On March 30, 2010, Minister of Finance Raymond Bachand tabled Québec's 2010-2011 budget. This year’s budget, which was developed in consultation with Québecers from all regions and all walks of life, focuses on solidifying the province’s economic recovery, balancing public finances while maintaining the social safety net, and ensuring sustainable prosperity.
To help achieve these goals, the province has proposed a major shift in its tax policy in the form of a general health contribution tax, as well as several commodity tax changes and measures to step up the fight against tax evasion.
Québec Sales Tax Measures
QST rate increases
As part of the province’s continued efforts to balance the budget, the rate of QST will be further increased by one percent as of January 1, 2012, bringing it to 9.5%. This increase is in addition to the previously announced one percent increase to 8.5%, which will become effective January 1, 2011.
Transitional rules similar to those used for the GST/HST rate changes will apply to transactions that straddle the effective date of the QST rate increase. These rules will vary depending on the type of property or service provided, and the method of supply.
For example, moveable property or a service will be taxable at a rate of 9.5% if the entire consideration becomes due after December 31, 2011 and is not paid before January 1, 2012. Further, if any portion of the consideration for such a supply is due after December 31, 2011 and is not paid before January 1, 2012, QST at 9.5% will apply.
Rounded-off mathematical factors
Currently, the QST effective tax rate is 7.875% and will increase to 8.925% in 2011. The QST system authorizes registrants to use a mathematical factor for rounding, in certain situations, where the system being used is not able to accommodate a three-digit decimal point. The rounded-off factors that may be used are currently 7.87% and, as of January 1, 2011, 8.92% (or, for a combined effective GST and QST rate, 12.87% and, as of January 1, 2011, 13.92%). With the planned increase in the QST rate, the rounded-off mathematical factors will be increased to 9.97% and 14.97% as of January 1, 2012.
Quick method for small businesses and public service bodies
Qualifying small businesses whose revenues from taxable supplies currently do not exceed $215,000 can elect to use a quick method to determine the net QST payable instead of calculating the actual QST collected on taxable sales and QST paid on purchases. Businesses that have elected to use the quick method use a prescribed rate (currently 2.7% for suppliers of corporeal movable properties and 5.3% for other businesses) and multiply that rate by the total revenues from their taxable supplies, including GST and QST. In 2011, this threshold will increase to $217,000 and the prescribed rates will increase to 3% and 6%, respectively. In 2012, the prescribed rates will increase to 3.4% for suppliers of corporeal movable property and to 6.6% for other businesses, where revenues do not exceed $219,000. Similar adjustments are planned for the quick method rates available to certain public service bodies.
Simplified method of calculating rebates regarding an expense account
In light of the QST rate increases to 8.5% on January 1, 2011 and 9.5% on January 1, 2012, the province announced that it will review changes to the simplified factors used by organizations to extract QST from expense reimbursements to employees, partners or volunteers. Currently, a factor of 7/107 may be used to calculate input tax refunds for small and medium-sized business, and rebates for charities, qualified non-profit and public service bodies. The simplified factor currently available for use by large businesses is only 4.1%, as it applies to expenses that would otherwise be restricted for input tax refund purposes.
QST rebate on new residential units
A rebate equal to 36% of the QST paid may be obtained for a new single unit residential complex costing $200,000 or less. There is currently a gradual decrease in the rebates for residential units with a value from $200,000 to $225,000. Due to the QST increase to 8.5%, effective January 1, 2011, the rate of the rebate will be increased from 36% to 50%, and the threshold value of a new residential unit at which no rebate will be granted will rise to $300,000 from $225,000, resulting in a maximum rebate available of $8,772.
QST and passenger transportation services
The province will eliminate the special QST zero-rating provision that is in place for continuous passenger transportation services provided by air that begin at the Gatineau airport and terminate in Canada. This change has resulted from harmonization with the GST in Ontario, which has rendered the provision unnecessary, and will take effect for passenger transportation services supplied after June 30, 2010.
