On March 28, 2012, the federal government and the Quebec
government entered into a tax coordination agreement1
under which significant changes will be made to the Quebec Sales
Tax (QST). This agreement modifies in many
respects the application of the QST in Quebec by providing for,
among other things, material changes applicable to financial
services rendered in Quebec. However, Quebec will generally retain
the administration of the Goods and Services Tax/Harmonized Sales
Tax (GST/HST) and QST in its territory.
Firstly, from January 1, 2013 onward, QST will be calculated on
the sale price excluding GST. In order to neutralize the withdrawal
of the GST in calculating the QST, the QST rate will be increased
by 0.475% to 9.975%. Under the agreement entered into between the
two levels of government, Quebec will ensure that its tax base is
virtually identical at all levels with the one applicable for GST/
HST purposes in the other provinces and, to do so, will include the
parameters provided under the agreements entered into with the
other provinces. Thus, the differences which currently exist
between the GST and QST regimes should be practically
In addition, from April 1, 2013 onward, goods and services
providers will be required to charge the QST and GST/HST to all
federal and provincial departments and agencies. As a result, the
exemption certificates will no longer be valid2.
Major changes are also planned with respect to financial
services provided in the province of Quebec. As these services are
currently zero taxed, they will become exempt from January 1, 2013
onward with the result that financial services providers will no
longer be able to claim input tax refunds (ITR).
This loss of ITR will have significant impact on financial services
suppliers. Planning may be possible in certain cases in order to
avoid or limit the net cost resulting from the ITR loss. It is
further planned that the compensation tax applicable to designated
financial institutions will be gradually eliminated by March 31,
Revenue Canada will henceforth be responsible for the
administration of the GST/HST and QST for some financial
institutions, including "selected listed financial
institutions". Thus, the reporting period used for the QST
will need to be aligned to the one used for the GST. In the event
the reporting period of a selected listed financial institution
registered in the QST register includes January 1, 2013, this
reporting period will end on December 31, 2012. Therefore, a new
reporting period will begin on January 1, 2013 and will be combined
with the one used for the GST/HST. Currently registered financial
institutions may retain their registration to the extent they
qualify as a "designated financial institution" or if
they hold the majority of shares of an operating corporation. The
concept of optional registration will be eliminated. As a result,
many financial institutions will have to cancel their registration
as of January 1, 2013.
Thus, although these changes do not materially affect consumers,
it nonetheless remains that they will significantly affect certain
types of businesses. It would therefore be advisable to take the
changes into consideration and possibly consult a tax advisor.
1. Memorandum of Agreement Concerning a Canada-Quebec
Comprehensive Integrated Tax Coordination
2. Special rules are provided for contracts which will be
in force as of April 1, 2013.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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