who makeresearch and development activities (R&D) in Quebec, or have it carried out on their behalf in Quebec, under a research contract:

• payroll tax credit – R&D;
• tax credit for university research or research carried out by a public research center or research consortium
• tax credit for pre-competitive research in private partnerships;
• tax credit for an eligible research consortium.

The current credit rate is 14%. This rate can be increased up to 30% when the company meets certain criteria, notably that its total assets (taking into account the assets of its associated companies) are less than $75 million.

Québec also offers two refundable tax credits to innovative companies for their innovation projects:

• tax credit for technological adaptation services;
• design tax credit – industrial component.

New credit parameters

The basic rate of the R&D, innovation and product introduction tax credit (hereafter “CRIC”) will be 20%. This rate is increased to 30% for a maximum of $1 million in R&D or product introduction expenditures by an eligible corporation that exceed the applicable exclusion threshold. The higher rate will now be available regardless of the corporation’s total assets and those of its associated companies.

Eligible company

For CRIC purposes, an eligible corporation is defined as a corporation, other than an excluded corporation, that carries on business in Québec and performs R&D or product introduction activities in Québec, or has R&D or product introduction activities performed on its behalf in Québec under contract, during its fiscal year. Members of partnerships may also be eligible for CRIC under certain conditions.

The following companies are excluded for credit purposes:

• Tax-exempt companies;

• Canadian Crown corporations or a wholly controlled subsidiary of such a corporation;

• Companies controlled at any time during the 24 months preceding the date of the contract, directly or indirectly in any manner whatsoever, by one or a combination of the following entities:

• An eligible university entity;

• An eligible public research center;

• An eligible research consortium;

• A trust in which one of the capital or income beneficiaries is one of the above-mentioned entities;

• A company operating a personal services business.

Note that individuals and trusts will not be eligible for the new credit, even if they qualified for the old credits.

Eligible Expenses

Subject to certain specific rules, eligible expenses will include, but are not limited to, expenses incurred for R&D activities or product introduction activities for:

• Salaries and wages of employees located in Quebec;
• Considerations paid to subcontractors with employees located in Québec;
• Payments made to certain eligible research organizations;
• Capital expenditures relating to the acquisition of assets (see details below).

The term “product introduction activity” will include activities to satisfy regulatory requirements aimed at obtaining registration or certification for the marketing of a product. Product design activities will also be product introduction activities. However, product introduction activities must be carried out as a continuation of R&D activities carried out in Quebec.

Exclusion threshold

The exclusion threshold applicable to a company for a fiscal year will be the higher of the following two amounts:

• $50,000; or
• The total relative threshold for each R&D and product introduction employee.

To benefit from the CRIC, a company must therefore incur eligible expenses in excess of the exclusion threshold applicable to its fiscal year.

Calculating CRIC

In summary, the CRIC will be calculated on eligible expenses in excess of the company’s exclusion threshold for the year. This excess will be multiplied by the applicable rate.

As previously mentioned, the CRIC rate will be either 30% or 20%, depending on the company’s spending limit.

Spending limits

The increased rate of 30% applies to a maximum of $1 million in R&D or product introduction expenditures per fiscal year.

In the case of a fiscal year of less than 51 weeks, the amount of the spending limit will be adjusted according to the number of days in the 365-day fiscal year.

Also, the $1 million limit will have to be shared among the companies in a group of associated companies.

In summary, all groups of eligible associated corporations will be entitled to the increased rate of 30% on the group’s first million eligible expenses. However, members of eligible partnerships will not be entitled to the higher rate on their share of partnership expenses.

Other terms and conditions

Assistance amounts, whether governmental or non-governmental, allocated expenditures for R&D or product introduction activities will be deducted from eligible expenses. Nevertheless, federal investment tax credits will not constitute government assistance for CRIC purposes.

Capital property acquired for R&D or product introduction purposes must be new and used solely in Quebec, 90% or more for R&D or product introduction purposes, for at least 730 consecutive days following the start of its use. Otherwise, a special tax will apply.

Also, the CRIC cannot be claimed for assets used or acquired as part of a major investment project that qualifies for a tax vacation.

Application date

The CRIC will apply in respect of a fiscal year beginning after March 25, 2025.

Extension of the Accelerated Investment Incentive and the immediate expensing measure

At the federal budget announcement on December 16, 2024, Department of Finance Canada proposed to fully reinstate the Accelerated Investment Incentive and immediate expensing measures for eligible assets acquired on or after January 1ᵉʳ, and which become ready for service before 2030. This measure will be phased out starting in 2030 and entirely after 2033.

