On February 20, 2014, the Minister of Finance, Nicolas Marceau, tabled the 2014-2015 Budget of the Québec government. This Budget, representing Nicolas Marceau and the Parti Québécois' second, demonstrates the government's, albeit minority, relentless commitment to ensure that "the prosperity, solidarity and identity of all Quebecers" is preserved. Among the more notable points of discussion, the Minister focused on two achievements. First, according to the Minister, 47,800 jobs were created in Québec during 2013, representing the best performance over the last three years. Second, investment in Québec businesses rose by 1.7% in 2013, reaching a value of approximately $35.4 billion.
Overjoyed by these achievements, the Minister tabled certain fiscal measures to return to a balanced budget as of 2015-2016 and maintain the continued growth of the Québec economy. We have outlined below the most notable measures so tabled.
"Revenu Québec: The Dark Knight" — The Ongoing Fight Against Tax Evasion
In an effort to combat tax evasion and improve fairness for taxpayers who pay their full income tax, the Québec government announced certain new initiatives aimed at stepping up controls in the construction industry and improving revenue collection through the installation of sales recording modules (SRMs) in bars and resto-bars. The Québec government has predicted that these new initiatives will increase revenues by more than $60 million per year.
Annual tax losses in the construction sector are estimated at an astronomical $1.5 billion per year. In order to diminish said losses, the Québec government will be implementing certain measures focused on: (i) introducing new requirements for private construction contracts; (ii) tackling false-billing; and (iii) stepping up various control mechanisms. Perhaps most importantly, in the construction sector, the government has announced that, as of fall 2014, the requirements with respect to obtaining an attestation from Revenu Québec for public contracts will also apply to private constructions contracts of $25,000 or more.
Furthermore, in the restaurant sector, the installation of sales recording modules (SRMs) will now be required for bars and resto-bars. Said modules will slowly be deployed over a 5-month period commencing as of fall 2014 and are estimated to generate approximately $40 million of additional revenue yearly.
"Québec: It's yours to Discover" — Refundable Tax Credit for the Modernization of Tourism Accommodations
This tax credit is granted to a qualified corporation that owns a hotel, tourist home, resort, bed and breakfast or youth hostel, outside the regions of Montréal and Québec and which carries on renovation/improvement work prior to January 1, 2016.
The current tax credit corresponds to 25% of the qualified expenses incurred by a qualified corporation, which exceed an annual threshold of $50,000. The limit on said expenditures is capped-off at $750,000. However, in order to stimulate greater growth, the 2014-2015 Budget replaced the annual threshold with a single threshold of $50,000. The abovementioned modifications will equally apply for corporations.
"Living in Harmony" — Harmonization with the Federal Budget of February 11, 2014
The Québec Budget announced that Québec's tax legislation and regulations will be amended in light of the changes proposed by the 2014 Federal Budget. However, the changes will only be adopted after the assent of any federal statute or the adoption of any federal regulations implementing said measures.1
In this regard, the Québec tax legislation will be amended to adopt, inter alia, the following measures:
- the elimination of graduated rate taxation for certain trusts and estates;
- the elimination of the 60-month exemption from the residency presumption rules that apply to non-resident trusts (what were known as the "pre-immigration trusts");
- changes announced regarding donation in the context of death.
Additionally, several measures discussed in the 2014-2015 Federal Budget, such as the automatic determination of the GST/HST credit or the ten (10) year deferral period of gifts of ecosensitve land made by a corporation, were specifically excluded and shall not be retained by the Québec tax system2.
"Black Friday Sales ... Tax" — Measures Relating to the GST/HST
With regards to sales tax harmonization (GST/HST), changes will be made to the Québec sales tax (QST) in order to incorporate the federal measures pertaining to the GST/HST election for closely related persons and those seeking to strengthen compliance with registration requirements.
The Budget reiterated the Minister of Finance harmonization decisions with regards to the federal measures announced in the 2014-2015 Federal Budget pertaining to the GST/HST and its application in the health care sector.
In an ongoing effort to return to a fiscal balance in 2015-2016, the various measures introduced above have been announced to generate additional tax revenues. Does this Budget finally present the necessary policy directions required in order to achieve fiscal balance and reduce provincial debt? Opposition parties have declared that they will not support the Budget. If such is the case, then this question is simply moot.
1 For a detailed listing of the measures to be adopted please refer to pages I.13-I.15.
2 For a complete listing of measures not retained please refer to pages I.14-I.15.
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