On June 4, 2014, Minister of Finance Carlos Leitão tabled Quebec's 2014-15 budget, the first budget for the newly elected Liberal government. The "Budget for Economic Recovery and to Restore Sound Public Finances in Québec" anticipates a deficit of $2.35 billion in 2014-2015 and aims to stimulate employment and economic growth, while ensuring responsible government spending.
Commodity Tax Measures
The new budget includes technical QST changes similar to GST/HST changes announced previously by the federal government. In addition, the budget announced increases to the specific taxes levied on tobacco and alcohol.
QST Technical Amendments
In April 2014, the Federal Department of Finance issued proposed technical amendments to the Excise Tax Act, including the following:
- implementation of real property technical amendments that provide for the consistent treatment of different types of housing and ensure that the special valuation rule for subsidized housing works properly with the GST/HST place of supply rules and in the context of a GST/HST rate change;
- clarification of the application of GST/HST public service body rebates in relation to non-profit organizations that operate certain health care facilities;
- relief of the GST/HST on the services of refining precious metals supplied to a non-registered non-resident;
- codification of relief provisions related to the tax treatment of Canadian goods on which GST/HST has already been paid upon re-entry into Canada; and
- simplification of the tax treatment of the temporary importation of certain railcars.
In keeping with GST/HST and QST harmonization efforts, the Quebec government has also proposed to make technical changes consistent with those announced by the federal government. At the same time, certain legislative references will be added to the regulations for which, at present, there are no QST equivalents.
The proposed measures will only be adopted by Quebec once the assent of law or adoption of the regulations has occurred. The effective dates for the federal amendments will also apply to the provincial amendments, except in the case of measures applicable prior to July 1, 1992 (the date the QST first came into effect), for which the effective date will be July 1, 1992. For those measures retroactive to July 1, 2010, the QST equivalents will be retroactive to January 1, 2013 instead.
For further background and details, please see our tax development on the Federal Department of Finance proposed amendments, which is available at: Ryan Tax Developments - Department of Finance Proposed Amendments
Tobacco and Alcohol Taxes
The specific tax on tobacco will increase, effective midnight, June 5, 2014, as follows: the rate of tax will increase by 2 cents to 14.9 cents per cigarette; the rate of tax on a gram of loose tobacco or leaf tobacco will increase by 2 cents to 14.9 cents per gram; and the rate of tax on any tobacco product other than cigarettes, loose tobacco, leaf tobacco or cigars will increase from 19.85 cents per gram to 22.92 cents per gram. The minimum rate applicable to a tobacco stick will also be raised by 2 cents to 14.9 cents per stick.
The 2014-15 budget will standardize the rates of tax levied on beer and other alcoholic beverages sold in Quebec, effective at 6 a.m. on August 1, 2014, regardless of where the beverages are intended to be consumed. Currently, the tax rates on products sold for consumption in an establishment are higher than the rates applicable to alcoholic beverages sold for consumption other than in an establishment (e.g., in a retail store).
In order to achieve standardization, the new rates will be 63 cents per litre of beer (an increase from 50 cents per litre of beer sold other than for consumption in an establishment) and $1.40 per litre for other alcoholic beverages (an increase from $1.12 per litre for other alcoholic beverages sold other than for consumption in an establishment).
Furthermore, for beer sold in microbreweries, the tax rate will be reduced by 67% and 33%, respectively, on the first 150,000 hectolitres sold annually, resulting in a rate of 20.79 cents per litre on the first 75,000 hectolitres of beer sold and 42.21 cents per litre on the next 75,000 hectolitres.
For small-scale producers of other alcoholic beverages, the tax rate will be reduced by 100% and 85%, respectively, on the first 15,000 hectolitres sold annually. As a result, the first 1,500 hectolitres sold will continue to be exempt of the specific tax, and the next 13,500 hectolitres will be subject to tax at 21 cents per litre.
Revenue Quebec requires that an inventory of tobacco and alcohol products be undertaken for stocks on hand (including stocks in transit), as of the effective date of these changes, and the increased tax amounts owing to be remitted using inventory forms available on the Revenue Quebec website. An inventory of tobacco should have been taken as of midnight on June 4, 2014, with the inventory form and any increased tax amount owing due no later than July 5, 2014.
Persons who sell alcoholic beverages will be required to take an inventory of alcohol products as at 6 a.m. on August 1, 2014, with the form and any additional tax amount owing due before August 30, 2014. Where an establishment wishes to obtain a refund, due to the reduction in the rates applicable to products sold for consumption in an establishment, the inventory form must be submitted before November 1, 2014.
The Fight Against Tax Evasion and Unreported Work
Consistent with the approach taken by previous governments, Quebec will continue to seek significant tax recoveries by "stepping up" its fight against tax evasion, unreported work and crime. As a result of this effort, Quebec has generated additional tax recoveries of almost $1.1 billion from fiscal 2010-2011 to fiscal 2013-2014 due to increased tax audits and recovery measures. In this budget, the province has pledged to intensify the fight against tax evasion and unreported work in every sector of its economy. In particular, this intensified focus will be aimed at the construction industry, employment agencies, and the restaurant sector.
To help fight tax evasion in the construction and employment agency sectors, Quebec will be introducing an attestation initiative to begin on January 1, 2015. Under this initiative, construction companies entering into private construction contracts of $25,000 or more and employment agencies entering into contracts of $2,500 or more will have to obtain an attestation from Revenue Quebec. This attestation will consist of an acknowledgement from the province that the business in question has filed all required returns under the various Quebec tax laws (i.e., income tax, QST, source deductions and social contributions). Construction companies that enter into public contracts are already required to obtain these attestations from Revenue Quebec.
From a commodity tax perspective, the primary focus is on what the province terms "false-billing fraud" (i.e., fraudulently claimed input tax refunds using fake invoices). To curtail this practice, the province will undertake more audits of construction companies, improve its audit selection criteria related to risky files, and scrutinize certain businesses to determine if they are actually carrying on business in Quebec.
As of November 2011, all restaurant establishments have been required to issue bills to their clients that are produced by a sales recording module ("SRM"). The SRM was introduced to improve tax compliance in the industry by ensuring that every customer receives a bill, and to improve the efficiency of inspection and audit activities. Based on the success of this measure in restaurants, the previous budget had announced that the use of SRMs will be expanded to bars and resto-bars, and the current government is prepared to move forward with this initiative. It is estimated that roughly 6,100 new establishments will be required to begin using SRMs, effective June 1, 2015. As with the introduction of SRMs in restaurants, a subsidy program will be established to help these taxpayers acquire the required technology.
The current budget also introduces efforts to curtail the illegal tobacco trade, which will be aimed at smuggling networks and their distribution channels.
Quebec Taxation Review Committee
The government also announced the creation of a Quebec Taxation Review Committee that will have a mandate to review government tax expenditures and propose tax system changes to make it more competitive for both individuals and businesses.
Additional information on the 2014-2015 Quebec budget is available on the province's web site at: Quebec Budget 2014-15