The accelerated investment incentive provides enhanced capital cost allowance (CCA) in the first year for certain depreciable assets, while immediate expensing allows the full cost of an eligible asset to be deducted.

The expensing measure allows for a 100% deduction of the capital cost in the year of acquisition of the following assets:

• Manufacturing and processing machinery and equipment (category 53);
• Clean energy production and energy conservation equipment (categories 43.1 and 43.2);
• Zero emission vehicles (categories 54, 55 and 56).

Quebec laws will be amended to incorporate the same extension of the Accelerated Investment Incentive and the write-off measure.

In Quebec only, certain intellectual property included in category 14.1 will also be covered by the immediate expensing measure.

Health Services Fund (HSF)

Indexation of payroll threshold withdrawn

An employer is required to make a contribution to the HSF in respect of wages paid to employees who report to work at the employer’s establishment in Quebec, and to employees who are not required to report to work at an establishment of the employer, but who receive wages from an establishment in Quebec.

Currently, the HSF contribution is calculated at a rate of 4.26%. This rate is reduced for certain employers operating small and medium-sized enterprises (SMEs) whose total payroll is below the payroll threshold ($7.8 million for 2025).

The payroll threshold has been indexed annually since 2023. The law will be amended to eliminate the indexation mechanism. The $7.8 million threshold will therefore remain unchanged for 2026 and subsequent years.

Snapshot measures for businesses

• The capital synergy tax credit, designed to facilitate investment into innovative Quebec companies, will be abolished. No new applications for certification will be accepted after March 25, 2025.
• Quebec tax legislation includes two additional deductions for public transit and intermunicipal public transit, introduced in 2006 and 2012. These deductions allow companies to deduct certain amounts related to the purchase of transit passes for their employees or the organization of public transit services. These deductions will be abolished as of January 1ᵉʳ, 2028, for reasons of low use.
• Currently, employees are not required to include in their income the value of benefits relating to travel passes provided or reimbursed by their employer. As of January 1ᵉʳ, 2028, these benefits will have to be included in the calculation of employee income. The Quebec tax system will therefore be harmonized with the federal system for this measure as of 2028.

International tax measures

Promoting market diversification

Given the uncertainty surrounding our trade relations with the United States, many companies will have an interest in modifying their supply chains and diversifying their markets.

To promote market diversification, the government is announcing, as part of the 2025-2026 budget, $195.8 million over five years to pursue the maritime strategy, promote export projects, defend Québec’s interests and create wealth by supporting the network of foreign representations.

Pursuing the maritime strategy: the government’s 2025-2026 budget provides $150 million over five years to generate private and institutional investment, and to continue increasing Quebec’s port capacity to boost the competitiveness of businesses and the diversification of their exports.

Promoting export projects: the government has earmarked $15.8 million over two years to support regional export promotion organizations (ORPEXs) that help companies export, diversify markets or attract foreign direct investment, and to provide an additional $2 million per year over two years to Investissement Québec to help Quebec companies diversify in the rest of Canada and abroad.

Defend Québec’s interests and create wealth by supporting the network of Québec representation abroad: as part of the 2025-2026 budget, the government plans to invest $30 million over five years to support the network of Québec representation abroad. In particular, this funding will enable the continued implementation of territorial international strategies and support the international ambitions of Quebec business networks and companies.

Disclosure of foreign assets held by Quebecers

A new prescribed form will have to be sent to Revenu Québec to declare foreign assets held by Quebec taxpayers.

Production date

This form must be filed by a tax filer, for a given tax year or fiscal period, no later than the same filing due date as the tax return applicable to that tax filer for that year.

Who should submit the form?

Any person who qualifies as a “designated Quebec entity” and whose total of amounts each representing the cost amount of its “designated foreign property” will exceed $100,000 at any time during the taxation year or fiscal period must file this form.

A “Quebec entity” means, as the case may be:

• an individual residing in Quebec during a taxation year;
• a corporation that, for that taxation year, is both resident in Canada and established in Quebec;
• a trust resident in Quebec during a taxation year;
• certain partnerships.

Note that certain entities are specifically excluded from the notion of “designated Québec entity”.

What is “designated foreign property”?

