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In her 2007 budget speech, Quebec Minister of Finance Monique Jérôme-Forget confirmed the creation of a task force to report on tax assistance for the resource regions and the new economy. On Thursday, February 7, 2008, the task force made its report public, recommending that tax assistance for “resource region” and “new economy” businesses be maintained while the criteria for paying out assistance be subject to an in-depth review.

Generally speaking, resource region tax assistance would be directly tied to the remoteness of the region from metropolitan areas and based on investments in equipment rather than on jobs. Rather than being limited to certain industry sectors, assistance would be paid to the entire manufacturing industry. Therefore, certain regions (e.g., Saguenay–Lac-St-Jean and Gaspésie) would no longer enjoy exclusivity over certain industries (e.g., manufacture of aluminum products and manufacture of wind turbines, respectively). In addition, the task force recommends that the tax holiday for manufacturing small- and medium-sized enterprises (SMEs) not be renewed past the established deadline (2010). Note that the government has announced that it did not intend to terminate the tax credit for the Vallée de l’aluminium.

Furthermore, while the task force recommends the continuance of tax assistance to “new economy” businesses, it proposes an end to the experiment of designated sites such as the Cité du multimédia in Montreal in favour of tax assistance being provided to businesses in the IT sector throughout all of Quebec.

Tax assistance for the resource regions
It has been proposed that tax credits calculated on the basis of jobs and the tax holiday for manufacturing SMEs be replaced by an investment tax credit for businesses operating in remote regions. This tax assistance would be applied to the entire manufacturing industry and would be granted based on remoteness, as there is a close relationship between remote regions and regions in difficulty according to the task force.

The remoteness criteria would be based on a territorial division consisting of an intermediate zone (200-300 km from the centre of one of the three metropolitan regions of Montreal, Quebec City and Gatineau) and a most remote zone (more than 300 km from one of the three metropolitan regions).

According to this division, the Mauricie region and the regional county municipalities of Pontiac, Vallée-de-la-Gatineau and Antoine-Labelle would be excluded from the new measure. Note that the Minister of Finance has announced that the government did not intend to exclude these regions from any resource region tax assistance measures.

Expiring in 2015, this refundable tax credit would apply to purchases of manufacturing and processing equipment (class 43) at a rate of 40% in the most remote zone and at a rate of 20% in the intermediate zone. Excluded from this assistance would be large businesses, as the credit is granted only to companies with a paid-up capital below $250 million. As a transitional measure, companies may choose to continue using the current assistance system until its expiry in 2009 or to opt for the new measures.

Furthermore, specific measures have been laid out for the Gaspésie–Îles-de-la-Madeleine region, as this region is facing especially difficult times according to the task force. In addition to qualifying for the new investment tax credit based on remoteness, the tax credits related to employment would be maintained.

Tax assistance to the new economy
The task force believes that the government must continue providing tax assistance to companies operating in the IT sector, as this sector is facing stiff global competition. It recommends ending the experiment of “designated sites” and applying the IT tax assistance to all of Quebec.

Moreover, it has been proposed that the refundable tax credit based on salaries be amended: the refund rate would drop from 40% to 30%, whereas the maximum payment per job would be raised from $15,000 to $20,000. Only businesses with more than five employees would be able to benefit from this credit, which will last until 2015.

As with the resource region tax assistance, businesses would be able to choose between applying the current assistance system and the proposed measures.

Finally, the task force recommends not extending the tax assistance provided to the four other sectors of the new economy (materials technology, scientific and technical services, production technologies, and biotechnologies) past the stipulated period and to replace it with budgetary assistance.

François Imbeau, Chicoutimi
Louis Boivin, Chicoutimi

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