On March 20, 2012, Minister of Finance Raymond Bachand tabled Quebec's 2012-2013 budget. The province appears to be on track for a balanced budget in the 2013-2014 budget year, and this year’s budget contains no new taxes for Quebecers.
Below is a summary of the significant tax changes outlined in the Quebec budget.
Income Tax Measures
This year’s budget introduced a number of changes to existing tax credits, as well as several new tax credits to aid Quebec businesses.
Financial Services Corporations
Financial services corporations may be eligible for a refundable tax credit equal to 30% of salaries paid to eligible employees. In addition, they may also be eligible for a tax credit equal to 40% of qualifying expenditures. Both of these credits are subject to certain limitations, and will be in place for a period of five years. In addition, a foreign specialist working for a financial services corporation may be entitled to a personal tax holiday for up to five years, with the level of tax relief gradually declining over this period.
Resource Sector Tax Credits
The budget announced changes to the existing tax credit available to corporations in the natural resources sector. The existing tax credit will be reduced by 5% or 10%, depending on the type of activity undertaken. However, the tax assistance offered by the credit may be increased by 5% or 10%, in exchange for an option to the province to acquire an interest in the development. This change will not apply to the tax credit available to corporations in the renewable energy and energy savings industry.
Manufacturing and Processing Equipment
For purposes of the tax credit for investments relating to manufacturing and processing equipment, the definition of eligible mining activities has been expanded to include ore smelting, refining and hydrometallurgy activities (these changes are not applicable to silver or gold mines).
Capitalization of Businesses
A new refundable tax credit of 30% of eligible issue expenses incurred due to an initial public offering (under the Stock Savings Plan II) will be available to eligible corporations, subject to certain limitations.
The budget has extended the 30% tax credit related to eligible training in the manufacturing, forestry and mining industries to December 31, 2015.
The refundable tax credit for multimedia titles has been simplified to allow more corporations to qualify as “specialized corporations”.
The existing patronage dividend tax deferral has been extended for an additional ten-year period. The budget also announced several technical changes to the Cooperative Investment Plan.
Diversification of Markets
A new refundable tax credit will be made available for manufacturing corporations who have incurred expenses to make their products compliant to sell into markets outside of Quebec. This credit, which is equal to 30% of eligible expenses in relation to qualifying goods, is limited to a cumulative amount of $45,000 per corporation. This credit applies to expenses incurred after March 20, 2012 and before January 1, 2016.
Commodity Tax Measures
Quebec did not announce any new QST changes in this year’s budget, but two other commodity tax measures were announced, along with plans to continue the province’s emphasis on fighting tax evasion.
Optional Application of a $3 Lodging Tax
Currently, regional tourist associations (RTAs) can request that a specific tax of $2 per overnight stay or an ad valorem tax of 3% apply to stays within their territory.
RTAs will now have a third option, which is a specific tax of $3 per overnight stay. Where a territory has already implemented the $2 per overnight stay or an ad valorem tax of 3% and wishes to adopt the $3 per overnight stay option, it will be required to submit a new application to the government.
Amendments will be introduced to increase certain fines, give inspectors additional power at certain retail points of sale, implement a new tobacco product identification system, and grant police officers specific investigation powers similar to those of Revenue Quebec employees in a number of situations.
Stepped Up Measures Against Tax Evasion
As first announced in October 2009, Quebec will continue to seek significant tax recoveries by “stepping up” its fight against tax evasion. Quebec’s recoveries for 2010-2011 exceeded its recovery target of $320 million by $18 million, amounting to $338 million. The results, as of January 31, 2012, for additional tax inspection activities amount to an additional $469 million in tax recoveries, which is in line with the target set for that period.
Quebec has indicated that it will intensify tax audits for employment agencies and real estate trusts.
From a commodity tax perspective, the tax evasion focus is on what the province terms fraudulent input tax rebates (i.e., improper input tax refund claims). Ryan regularly hears from clients that Quebec auditors are aggressively denying input tax refund claims for various reasons, such as: not meeting the documentary requirements; the taxpayer is not the recipient of the supply; the accounting entries do not accurately reflect the transaction; and the lack of an agency agreement where a principal attempts to claim input tax refunds for QST incurred by its agent.
QST Harmonization with the GST
Quebec reflected that it was able to settle one of a number of major issues it has with the federal government in 2011. The resolved issue related to the compensation that the province is entitled to, equal to $2.2 billion, as a result of an agreement on further sales tax harmonization. This year’s budget includes in the budget financial statements the funding that the province will receive from the federal government as a result of the agreement announced on September 29, 2011, regarding the further harmonization of the QST with the GST. However, the budget did not contain any additional details about the transition or changes that are required for this further harmonization, which will take effect on January 1, 2013.
As previously announced, the detailed agreement to govern the rights and obligations of both Quebec and the federal government under this sales tax harmonization, known as the Canada-Quebec Comprehensive Integrated Tax Coordination Agreement (CITCA), is expected to be finalized by April 1, 2012. This CITCA will likely spell out further details of this unique sales tax harmonization and Ryan will issue a Tax Alert in the future to outline any steps that clients should take to reflect this harmonization in their organization’s systems and processes.
Payroll Tax Measures
Reduction in Health Services Fund Contributions
To encourage employers to hire or retain workers age 65 or over, Health Services Fund contributions with respect to such employees will be reduced, starting in 2013.
Private-sector employers may claim a reduction of up to $400 in 2013 for each employee age 65 or over, with the available reduction increasing to $500 for 2014, $800 for 2015, and $1,000 for 2016 and subsequent years.
Taxable Benefit Change
To promote the use of public transit, starting in 2012, the value of the benefit to an employee arising from the supply or reimbursement of an eligible transit pass by his/her employer will not be included in the employee’s income.
Additional information on the 2012-2013 Quebec budget is available on the province's web site at:
Quebec Budget 2012.