On March 25, 2025, Minister of Finance Eric Girard presented Quebec’s 2025–2026 budget. Titled “For a Strong Québec,” this year’s budget includes significant investments to improve healthcare, education, and social services, support major infrastructure projects, promote Quebec’s cultural identity, and create wealth by revitalizing and bolstering the provincial economy.
Despite projecting a deficit of $13.6 billion (including revenues committed to the province’s Generations Fund), the government reiterated its commitment to sound fiscal management, with hopes of returning to a balanced budget in five years.
Following the completion of a comprehensive review over the past year, the government has announced several significant changes designed to improve the province’s tax system, as summarized below.
Commodity Tax Measures
Increase to Tax Rate on Insurance
In Quebec, insurance premiums are currently subject to a 9% tax, while the Quebec sales tax (QST) is set at 9.975%. To harmonize these two rates, this year’s budget proposes increasing the tax rate on insurance premiums to 9.975%, effective January 1, 2027. It should be noted that the tax on insurance premiums is non-recoverable, unlike the QST, and is generally an additional cost for the insurance acquired. Exemptions for certain types of insurance premiums will remain in place, including those for individual life and health insurance.
Adjustments to Luxury Vehicle Registration Fee
Effective January 1, 2027, the government will raise the threshold for the application of the luxury vehicle registration fee from $40,000 to $62,500. This fee is applied at a rate of 1% of the amount that exceeds the threshold. The luxury registration fee applies to all passenger vehicles and commercial vehicles that weigh 3,000 kilograms or less and are not more than seven years old.
The government also announced that the fee exemption available to purchasers of electric vehicles, hydrogen cell vehicles, and plug-in hybrids priced between $40,000 and $75,000 will be eliminated.
These changes have been deemed necessary because of significant increases in vehicle prices over the past few years, combined with the fact that the marketplace is now seeing greater price parity between conventional gas-powered and electric vehicles.
Introduction of Contribution and Toll Fees for Green Vehicles
Electric, plug-in hybrid, and hydrogen fuel cell vehicles will be subject to an annual fee, effective January 1, 2027, to fund the maintenance of roads and highways in Quebec. This fee will be $125 per annum for electric and hydrogen fuel cell vehicles and $62.50 per annum for plug-in hybrid vehicles. The new fee will be in addition to existing vehicle registration fees and will be indexed to inflation annually.
The government has also announced that free access for vehicles with green licence plates to the province’s toll bridges and certain ferry services will be eliminated as of April 1, 2027.
Phase-out of Electric and Hybrid Vehicle Rebates
While not a tax measure, the government has indicated that it will continue its electric and hybrid vehicle rebate program. A $4,000 rebate is available for purchases of new fully electric and hydrogen fuel cell vehicles, with a $2,000 rebate available for purchases of new plug-in hybrid or used electric vehicles and a $1,000 rebate available for purchases of electric motorcycles. These rebates will be available for qualifying vehicles after March 31, 2025. However, the budget noted that these rebates will be reduced by 50% in 2026 and eliminated in 2027.
Elimination of Biodiesel Fuel Tax Refund
Effective March 26, 2025, the fuel tax refund available for biodiesel will be eliminated. The province has indicated that this change is being made because the refund did not have the desired impact of increasing biodiesel use, based on the small number of claims in previous years and the low volumes involved.
Corporate Tax Measures
New Research, Innovation and Commercialization Tax Credit
The budget proposes to introduce a new Research, Innovation and Commercialization (CRIC) Tax Credit, which will combine and replace the following existing credits:
- Tax credit for salaries and wages in research and development (R&D);
- Tax credit for university research and research carried on by a public research centre or research consortium; and
- Tax credit for private partnership pre-competitive research.
Eligible Expenditures
The new CRIC will allow certain pre-commercialization activities, including:
- Tests, technological validations, and studies conducted to meet regulatory requirements and aimed at obtaining approval or certification for the purpose of commercializing a product or process, such as the testing and validation of a:
- Prototype in terms of its functionality and performance to ensure that the final product will meet regulatory expectations and requirements; or
- Pilot plant’s production process to ensure that the technology meets quality requirements and that the results produced will consistently meet expected standards; and
- Product design, including the development of form and aesthetic elements, to improve functionality and material selection.
In both cases, the activities must constitute a continuation of R&D activities undertaken in Quebec to be eligible for the new tax credit. In the latter case, the design activities would previously have been included in the tax credit for design.
