New Refundable Tax Credit for SMBs to Encourage Employee Training
A refundable tax credit has been introduced to encourage small and medium-sized businesses (SMBs) to offer training to their workers. The tax credit will enable qualified corporations to receive tax assistance of up to $5,460 a year for each eligible employee who participates in eligible training. Qualified corporations and corporations that are members of a partnership can claim the tax credit for eligible training expenditures if they carry on an SMB for which the payroll is less than $7 million. The expenditures must have been incurred by the qualified corporation or partnership after March 27, 2018, but before January 1, 2023.
For a given taxation year, “qualified corporation” means a corporation, other than an excluded corporation, that has an establishment in Québec and carries on a business in Québec.
A corporation, other than an excluded corporation, that is a member of a partnership that has an establishment in Québec and carries on a business in Québec can claim the tax credit for a taxation year in which the partnership's fiscal period ends. However, it must claim the tax credit in proportion to its share of the partnership's income or loss for the fiscal period.
For a given taxation year or fiscal period, “eligible employee” means an employee of the corporation or partnership (other than an excluded employee) who works at an establishment in Québec.
In addition, the employee must meet the following conditions for the year or fiscal period, as applicable:
- the employee holds full-time employment involving a minimum of 26 hours of work per week, for an expected minimum duration of 40 weeks;
- the employee's duties consist in undertaking or directly supervising activities of the qualified corporation or partnership at one of its establishments in Québec.
A shareholder that holds less than 10% of the shares in any class of the qualified corporation's capital stock is considered to be an “excluded employee.”
“Eligible training” means training received by an eligible employee during an eligible training period through a recognized educational institution. The training may lead to a diploma, although this is not an eligibility requirement for the tax credit.
Eligible training period
“Eligible training period” refers to a period in the normal weekly work schedule of an eligible employee during which the employee is given time away from his or her usual duties to participate in eligible training.
For a given taxation year or fiscal period, an eligible employee's total eligible training periods cannot exceed 520 hours and his or her weekly work schedule cannot exceed 40 hours for the purpose of calculating the limit.
Recognized educational institution
“Recognized educational institution” means an educational institution that is:
- a secondary-level or college-level educational institution under the authority of the Ministère de l'Éducation et de l'Enseignement supérieur;
- accredited for purposes of subsidies under section 77 of the Act respecting private education;
- mentioned in the list established by the Minister of Higher Education, Research, Science and Technology under any of subparagraphs 1 to 3 of the first paragraph of section 56 of the Act respecting financial assistance for education expenses;
- operated by a person holding a permit issued by the Minister of Education, Recreation and Sports under section 12 of the Act respecting private education, provided that it offers a vocational education or vocational training program referred to in Chapter I of that Act.
Eligible training expenditures
For a given taxation year or fiscal period, “eligible training expenditures” of a qualified corporation or a partnership means salaries and wages calculated in accordance with the Taxation Act that the qualified corporation or partnership incurs in respect of an eligible employee for the taxation year or fiscal period, as applicable, after March 27, 2018, but before January 1, 2023.
The salary and wages must be attributable to an eligible training period and paid to an employee before the refundable tax credit is claimed.
In addition, the maximum hourly rate for eligible training expenditures is $35. If an eligible employee is not remunerated on an hourly basis, the employee's hourly rate is deemed to correspond to the ratio between the employee's annualized salary or wages and 2,080 hours.
Determination of the refundable tax credit
The refundable tax credit can be claimed by:
- a qualified corporation for a taxation year; or
- a corporation, other than an excluded corporation, that is a member of a partnership for a taxation year in which the partnership's fiscal period ends. However, it must claim the tax credit in proportion to its share of the partnership's income or loss for the fiscal period.
The tax credit corresponds to an amount equal to 30% of eligible training expenditures that the qualified corporation or the partnership paid to an eligible employee for the taxation year or the fiscal period, where the total payroll of the qualified corporation or the partnership for the taxation year or the fiscal period, as applicable, does not exceed $5 million.
The 30% rate is reduced linearly if the total payroll exceeds $5 million, and it is zero if the total payroll is $7 million or more.
The “total payroll” of a qualified corporation or a partnership for a taxation year or a fiscal period, respectively, corresponds to the total payroll determined as provided in the Act respecting the Régie de l'assurance maladie du Québec.
Note that the total payroll is determined by taking into account the payroll of all corporations or partnerships with which the qualified corporation or partnership is associated.
For more information, see pages A.74 and A.77 of the Additional Information 2018-2019 (PDF – 3.73 MB) published by the Ministère des Finances.