Tax Highlights from the 2025 Québec Budget

HIGHLIGHTS FROM THE QUÉBEC BUDGET

Minister of Finance Eric Girard tabled the 2025/26 Québec provincial budget on March 25, 2025.

The budget projects a deficit of $11.4 billion for the upcoming 2025/26 fiscal year, decreasing to $7.1 billion in 2026/27 with a plan to restore fiscal balance by 2029/30. The financial framework includes a contingency reserve of $2 billion per year for 2025/26 and 2026/27 fiscal years with a decrease to $1.5 billion over the following three fiscal years to reduce the effects of more moderate-than-anticipated economic growth. The forecast deficit for the nearly completed 2024/25 fiscal year now stands at $8.1 billion—$2.9 billion below the initial projected deficit of $11 billion. Growth in real GDP is expected to continue and reach 1.1% in 2025 and 1.4% in 2026.

On the income tax side, there are no changes to personal or corporate income tax rates for 2025. However, the budget includes the conversion of various tax deductions into non-refundable tax credits, the consolidation of R&D fiscal measures currently available into a new refundable tax credit, and the abolishment of various personal and corporate tax credits.

The following pages summarize the changes announced in the budget. Please note that these changes are proposals until they are passed into law by the government.

PERSONAL TAX MATTERS

Personal Income Tax Rates and Tax Brackets

There are no proposed changes to personal income tax rates. However, tax brackets and other amounts have been indexed by 2.85% to account for inflation. The table below outlines Québec’s tax rates and tax brackets for 2025.

The table below outlines the 2025 combined federal and provincial highest marginal tax rates for various types of income.

Family Allowance for Bereaved Parents

To ensure a fairer and more uniform treatment of the refundable tax credit granting an allowance to families (RTCAF) payments to grieving parents, the tax legislation will be amended to provide that Family Allowance payments, as well as the Supplement for Handicapped Children (SHC) or the Supplement for Handicapped Children Requiring Exceptional Care (SHCREC) payments, where applicable, will be extended for 12 months from the month following the month that includes the day of an eligible dependent child’s death.

The extension of Family Allowance and SHC or SHCREC payments, where applicable, will only apply to children for whom Family Allowance payments were already being made at the time of the child’s death until the month subsequent to that in which the child would have reached the age of majority.

This new measure will apply in respect of a death occurring after June 30, 2025.

Refundable Tax Credit for Childcare Expenses

In general, childcare expenses incurred for the care of an eligible child may give rise to a refundable tax credit for childcare expenses, where these expenses are incurred, to enable the taxpayer or eligible spouse to perform the duties of an office or employment, carry on a business, carry on research, pursue studies or actively seek employment.

Effective for the 2026 taxation year, the age of an “eligible child,” for the purposes of the tax credit will be reduced from 16 to 14. Consequently, an eligible child of an individual or of an individual’s spouse will have to be under 14 years of age at any time during the year for childcare expenses incurred for the child in the year to be eligible for the tax credit for childcare expenses for that year.

The Term “practitioner” Used in the Personal Income Tax System

Effective January 1, 2026, the Québec tax legislation will be amended so that the term “practitioner” provided in the Taxation Act no longer includes homeopaths, naturopaths, osteopaths and phytotherapists.

Cooperative Investment Plan (CIP)

For qualifying securities acquired after the day of the budget, the tax legislation will be amended so that, for the purposes of the CIP deduction, the adjusted cost of a qualifying security for an individual will be limited to the cost of that security, determined without taking into account borrowing costs and other costs related to the acquisition, instead of 125% of such cost.

Conversion of Deduction Into Non-refundable tax Credit

For a taxation year after 2025, the budget proposes to convert the following deductions into non-refundable tax credits:

• the residence deduction for a member of the clergy or a religious order will be converted into a non-refundable tax credit.
• the deduction for adult basic education tuition assistance will be replaced by a non-refundable tax credit.

Abolishment of Tas Credits

The budget proposes to abolish the following tax credits effective January 1, 2026:

• the tax shield refundable credit,
• the non-refundable tax credit for political contributions for all contributions made as of the 2026 taxation year, and
• the deduction relating to the acquisition of an income-averaging annuity respecting income from artistic activities.