Under the measures proposed in the budget, eligible expenditures for the CRIC will include:
- Salaries and wages paid to employees of an establishment in Quebec in respect of eligible activities undertaken in that province;
- 50% of the amount paid to an arm’s length subcontractor for eligible activities undertaken on a corporation’s behalf in Quebec;
- 50% of the amount paid to a university, public research centre, or research consortium; and
- Equipment (i.e., capital expenditures) used 90% or more in R&D activities, excluding land, buildings and used equipment. (Expenditures were not eligible under the old rule.)
The first two expenditure types are currently eligible for existing tax credits, while the eligibility of amounts paid for university and similar research has been reduced from 80% to 50% under the new tax credit. On the other hand, the CRIC will allow certain capital expenditures as eligible expenses, unlike the tax credits presently in place for R&D activities in Quebec.
The introduction of the CRIC will also result in several changes to existing tax incentives related to R&D, including:
- Moving, as noted above, the industrial component of the tax credit for design to the CRIC (the fashion design component of the existing credit remains unchanged);
- Reducing the eligible portion of fees for liaison and transfer services provided by a college centre for technology transfer (CCTT) or liaison and transfer centre (LTC) under for the tax credit for technological adaptation services from 80% to 50% on eligible pre-commercialization activities; and
- Eliminating the tax credit for fees and dues paid to a research consortium, the tax holiday for foreign researchers, and the tax holiday for foreign experts.
Tax Credit Rates and Exclusion Threshold
The exclusion threshold for the CRIC will be equal to the higher of:
- $50,000; and
- The total basic personal amounts for each employee (applicable for personal income tax purposes – $18,751 in 2025), prorated based on the time spent carrying out eligible R&D or pre-commercialization activities.
The CRIC will provide a 30% refundable tax credit on the first $1 million of expenses exceeding the exclusion threshold, as well as a 20% refundable tax credit on the excess eligible expenses, regardless of total assets.
The CRIC will be applicable for taxation years beginning after March 25, 2025.
Tax Credit for E-Business Development
The budget proposes a few key amendments to the province’s Tax Credit for the Development of E-Business (TCEB), including the following changes to eligible activities:
- Refocusing eligible activities to be primarily e-business related and incorporating artificial intelligence (AI) functionalities to a significant extent;
- Removing activities related to the maintenance, evolution or development of information systems or technological infrastructures; and
- Relaxing the criteria for data processing and hosting activities related to eligible activities of AI businesses.
There are no changes to the applicable tax credit rates for the TCEB, which remain at:
- 23% refundable and 7% non-refundable for 2025;
- 22% refundable and 8% non-refundable for 2026;
- 21% refundable and 9% non-refundable for 2027; and
- 20% refundable and 10% non-refundable for 2028.
As of 2026, the tax credit rates will be reduced by 50% when more than half of a corporation’s gross revenues are attributable to services relating to an application developed by the company for use exclusively outside Quebec by a non-arm’s length beneficiary.
The revisions to the TCEB will apply to taxation years beginning after December 31, 2025.
Payroll Tax Measure
Adjustment to Employer Health Services Fund Contributions
The government has announced that it will end the indexation of the payroll threshold for employer contributions to the province’s Health Services Fund at a reduced rate, fixing the threshold at $7.8 million.
Tax Fairness Measures
The province has reaffirmed its commitment to ensuring tax fairness and combatting tax evasion, and the budget proposes several initiatives intended to help do so, including the following:
- Expanding the obligation for construction businesses to hold an attestation from the government to do business in Quebec
- Introducing measures to make the fight against tobacco smuggling more effective
Potential Impact of Tariffs
Like other Canadian jurisdictions, Quebec has provided alternative scenario projections in its budget to address economic uncertainty arising from the threat of a sustained trade war between the U.S. and Canada, and specific measures have been proposed to provide financial assistance to affected businesses, support economic growth and stability, stimulate innovation, and foster market diversification.
The government is making up to $1.6 billion in loans available to assist Quebec businesses impacted by U.S. tariffs, with $400 million allocated over two years. Furthermore, the province is dedicating $4.1 billion to support the revitalization of its economy. These funds will be used to provide transitional assistance to businesses, support investment projects, facilitate market diversification, and promote Quebec’s products.
One positive development for corporate taxpayers is that Revenu Quebéc will be tasked with speeding up tax credit processing to help export businesses, reducing processing times, and offering more flexibility to address liquidity issues.
More Information
Further details on Québec’s 2025–2026 budget may be found on the province’s website.
To read key updates from all of Canada’s latest provincial budgets, please visit our Key Changes | 2025 Canadian Federal and Provincial Budgets page.
If you have any questions about how changes proposed in recent Canadian budgets might impact your organization, please do not hesitate to contact Ryan TaxDirect® at 1.800.667.1600 or taxdirect@ryan.com.
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