On November 20, 2012, Minister of Finance and the Economy, Nicolas Marceau, tabled the first budget for the recently elected Parti Québécois. This $72.4 billion dollar budget will require the political goodwill of members of the opposition parties to pass it, since the government has a minority status. However, the government believes it will meet its goal of fiscal balance with this budget. The focus of this budget was aimed at providing financial relief to families, creating conditions that will lead to new private investment by businesses, and making the government act responsibly.
Below is a summary of the significant tax changes outlined in this Quebec budget.
Corporate Income Tax Measures
This budget introduces a number of proposed changes to existing tax credits, as well as a new tax holiday to encourage investment in projects in Quebec, and a tax increase for financial institutions.
Tax Credit for Manufacturing and Processing Equipment
The tax credit for investments relating to manufacturing and processing equipment will be extended by two years (i.e., until December 31, 2017), with certain exceptions. The rate of the tax credit is 5% and this rate can be increased up to 40%, depending on the zones where the qualified property is acquired. The budget proposes to increase the tax credit rate for qualified property by 5% in certain situations. However, where a qualified corporation, or an associated corporation, is eligible for the tax credit for job creation, the tax credit will remain as it was before the budget announcement.
Refundable Tax Credit for Research and Development
Eligible biopharmaceutical corporations may be entitled to receive a refundable tax credit for a scientific research and experimental development (“SR&ED”) salary equal to 27.5% of eligible SR&ED expenditures incurred after November 2012, but before January 1, 2018. This represents a 10% increase over the standard 17.5% refundable tax credit rate for SR&ED salaries. The tax credit rates for certain Canadian-Controlled corporations will also be increased over the five-year period, to a maximum of 37.5%. To remain eligible for this tax credit, the biopharmaceutical corporation will have to obtain an eligibility certificate on an annual basis.
New Tax Holiday for Large Investment Projects
A new tax holiday for large investment projects, called the THI, has been introduced to replace the previously cancelled tax holiday for a major investment projects. A corporation or a partnership that begins to carry out a large investment project in Quebec after November 20, 2012 may be eligible for this new tax holiday which will last for 10 years, and may not exceed 15% of the total eligible investment expenditures. To qualify as a large investment project, a project must pertain to activities in the manufacturing, data processing and storage, wholesale trade or warehousing sectors. The project must also satisfy a requirement that a minimum investment threshold of $300 million be achieved and maintained. In order for a THI to qualify for this new tax holiday, an initial certificate application must be submitted to the Minister of Finance and the Economy before November 21, 2015 and, in addition, this application must be submitted prior to the start date of the qualifying large investment project.
Compensation Tax on Financial Institutions
The compensation tax on financial institutions' “temporary contribution” will be increased and extended to March 31, 2019 under proposals in the current budget. Effective January 1, 2013, the temporary contribution will be: for amounts paid as wages: a rate of 2.8% in the case of a bank, a loan corporation, a trust corporation or a corporation trading securities; a rate of 2.2% in the case of a savings and credit union; and a rate of 0.9% in the case of any other person; and for insurance premiums and amounts established regarding insurance funds, a rate of 0.3%.
Commodity Tax Measures
The budget did not include any new changes to QST, which is not surprising given that this tax is set to be effectively harmonized with the GST on January 1, 2013. However, this budget did announce increases to the specific taxes levied on tobacco and alcohol.
Tobacco Tax
The specific tax on tobacco has been increased, effective midnight, November 20, 2012, as follows: the rate of tax on a cigarette, a gram of loose tobacco or leaf tobacco, and the minimum rate of tax for a tobacco stick, will increase by 2 cents to 12.9 cents; and the rate of tax on any tobacco product other than cigarettes, loose tobacco, leaf tobacco and cigars will increase by 3.08 cents to 19.85 cents.
Alcohol Tax
The specific tax on alcohol has been increased, effective 3 a.m., November 21, 2012, as follows:
- the tax on beer sold for consumption in an establishment will increase 17 cents per litre to 82 cents per litre, and the tax on beer sold at retail will increase 10 cents per litre to 50 cents per litre;
- for all other alcoholic beverages consumed in an establishment, a tax increase of 50 cents per litre to $2.47 per litre was announced, while alcoholic beverages sold at retail will have a tax increase equal to 23 cents per litre to $1.12 per litre; and
- microbrewers and small-scale producers will also have their per litre rate of tax increase; however, the reductions in the specific rates of tax that are based on production thresholds established for these alcohol producers will be applied to the announced alcohol tax rates increase.
Revenue Quebec requires that an inventory of tobacco and alcohol products be undertaken for stocks on hand (including stocks in transit) and the increased tax amounts owing, due to the inventory on hand and the budgeted tax increases, must be remitted no later than December 22, 2012. This budget change required that the inventory of tobacco be taken as of midnight, November 20, 2012, and that the inventory related to alcohol products be conducted at 3 a.m. on November 21, 2012. Inventory forms that must be used are available on the Revenue Quebec web site.
Additional information on the 2013 - 2014 Quebec budget is available on the province’s web site at: Quebec Budget 2013 - 2014.