The “designated foreign property” to be reported will be essentially the same as that provided for in federal tax legislation, i.e.:

• funds or intangible property located, deposited or held outside Canada;
• tangible property located outside Canada;
• shares of the capital stock of a non-resident corporation;
• interests in a trust not resident in Canada;
• interests in a partnership that owns or holds designated foreign property;
• interests or rights in an entity not resident in Canada;
• debts owed by a non-resident of Canada;
• rights in or to property that is designated foreign property, whether immediate or future, absolute or conditional and provided for by contract;
• property that is convertible into, or exchangeable for, designated foreign property, or that confers the right to acquire such property.

Note that there is a list of goods that will not fall under the definition of “designated foreign property”.

Penalties

The following penalties will be introduced for any registrant who fails to comply with the new reporting obligation:

• $500 per month or part-month, for a maximum of 24 months (maximum $12,000) and if an entity is put on notice to file the new return and does not comply within the allotted time, the penalty will be double this amount;
• an additional penalty for non-production for more than 24 months of 5% of the total cost of the designated foreign goods;
• a penalty for a false statement or omission equal to the greater of $24,000 or 5% of the total cost of the designated foreign property.

Extension of contribution period

An additional three-year period following the normal reassessment period will be provided to allow an assessment or reassessment to be made where the taxpayer has failed to file the prescribed form, or has failed to indicate any required information, or has failed to indicate an amount in respect of designated foreign property.

Effective Date

After Royal Assent.

Transitional assistance for companies affected by US tariffs

The 2025-2026 budget is based on the assumption that the United States will not pursue an all-out trade war by maintaining tariffs of 25% over a long period, since these tariffs will have a negative impact on its economy.

The Ministry of Finance’s basic assumption is that these tariffs could be adjusted over the next few months, that the effects would be equivalent on average to tariffs of 10%, and that they could be maintained for a transitional period of around two years.

Under these conditions, the government will offer transitional assistance to companies affected by U.S. tariffs, by supporting companies with tariff-related liquidity problems, and will make available financial aid in the form of loans of up to $1.6 billion. Credits of $400 million over two years are earmarked for this initiative.

In addition, Revenu Québec will use its administrative leeway to support exporting companies, notably by speeding up the processing of their tax credit applications. The agency’s aim is to cut processing times in half, to ensure liquidity for these companies. Revenu Québec will also be flexible in order not to exacerbate potential liquidity problems.

Sector-specific measures

Consumption Tax Measures

The tax on insurance premiums applies to most insurance premiums. The tax rate on insurance premiums will increase from 9% to 9.975% on insurance premiums paid after December 31, 2026. As a result, the rate on insurance premiums will be equal to that of the QST.

Note that the tax on insurance premiums is not recoverable as an input tax credit, and will be a cost for businesses and self-employed workers.

Measures affecting individuals

In brief

• Fees paid for osteopathy, homeopathy, naturopathy and phytotherapy will no longer be eligible medical expenses for purposes of the medical expense tax credit as of January 1, 2026. This change is in line with the federal position.
• The age of an “eligible child” for purposes of the refundable tax credit for child care expenses will be reduced from 16 to 14, as of the 2026 taxation year.
• The non-refundable tax credit for political contributions will be abolished for all contributions made as of the 2026 taxation year.
• The deduction relating to the acquisition of an income averaging annuity from artistic activities will be abolished for new annuities acquired after the 2025 taxation year.
• The tax shield will be abolished as of the 2026 taxation year. The purpose of this refundable credit was to offset part of the loss of certain tax credits that occurs when a taxpayer’s income increases.
• Tax vacations for foreign researchers, foreign experts, foreign specialists assigned to the operations of an international financial center and foreign specialists working in financial services will be abolished as of March 26, 2025. This will not affect those who have already received their certificates.
• The Cooperative Investment Plan deduction will be reduced from 125% of the adjusted cost of an eligible security to 100% of cost, for securities acquired after March 25, 2025.

Updating the additional registration fee for luxury vehicles

The government is proposing to raise the threshold for additional registration duty on luxury vehicles.

Details of initial measure

Additional registration fee for:

• Any passenger vehicle or light truck weighing 3,000 kg or less;
• 7 years old and under; and
• Valued at over $40,000.

Exemption for electric and plug-in hybrid vehicles for the portion of their value between $40,000 and $75,000.

Proposed modifications

• The threshold for the additional registration fee will rise from $40,000 to $62,500;
• Withdrawal of exemption for electric and plug-in hybrid vehicles.

Application date of proposed changes

All applications for registration or renewal of registration after December 31, 2026.

Infrastructure financing

The government announces the end of free access to toll bridges and ferries for electric and plug-in hybrid vehicles from January¹, 2027, and the introduction of an annual contribution for electric and plug-in hybrid vehicles from January^1, 2027.