The budget proposes to abolish the following tax credits effective March 26, 2025:

• the foreign researcher tax holiday,
• the foreign expert tax holiday,
• the tax holiday for foreign specialists assigned to operations of an international financial centre,
• the tax holiday for foreign specialists working in the financial services sector,
• the tax holiday for seamen engaged in international transportation of freight, and
• the tax credit for patronage gift.

CORPORATE TAX MATTERS

Corporate Income Tax Rates

The budget contains no proposed changes to corporate income tax rates. The table below outlines Québec’s tax rates and small business limit for 2025.

The table below outlines the 2025 combined federal and provincial corporate income tax rates for various types of income earned by a Canadian Controlled Private Corporation (CCPC).

New Tax Assistance System Fostering Scientific Research and Experimental Development (R&D) Activities

In order to improve the competitiveness and productivity of Québec businesses, boost the economic spinoffs from R&D activities undertaken in Québec and provide a simpler, more effective tax assistance system for innovation, significant changes will be made to the Québec fiscal measures fostering R&D activities. These changes consist of:

• consolidating the R&D fiscal measures currently available into a new 20% refundable tax credit for R&D, innovation and pre- commercialization for taxation years beginning after the day of the budget;
  • The refundable credit rate may be increased to 30% for a maximum of $1 million in expenditures relating to R&D activities or expenditures relating to pre-commercialization activities of an eligible corporation that exceed the amount of the applicable exclusion threshold, regardless of its assets.
• offering a more competitive regime by providing a higher basic rate and a more accessible increased rate;
• maximizing R&D investment by making certain capital expenditures eligible for the tax credit;
• recognizing the importance of expenditures relating to pre-commercialization by giving greater consideration to such expenditures in the tax credit base;
• refocusing the tax assistance provided on higher value-added jobs by introducing a modified exclusion threshold;
• simplifying the system by abolishing less effective measures for fiscal periods beginning after the day of the budget including:
  • Tax credit for scientific research and experimental development,
  • Tax credit for university research and for research carried on by a public research centre or a research consortium,
  • Tax credit for private partnership pre-competitive research,
  • Tax credit for fees and dues paid to a research consortium,
  • Tax credit for technological adaptation services, and
  • Tax credit for design (industrial component).

Modernization of the Tax Credits for the Development of e-business (TCEB)

The TCEB provides tax assistance to businesses in the information technology sector that carry out e-business activities, notably in the fields of computer systems design and software publishing.

The government’s review of tax expenditures has determined that some activities supported by the TCEB are no longer considered high value-added innovative activities. This review also found that some of the technologies whose adoption it promotes are no longer considered emerging technologies. As a result, changes will be made to modernize the eligible activities for TCEB purposes.

These changes consist of:

• refocusing eligible activities for TCEB purposes on e-business integrating artificial intelligence (AI) functionalities to a significant extent;
• relaxing the criteria relating to activities and the criterion relating to services provided by adding data processing and hosting activities, to promote the eligibility of AI businesses;
• removing activities relating to maintenance or evolution.

In addition, a change will also be made to reduce the refundable and non-refundable tax credits to corporations that provide services to persons with whom they are not dealing at arm’s length by 50% where the proportion of the corporation’s gross revenue is derived from activities that are attributable to services with whom the corporation is not dealing at arm’s length to be used exclusively outside Québec.

These amendments will apply, for both refundable and non-refundable tax credits, in respect of a taxation year beginning after December 31, 2025.

Refundable Tax Credit Relating to Mining or Other Resources

The government’s review of tax expenditures has revealed that certain adjustments to the tax credit relating to resources are needed in order to refocus the tax assistance granted through this tax credit. Accordingly, to better support exploration corporations at the development stage and to encourage corporations to carry out more projects related to critical and strategic minerals while ensuring a fair distribution of tax expenditures, changes will be made to the tax credit relating to resources.

These changes consist of:

• adding development expenses relating to mining resources incurred in Québec to the eligible expenses for the tax credit;
• revising the tax credit rates applicable to the eligible expenses related to mining resource so that the rate of the tax credit is equal to:
  • 22.5% in respect of such expenses incurred by a specified qualified corporation;
  • 10% in respect of such expenses incurred by another qualified corporation.
• enhancing the rates applicable to projects related to critical and strategic minerals until December 31, 2029 so that the rate of the tax credit will be equal to:
  • 45% in respect of such expenses incurred by a specified qualified corporation;
  • 20% in respect of such expenses incurred by another qualified corporation.
• introducing a limit on eligible expenses of $100 million per five-year period. This change will apply to development expenses incurred after the day of the budget.

