Canada: The 2009-2010 Québec Budget

Last Updated: April 23 2009
Article by Joseph H. Takhmizdjian

The following article appears in the April 14 to 17, 2009 edition of The Canadian Taxpayer, a semi-monthly publication with national circulation.

On March 19, 2009, the Minister of Finance, Monique Jérôme-Forget, tabled the 2009-2010 Budget of the Québec Government.

This Budget, Monique Jérôme-Forget's third and the Liberal Government's eighth, follows the December 2008 elections where the Liberal Party vowed to put the "economy first". With that promise, it obtained a narrow majority from Québec voters to govern the province through difficult financial times. With the injection of $15 billion into the Québec economy, the Minister declared in this Budget that Québec "is among the governments that are addressing the economic slowdown the most aggressively".

To protect Québec's businesses and safeguard its jobs, the Budget provides for (i) an improved stock savings plan which will facilitate financing for medium-sized businesses on public markets, (ii) the creation of a $500 million emergency fund to help large businesses keep Québecers working, (iii) $60 million of additional funding to support employment and small and medium businesses and (iv) the creation, in partnership with the Caisse de dépôt et placement du Québec and the Fonds de solidarité FTQ, of a new $825 million fund to finance venture capital funds in order to accelerate recovery, stimulate innovation and support Québec entrepreneurs.

To help weather the recession and protect jobs, Québec has announced various tax relief measures for business. To protect the forestry industry, Québec will provide an additional assistance of $65 million to finance the production of seedlings and develop new markets for the forest sector. Québec will also broaden the tax credit for manpower training in the manufacturing sector to the mining and forest sectors.

To prepare for economic recovery, Québec plans to "bank on [its] strengths", including "clean and renewable energies that are the envy of our neighbours". To that end, the Government will (i) mandate Hydro-Québec to carry out projects that will produce another 3,500 megawatts of electricity, (ii) implement a program to stimulate gas exploration in Québec and (iii) develop plans to become a world leader in environmental protection and green technology.

Major Improvements to the Stock Savings Plan: The stock savings plan originally introduced in 1979 and replaced by the SME Growth Stock Plan (Accro PME) in 2005 will now be improved and renamed as the "stock savings plan II". Generally, under the Accro PME plan, a Québec resident individual is entitled to deduct the acquisition cost of certain types of securities issued by a qualified issuing corporation. Under the plan, a corporation is a qualified issuing corporation if, among other things, (i) its assets are less than $100 million, (ii) its central management is in Québec, and (iii) more than half of wages paid are paid to employees of an establishment in Québec. In view of the current credit crunch, Québec recognizes that the Accro PME plan can be an additional source of capital financing for corporations and has extended the plan, which was set to terminate on December 31, 2009, for five years. In addition, for a limited period of two years ending on December 31, 2011, the deduction in respect of the acquisition cost of eligible shares has been increased from 100% to 150%. Also, to ensure that more corporations qualify for the plan, the $100 million asset limit will be increased to $200 million and the three-year minimum shareholding period will be reduced to two.

Three types of financial instruments are generally eligible for the plan: (i) common shares with full voting rights, non redeemable and with no fixed dividend, acquired as part of a public offering (qualifying shares); (ii) securities issued by investment funds that make investments in qualifying shares and acquired by a first acquirer (qualifying security); and (iii) qualifying shares acquired on the secondary market (valid shares).

Ten-Year Tax Holiday for the Commercialization of IP: In order to encourage entrepreneurship and help keep intellectual property in Québec, this Budget introduces a ten-year tax holiday for new corporations dedicated to the commercialization of IP developed in Québec universities and Québec public research centers. For a new corporation to be eligible, it must obtain a renewable three-year certification from the ministère du Développement économique, de l'Innovation et de l'Exportation (MDEIE) certifying that it (i) was incorporated in Canada after the day of the Budget Speech and before April 1, 2014, (ii) began to carry on an eligible commercialization business within 12 months after its incorporation, and (iii) will earn all or almost all of its income for the year from an active business that is an eligible commercialization business.

An eligible commercialization business is generally a business the only purpose of which is the making and selling goods more than 50% of the value of which stems from IP developed in the course of employment or academic studies at an eligible university or research center in Québec.

Increase in the Québec Sales Tax (QST) Rate: The rate of the QST will increase by one per cent, from 7.5% to 8.5%, effective as of January 1, 2011. In the Minister's view, "increasing sales tax is preferable to increasing income tax [because]... a sales tax increase does not hurt the competitiveness of [Québec] exports,... does not discourage work effort [and]... is not a disincentive to save."

Countering Aggressive Tax Planning and Tax Evasion: The Minister reiterated her intention to review the legislative framework applicable to aggressive tax planning. Québec launched a public consultation on the matter in February. The Minister also announced her intention to "step up the fight against tax evasion, in particular in the construction sector".

Green Vehicle Tax Credit: Inspired by standards set by California for limiting greenhouse gas emissions, the Budget introduces a refundable tax credit ranging from $2,000 to $8,000 for a recognized green vehicle purchased or leased between January 1, 2009 and December 31, 2015 by an individual resident in Québec or a taxable corporation with an establishment in Québec. A new four wheel on-road vehicle that meets Québec's exacting fuel consumption standards will be recognized as green.

Helping Families and Individuals: The Budget introduces certain measures aimed at helping families, for example, by increasing the limit for child care expenses (for a child under 7) from $7,000 to $9,000 a year. The Budget also provides work premium supplements for individuals who transition from vocational training programs to the labour market.

The January 27, 2009 Federal Budget: Québec's tax legislation will be amended to incorporate certain measures announced in the last federal budget such as (i) the increase from $400,000 to $500,000 of the limit on the amount of income eligible for the reduced tax rate for small businesses applicable as of the day following the Budget Speech and (ii) the amendments pertaining to capital cost allowance applicable to certain assets, such as the 100% accelerated depreciation measure for computer equipment.

However, certain other measures announced in the last federal budget such as the introduction of the Home Renovation Tax Credit, are not incorporated.

Economy First: During the previous Budget, the Québec Government used the words "prudence and discipline" to describe the measures the Budget contained given the forecast at that time of a possible economic downturn. Now that the forecasted economic downturn is a reality, the Minister considers that "this Budget gives hope. It will enable Québec to bounce back as soon and as high as possible once recovery begins". It remains to be seen if the measures contained in her new Budget will help jump start the economic recovery process. If it does, the Liberal Government will no doubt take credit for having put the "economy first".

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