BUDGET 2025-2026: NEW TAX OPPORTUNITIES FOR INNOVATIVE MANUFACTURERS

Finance Minister Éric Girard recently tabled his 2025-2026 budget, which details the upcoming spending and revenue priorities for the Quebec government. This budget is clearly focused on the economy and innovation, aiming to increase the productivity of Quebec businesses in order, ultimately, to increase the revenues derived from this growth to pay for the government's mission. 

We'd like to help you get a clearer picture of the impact these budget measures will have on innovative manufacturing companies, especially from three specific angles:

1. Tax changes, including the introduction of the Research, Innovation and Commercialization Tax Credit (RICC)
2. Direct assistance for companies, in particular to support exports
3. Concrete support for entrepreneurship in strategic sectors such as advanced manufacturing

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1. Innovation-friendly tax changes in the manufacturing sector

The government is introducing the CRIC, a new tax incentive scheme designed to simplify and strengthen support for innovative companies. It replaces eight existing tax measures to support research and development, including the recruitment of foreign researchers. 

The CRIC is complemented by the Incentive Deduction for the Commercialization of Innovations (DICI), which had been launched in 2021, and is designed to encourage the retention and valorization of intellectual property (IP) assets developed in Quebec.

This refundable tax credit covers research and development (R&D) and pre-commercialization activities, including two elements that will be of interest to hardtech companies:

• Testing, validation and regulatory studies These activities are aimed at obtaining the approvals or certifications needed to bring new products or processes to market. For example:
  
  • Testing of prototypes to verify their functionality and performance, to ensure they meet regulatory requirements.
  • Validation of production processes in a pilot plant to ensure that the technology meets the required quality standards.
• Product design: This can include developing product form and aesthetics, improving functionality and selecting appropriate materials.

The CRIC applies to the following expenses.

• Labor costs: Salaries and other costs related to personnel involved in eligible activities.
• Equipment acquisition costs: Costs related to the purchase of equipment required for R&D and pre-marketing activities.
• Subcontracts: 50% of the value of contracts with subcontractors, including universities, research centers or research consortia. This partial inclusion aims to balance in-house and outsourced activities, taking into account overheads and material costs not eligible for CRIC.

To be eligible for the CRIC, a company must operate in Quebec and have an establishment there. 

This tax credit will be particularly beneficial for sectors such as artificial intelligence, aeronautics, life sciences and advanced materials. The introduction of this new tax assistance scheme is expected to provide additional financial support totalling $271.5 million over five years.

Another key element that will encourage companies to invest in state-of-the-art equipment and improve productivity is the harmonization of depreciation measures to allow 100% deduction from the year of acquisition, until 2029. This measure concerns .

• Manufacturing and processing machinery and equipment: Investments in equipment used directly in the production process.
• Clean energy equipment: Purchase of equipment to generate renewable energy or reduce the company's carbon footprint.
• Zero emission vehicles: Acquisition of electric or hydrogen-powered vehicles to help reduce greenhouse gas emissions.

This initiative aims to support companies in their efforts to adopt advanced technologies, reduce their environmental impact and strengthen their competitiveness in the marketplace.

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2. Direct aid and support for exporting to new markets

While the tax overhaul is the most important item for the manufacturing sector, more broadly speaking, the 2025-2026 budget provides for a major investment of $5.4 billion to stimulate the Quebec economy, with priority given to productivity, innovation and exports. This financial support will take the form of direct assistance to companies, in particular to boost productivity, as well as support to diversify export markets.

In terms of direct assistance, an envelope of $900 million, paid via the Economic Development Fund, will support robotization, automation, digital transformation and the integration of artificial intelligence within Quebec companies. This measure is designed to modernize industrial processes and encourage the adoption of cutting-edge technologies to maintain the competitiveness of local businesses.

Aware of the challenges posed by economic dependence on certain markets, the government is implementing a number of initiatives to boost the international presence of Quebec companies. These include increased support for regional export promotion organizations (ORPEXs), deployment of the new Politique internationale du Québec, and reform of LOJIQ governance to improve mobility opportunities for young entrepreneurs and workers.

These investments complement the actions taken by Investissement Québec, via the new Panorama program, and the Caisse de dépôt et placement du Québec (CDPQ), which continue to support the transformation of companies and their repositioning in strategic markets.

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3. Support for partners and entrepreneurship

The Quebec government has announced a number of initiatives to support innovative companies developing advanced manufacturing technologies, focusing on targeted investments in innovation zones, collaborative research and technological entrepreneurship.

• Development of the Technum Québec innovation zone
  With a commitment of $100.7 million over five years, the government wishes to support the development of Technum Québec, a key innovation zone that will position the province as a leading player in microelectronics, aerospace and advanced manufacturing. However, this investment is conditional on contributions from the federal government and the private sector.
• A new investment fund for innovative SMEs
  The implementation of Plan PME 2025-2028, with a budget of $44 million over three years, has yet to be specified. This sum will be accompanied by a new $200 million investment fund, which will replace Impulsion PME and should offer financial tools better adapted to innovative companies in their growth phase.
• Renewal of the Québec Life Sciences Strategy
  Québec reaffirms its commitment to innovation in the life sciences sector with a $54 million investment over three years. This strategy aims to stimulate the creation and growth of technology companies, attract investment and promote the commercialization of innovations, particularly in biotechnologies and advanced medical technologies.
• Increased support for collaborative research and technology transfer
  To maximize the impact of investments in key sectors such as batteries, artificial intelligence, microelectronics and aerospace, the government is providing $15 million over three years to strengthen partnerships between companies and public research centers. This support aims to accelerate the transition from applied research to concrete solutions that can be integrated into production chains.

These measures illustrate the government's determination to provide innovative companies specializing in physical manufacturing with a framework conducive to the development, commercialization and industrialization of their technologies.

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Conclusion

These measures, combined with the aforementioned initiatives, demonstrate the Quebec government's commitment to supporting innovation and fostering the growth of hardtech companies. For more details on these and other initiatives, including the reasons behind the creation of the CRIC, we recommend you consult the " Innover pour prospérer " booklet in the 2025-2026 budget.