News and Insights

Québec Budget 2011

Tax Development Mar 18, 2011

On March 17, 2011, Minister of Finance Raymond Bachand tabled Québec's 2011-2012 budget. The province appears to be on track to a balanced budget in 2013-2014, and in keeping with a balanced approach, has announced increased support for families and seniors, as well as improvements to the retirement income system.

Québec did not announce any new QST changes, but two other commodity tax measures were announced, along with plans to continue the province’s emphasis on enforcement against tax evasion.   

Commodity Tax Measures    

Tobacco tax increase   

As announced in the 2010-2011 budget, the rate of QST will increase from 8.5% to 9.5%, effective January 1, 2012.  Due to this increase, the rates of tobacco tax will also be changed, effective the same date.  Starting on January 1, 2012, tobacco tax rates will be as follows:  

  • a specific tax of 10.9 cents per cigarette, an increase from 10.6 cents;
  • a specific tax of 10.9 cents per gram of loose tobacco or leaf tobacco, an increase from 10.6 cents;
  • a specific tax of 16.77 cents per gram of any tobacco other than cigarettes, loose tobacco, leaf tobacco and cigars, an increase from 16.31 cents; and
  • the minimum rate applicable to a tobacco stick will be 10.9 cents per stick, an increase from 10.6 cents.  

The ad valorem tax on cigars will remain unchanged at 80% of the taxable price.  

Retailers who sell tobacco products and who have collected, or should have collected, in advance the specific tax on tobacco products will be required to perform an inventory count of all such products at midnight on December 31, 2011 and remit tax based on the difference between the new rate and the rate in effect prior to the increase.  Tobacco sellers required to take an inventory will be obligated to use a special purpose form and submit the form, along with the payment, prior to January 28, 2012.  

Fuel tax and status Indians  

A new mechanism will be introduced, effective July 1, 2011, to replace the current system under which reimbursements are used to administer the exemption available for tax paid by an Indian or Indian band on retail purchases of fuel on a reserve.  

Under a new purchase exemption measure, Indians and Indian bands will be able to purchase fuel at the retail level on a reserve exempt of fuel tax under certain conditions.  To obtain the exemption, an Indian or Indian band will be required to produce a fuel tax exemption management program registration card, which will be issued by Revenu Québec, and sign an exempt fuel sales tax register that must be maintained by the retail dealer.  In addition, status Indians will be required to show the retailer their Certificate of Indian Status card, which is issued by the Department of Indian and Northern Affairs Canada.  

Note that an Indian or Indian band who is unable to produce the registration card when making an otherwise exempt fuel purchase at the retail level on a reserve will still be permitted to recover the fuel tax paid by using the existing reimbursement system.  

Retail dealers located on a reserve will be required to:  ensure that the conditions for exemption have been satisfied prior to making exempt sales; keep a register of all exempt retail sales of fuel made to Indians and Indian bands; and adhere to certain prescribed rules regarding the posting of fuel prices.  

As retail dealers typically pay an amount equal to the fuel tax to their suppliers under an advance collection system, a refund will be available for the amount of tax paid in respect of exempt sales of fuel to Indians and Indian bands.  

Sales tax harmonization  

While QST parallels GST/HST in most respects, there are some significant differences between the two systems, such as the treatment of financial institutions.  Québec has indicated that it is continuing to negotiate with the federal Department of Finance regarding their mutual desire to further harmonize the QST with HST.  Indeed, the Minister confirmed that a proposal has been submitted to his federal counterpart in an effort to realize further harmonization.  However, a few contentious issues remain between the two parties, including Québec’s position that it should be compensated for harmonizing its sales tax with the GST/HST in a manner similar to the HST participating provinces.   

Noting that discussions on the compensation issue have gone on for almost two years, the Minister also reiterated that Québec’s position has been made clear on the following three issues:

  1. The fiscal sovereignty of the two governments must remain intact.  The QST and GST/HST should continue to be governed under provincial and federal legislation, respectively.
  2. Québec must continue to administer both the GST and QST.
  3. Québec must be permitted to maintain its provincial tax integrity measures.  

Income Tax Measures    

This year’s budget did not introduce any new income or capital taxes (the Québec capital tax was eliminated on January 1, 2011).  However, the budget did contain measures for a new royalty regime for shale gas production, and changes to the refundable tax credits for book publishing and sound recording production.   

Tax Evasion and Aggressive Tax Planning    

As first announced in October 2009, Québec will continue to seek significant tax recoveries by “stepping up” its fight against tax evasion.  It was announced that the recovery target of $320 million for this year will be significantly increased over time.  The 2011-2012 target will be increased by $150 million, with further increases of $200 million in subsequent years.  The Minister has set the tax recovery objective for 2013-2014 at $1.4 billion.   

To support these ambitious goals, the Minister confirmed the government’s intention to create the “Agence du revenu du Québec” (Quebec Revenue Agency), which will come into existence on April 1, 2011.  The agency will be funded by the revenues it collects and be afforded the management flexibility needed to achieve these lofty objectives.   

Additional information on the 2011-2012 Québec budget is available on the province's web site at: 

Quebec Budget 2011-2012