BUDGET 2025-2026: NEW TAX OPPORTUNITIES FOR INNOVATIVE MANUFACTURERS

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

We would like to help you gain a clearer understanding of the impact these budgetary measures will have on innovative manufacturing companies, particularly from three specific perspectives:

1. Tax changes, including the implementation of the Research, Innovation and Commercialization Tax Credit (CRIC)
2. Direct aid planned for businesses, particularly for export support
3. Several concrete supports in entrepreneurship, including strategic sectors such as advanced manufacturing

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1. Tax changes favorable to innovation in manufacturing

The government is introducing the CRIC, a new tax relief scheme aimed at simplifying and strengthening support for innovative businesses, which replaces eight existing tax measures to support research and development, particularly for the recruitment of foreign researchers.

The CRIC is complemented by the Incentive Deduction for the Commercialization of Innovations (DICI), which was launched in 2021 and aims to encourage the retention and development 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 : Ces activités visent à obtenir des homologations ou certifications nécessaires à la mise en marché de nouveaux produits ou procédés. Par exemple :
  
  • Prototype testing 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 component may include developing the product's form and aesthetics, improving its functionality, and choosing appropriate materials.

The CRIC applies to the following expenses:

• Labor Expenses : Salaries and other costs related to personnel involved in eligible activities.
• Equipment acquisition costs : Costs related to the purchase of equipment necessary for R&D and pre-commercialization activities.
• Subcontracting contracts : 50% of the amounts of contracts concluded with subcontractors, including universities, research centers, or research consortia. This partial inclusion aims to balance activities carried out internally and those outsourced, taking into account overhead and material costs not eligible for the CRIC.

Please note that to be eligible for the CRIC, a company must operate an activity 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 implementation of this new tax assistance scheme is expected to provide additional financial support totaling $271.5 million over five years.

Another key element that will encourage companies to invest in cutting-edge equipment and improve their productivity comes from the harmonization of depreciation measures to allow a 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 Production Equipment : Purchase equipment to produce renewable energy or reduce the company's carbon footprint.
• Zero-emission vehicles : Acquisition of electric or hydrogen vehicles contributing to the reduction of 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 market.

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2. Direct aid and support for exporting to new markets

Although the tax review is the most significant point for the manufacturing sector, more broadly, the 2025-2026 budget includes a major investment of $5.4 billion to stimulate the Quebec economy, with a priority given to productivity, innovation, and exports. This financial support takes the form of direct assistance to businesses, particularly for increasing productivity, as well as support for diversifying export markets.

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

Then, aware of the challenges related to economic dependence on certain markets, the government is implementing several initiatives to increase the international presence of Quebec companies. This includes increased support for regional export promotion organizations (ORPEX), the deployment of Quebec's new International Policy, and a reform of LOJIQ governance to improve mobility options for young entrepreneurs and workers.

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

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3. Support for partners and entrepreneurship

The Quebec government is announcing several 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 aims 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 the 2025-2028 SME Plan, with a budget of $44 million over three years, remains to be finalized. This sum will be accompanied by a new $200 million investment fund, which will replace Impulsion PME and is expected to offer financial tools better suited to innovative companies in the growth phase.
• Renewal of the Quebec Life Sciences Strategy
  Quebec reaffirms its commitment to innovation in the life sciences sector with a $54 million budget 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 biotechnology 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 businesses 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 desire to equip innovative companies specializing in physical manufacturing by offering them a framework conducive to the development, marketing and industrialization of their technologies.

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Conclusion

These measures, combined with the previously mentioned initiatives, demonstrate the Quebec government's commitment to supporting innovation and fostering the growth of hardtech companies. For more details on these measures and other initiatives, including the reasons behind the establishment of the CRIC, it is recommended to consult the " Innovate to Prosper " booklet of the 2025-2026 budget.