Tax Benefits Relating to the Flow-through Share Regime

The flow-through share regime allows a taxpayer who acquires a flow-through share to benefit from a base deduction equal to 100% of its acquisition cost, provided that the financing obtained by the issuing corporation is used to cover exploration or development work in Canada and where the expenses incurred are renounced by the corporation in favour of the shareholder.

The flow-through share regime also provides for two additional deductions. An individual can benefit from an additional deduction of 10% in respect of certain exploration expenses incurred in Québec. The individual can also benefit from an additional deduction of 10% in respect of certain surface mining exploration expenses incurred in Québec. The budget proposes to abolish these additional deductions to flow-through shares issued after the day of the budget.

Tax Credit for the Digital Transformation of Print Media

A “qualified corporation” that incurs eligible digital conversion costs may benefit from the refundable tax credit for the digital transformation of print media. This tax credit is calculated at a rate of 35%. A corporation may benefit from tax assistance of up to $7 million for a taxation year.

The budget proposes to extend the assistance granted under the refundable tax credit by one year. As a result, the eligibility period for the refundable tax credit will end on December 31, 2025. In addition, to qualify as a qualified property, the property must be acquired before January 1, 2025.

Abolishment of Tax Credits

The budget proposes to abolish the following tax credits:

• the additional capital gains exemption in respect of certain resource properties disposed after March 26, 2025, and
• the tax credit to foster synergy between Québec businesses effective March 26, 2025.

OTHER INITIATIVES

Harmonizing the Rate of the Tax on Insurance Premiums with that of the Québec Sales Tax

The tax on insurance premiums applies to most amounts payable to obtain for oneself or another a benefit on the occurrence of a risk. The tax rate is currently 9%, while the rate of the Québec sales tax is 9.975%.

In the interest of uniformity, the rate of the tax on insurance premiums will be set at the same rate as the Québec sales tax. As a result, the tax on insurance premiums at the rate of 9.975% will apply to insurance premiums paid after December 31, 2026.

Fuel Tax Refund for Biodiesel

Under the fuel tax system, diesel is generally taxable. However, a refund of this tax is provided for biodiesel that is not mixed with another type of fuel at the time of its acquisition. Effective March 26, 2025, this refund will be abolished since it is seldom used.

Registration Fee for Luxury Vehicles

Due to significant growth in vehicle prices, the additional registration fee for luxury vehicles applies to a growing proportion of vehicles, and is moving away from its original objective, namely to induce motorists choosing a more expensive vehicle to contribute more to the funding of transportation networks. As a result, the government is raising the threshold for the luxury vehicle tax from $40 000 to $62 500. For example, the tax on a $70 000 vehicle is currently $300 and will be reduced to $75, for a saving of $225. In addition, the incentive exemption applicable to electric vehicles and plug-in hybrids will be withdrawn. Nevertheless, by raising the threshold to $62 500, most basic electric vehicles will remain exempt from this tax. The change to this fee will apply to fees payable to put a vehicle on the road after December 31, 2026, and to fees payable to retain the right to drive after that date.

Annual Contribution for Electric and Plug-in Hybrid Vehicles

Motorists pay the specific tax on fuel and registration fees on the basis of the “user pays” principle, since these contributions are used to fund the road network and public transit. However, motorists using electric or plug-in hybrid vehicles contribute less to this funding, even though they enjoy the same benefits of these transportation networks. This is why an annual contribution of $125 for electric vehicles and $62.50 for plug-in hybrid vehicles will be introduced. The new fee will be in addition to fees payable to put a vehicle on the road after December 31, 2026, or to fees payable to retain the right to drive after that date. It will subsequently be indexed annually.

Ensuring Tax Fairness

The government is committed to preserving tax fairness by ensuring all Quebecers pay their fair share of taxes so that public services are appropriately funded. To that end, the government is announcing a new series of measures to combat tax evasion with a view to:

• ensuring taxpayers’ foreign-owned property having a total cost exceeding $100,000 during the year is reported;
• expanding the obligation to hold the Attestation de Revenu Québec in the construction sector;
• fighting more effectively against tobacco smuggling;
• ensuring the funding of the regulation of money-services businesses.

WE CAN HELP

Your financial advisor can help you assess the impact of these proposals on your personal finances or business affairs and show you ways to take advantage of their benefits or ease their impact.

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