Quebec Budget 2024 | Cleaning starts with IT and video games

The Legault government is giving a foretaste of the cleaning aid to businesses that it is preparing by reducing the generosity of tax credits from which several IT and video game companies benefit. They will have to pay tax here to be entitled to their full extent.

More precisely, it is the tax credits for the production of multimedia titles (CTMM) as well as for the development of electronic business (CDAE) – which allow a portion of the eligible salary of employees to be deducted – which are modified by the budget tabled Tuesday by the Minister of Finance, Eric Girard.

These aid measures, considered among the most generous offered by Quebec, cost the state around 850 million last year. The announcement could provide a glimpse of the fate that awaits several other measures, which will be scrutinized by the Legault government starting in the spring. It will review all of its spending to return to budget balance.

“Most of the experts who were interested in this issue said that these credits had to evolve,” said Minister Girard at a press conference.

Quebec is relying on the non-refundable portion of the two tax credits – where you have to pay tax in Quebec territory to be entitled to it – to take its turn. This modality will now apply to the CTMM, while the ceiling will be raised for the CDAE.

“Companies, to be able to benefit from the non-refundable measure, will have to change their behavior and pay taxes in Quebec to obtain the non-refundable portion of the tax credits,” explains Stéphane Leblanc, tax partner at EY.

He emphasizes that Ottawa will also benefit from the changes planned by the Legault government. If companies declare more profits in Quebec, the Canadian tax authorities will also be able to collect taxes.

Very generous

Voices have been raised in recent years to question the generosity of these tax credits despite the strong competition in the IT and multimedia production sectors around the world.

The Chair in Taxation and Public Finance at the University of Sherbrooke looked in particular at the case of the CDAE in a study whose results were published last February. His observation: of the 702 companies eligible for the measure in 2019, only four had paid taxes.

Ultimately, Quebec estimates that its turn of the screw will allow it to recover 365 million annually. There will inevitably be negative repercussions in certain companies, we recognize within the government, but with more than 3,000 vacant positions in the IT sector, there is room to maneuver to absorb workforce reductions which could occur .

“There is a part of the sector that will grumble because the government had a generous approach with the entire refundable part of the tax credits,” says the president and CEO of the Chamber of Commerce of Metropolitan Montreal (CCMM) , Michel Leblanc. “But we opt for a strategy where we reward the generation of profits and tax revenue. So it makes sense. »

The Quebec Video Game Guild was quick to express its concern. In the evening of Tuesday, the organization asked the Legault government to “meet with the industry in order to be made aware of the impacts of its decision.”

Around 85% of the studios are “Quebec-owned,” says the Guild.

“By maintaining these changes, the big winner would not be Quebec nor local companies, but rather neighboring provinces, or even jurisdictions such as Australia and European countries which are currently mobilizing to attract studios” , she emphasizes.

Ubisoft, which has some 4,500 employees in Quebec in its studios in Montreal, Quebec, Chicoutimi and Sherbrooke, did not immediately comment.

The Girard budget also removes the ceilings on eligible salaries for the CTMM ($100,000) as well as the CDAE ($83,333). For example, this means that businesses that recruit employees with an annual salary of $150,000 will be able to benefit from the benefits of tax credits on a larger portion of the eligible salary.

For a video game programmer who earns an annual income of $100,000, the effective rate of tax assistance would be 41.4% in Quebec following the changes provided for in the Girard budget, compared to 40% in Ontario.

Big overhaul

These modifications to the CTMM and the CDAE are in addition to the end of another assistance measure – the electricity rebate for large industrial projects – announced during the fall update. While the Legault government has its work cut out for it to put an end to the deficits, the time has come to question what is in place, says Mr. Girard.

“We will look at why these measures were created,” he said. How effective is it today? Is this still necessary? »

In the business community, organizations like the CCMM and Manufacturiers et Exportateurs du Québec (MEQ) believe that it is “healthy” to measure the effectiveness of the tools in place. The approach must be “consistent,” warns MEQ President and CEO Véronique Proulx.

“We must ensure that the revision is coherent and that it meets the government’s objectives aimed at improving productivity, for example,” she says.