Other Commodity Tax Measures
Fuel tax increase
As announced in the 2009-2010 budget, the role of the Road Network Preservation and Improvement Fund will be expanded to include funding for public transit. During 2010-2011, this fund will be replaced by the Road and Public Transit Infrastructure Fund, which will receive a significant portion of its funding from fuel tax.
Financial projections indicate that the current rates of fuel tax will be insufficient to cover expenditures relating to road and public transit infrastructure for the fiscal year 2011-2012. In order to fund the shortfall, the current fuel tax rates of 15.2 cents per litre of gasoline and 16.2 cents per litre of diesel fuel will be raised by 1 cent per litre on April 1 of each year, from 2010 to 2013.
In light of these fuel tax increases, the fuel tax reduction measure applicable to gasoline sold in regions bordering Ontario, New Brunswick and the United States will be reviewed to determine if changes will be required.
Alcoholic beverages
In order to continue to encourage the development of small-scale producers of alcoholic beverages, other than beer, the measure reducing the rates of the specific tax applicable to their products will be enhanced. Firstly, the threshold worldwide volume of qualifying alcoholic beverages sold during a calendar year (to which the reduced rate of tax applies), will be raised from 5,000 to 15,000 hectolitres. In addition, the tax rates will be reduced by 100% on the first 1,500 hectolitres of beverages sold in a calendar year, with a reduction of 85% on additional sales up to 13,500 hectolitres. The specific tax on the additional 13,500 hectolitres will be $0.296 per litre for beverages sold for consumption in an establishment and $0.134 per litre for those sold for consumption other than in an establishment. These measures will come into effect on March 31, 2010.
Other Measures
Response to federal measures
Quebec’s tax legislation and regulations will be amended to incorporate some of the measures announced recently by the federal government, including the following proposed changes to the QST system:
- a requirement for certain persons to file QST returns electronically for filing periods ending after June, 2010, as announced for GST/HST filing on January 4, 2010;
- application of QST to purely cosmetic procedures, as announced for GST/HST in the 2010 federal budget;
- simplification of the QST for the direct selling industry, as announced for GST/HST in the federal budget; and
- harmonization with the new HST place of supply rules applicable to interprovincial transactions and self-assessment and rebate rules, as proposed by the federal government on February 25, 2010.
These changes will only be adopted once any legislation or regulations arising from the federal budget or news releases have received Royal Assent or have been adopted, and will take into account any technical changes that may be made prior to receiving such assent or adoption.
For further information on the above related federal measures, please see the links below:
Electronic Filing Requirements for GST/HST Registrants
Federal Budget 2010
Proposed HST Place of Supply Rules
Water royalty
As part of the government’s efforts to encourage prudent and environmentally responsible use of its water resources, and to sensitize users to the value of these resources, a water royalty will be introduced, effective January 1, 2011. The royalty will not apply to the residential, institutional or farming sectors, but will be targeted to the industrial and commercial sectors, where daily usage of water is 75 m3 or more. The royalty will apply at two different rates, based on the use of water. The rate will be $0.0025/m3 for businesses using water in their production processes and $0.07/m3 for those using water as a component in their products.
Monies generated by this royalty will be paid into the Green Fund, which will be used to support activities focused on the management and restoration of water and aquatic ecosystems.
Tax Evasion and Aggressive Tax Planning
As announced in October, 2009, Québec has introduced stricter measures to combat aggressive tax planning. To continue with this emphasis, the government has created the Agence du revenue du Québec, which will take over from Revenu Québec as of April 1, 2011. This stand-alone agency will be responsible and accountable for collecting all government revenues. Furthermore, in addition to the funding previously committed in last year’s budget, the government has announced an additional $30 million to combat tax evasion in 2010-2011. For those who might be caught by the province’s efforts, the maximum prison sentence for a serious tax offense will be raised from 2 years to 5 years less a day.
Additional information on the 2010-2011 Quebec budget is available on the province's web site at:
http://www.budget.finances.gouv.qc.ca/budget/2010-2011/index_en.asp