Canada: Quebec’s Budget Calls for Increased Taxpayer Participation

Last Updated: April 13 2010
Article by Guy A. Gagnon

Most Read Contributor in Canada, September 2018

Quebec's Budget Calls for Increased Taxpayer Participation

On March 30, 2010, the Quebec Finance Minister, Raymond Bachand, tabled Quebec's 2010-2011 budget in the National Assembly (Budget). The Budget sets out important measures that will increase provincial revenue or affect existing measures and programs. The Quebec government is maintaining its audacious goal of balancing the budget by fiscal year 2013‑2014.

It therefore comes as no surprise that individuals are affected by various measures, including the introduction of a health contribution of C$25 per adult beginning on July 1, 2010, C$100 per adult beginning in 2011 and C$200 per adult beginning in 2012. Also, the Quebec sales tax (7.5%), which is already slated to increase by 1% on January 1, 2011, will be increased by another percentage point on January 1, 2012. The fuel tax will also be raised in order to upgrade the road network and public transit services. The introduction of the health contribution is no doubt the most surprising measure in the Budget. It is a first for the province, which has preferred to use progressive rates to finance its health system in the past.

Businesses are also affected. The Quebec Finance Minister justifies some of the measures by the need to balance the books whereas other measures reflect the wish to create a fairer tax system.

This bulletin summarizes a few of the more noteworthy measures affecting businesses. As the Liberal government is in the majority, we can expect the measures contained in the Budget to be enacted shortly.

Major changes to the mining duties regime

At a time when environmental protection and the careful management of Quebec's non-renewable natural resources are the subject of endless debate, the Budget contains measures that will allow the province to charge fees that more accurately reflect the degree to which non-renewable resources belonging to the public domain are being used. Among other things, the Budget provides that mining duties payable to the government will increase gradually from the current 12% of an operator's annual profit to 16% by January 1, 2012.

The way annual profit is calculated will be substantially changed so that a taxpayer operating several mines will no longer be able to calculate its annual profit on a consolidated basis. The Budget also proposes various measures limiting both the amount of various costs and allocations available when calculating the annual profit and the credit of duties refundable for losses, even though it is provided that the annual rate of this credit will gradually increase to 16%, at the same rate as the increase in the mining duties rate.

Temporary increase in compensatory tax on financial institutions

The compensatory tax is unique to the province of Quebec. It is designed to recover amounts refunded to financial institutions under the Act respecting the Québec sales tax. This tax is generally calculated based on paid-up capital, salaries paid and insurance premiums.

In order to collect additional revenue to help it achieve a balanced budget, the government is targeting institutions subject to the compensatory tax and is proposing a temporary increase in the tax rate for salaries paid and that are applicable to insurance premiums:

The rate increases that the government expects to recover, close to C$500-million over four years, will apply to taxation years ending after March 30, 2010, and beginning before April 1, 2014.

International Financial Centres (IFC) program replaced

Corporations and partnerships established in the metropolitan community of Montréal whose activities exclusively involve eligible international financial transactions, along with some of their employees, receive preferential tax treatment. In particular, an IFC operator benefits from an exemption of 75% of the income tax, tax on capital and the employer contribution to the Health Services Fund. Eligible IFC employees are entitled to an additional deduction in calculating their taxable income equal to 37.5% of their income from the IFC, up to a deduction of C$50,000 on an annual basis.

The Budget provides for the replacement of all the partial exemptions currently available to IFC operators and their eligible employees, with the exception of a foreign specialist. The program that will henceforth apply to IFCs is similar in many respects to the measures applicable to the other refundable tax credits offered by Quebec. The government is justifying this change by a major transformation in how the industry operates and, in particular, the increasing role of information technology in an IFC's business. The new measures will no doubt allow the province to further target the IFC program to the use of eligible employees in the IFC. This is an important change for the financial services industry.

Under the new program, an IFC will be required to obtain an annual qualification certificate from the Quebec Finance Minister and constitute an eligible corporation with at least six eligible employees. If it qualifies, an IFC may claim a refundable tax credit equivalent to 30% of the eligible salary paid to each eligible employee, up to a maximum of C$20,000 per year each. The new measures will contain details about the eligibility of an IFC, activities, employees and salaries under the new program.

Various transitory rules will give current IFC operators the choice of benefiting from the new credit immediately or continuing under the current IFC program until December 31, 2012, and December 31, 2013, depending on whether the operator is a corporation or a partnership, respectively. Regardless of the IFC's choice as to the form of tax assistance it wishes to receive, current IFC employees may continue to claim a deduction in calculating their taxable income. However, that deduction will gradually be reduced until December 31, 2013, and disappear completely as of January 1, 2014. The tax measure for foreign specialists working for an IFC still applies.

Introduction of water royalty

Although initially it will have a limited impact on the province's finances, the Quebec government is introducing a royalty on water use. A two-tiered water royalty will be introduced as of January 1, 2011. The royalty will target businesses in the industrial and commercial sectors drawing 75 m³ of water or more per day either directly or from water mains. It will not apply to the residential, institutional or farm sectors.

The royalty will apply two rates that depend on the use of the resource. A rate of $0.0025/m³ will apply to industries using water in their production processes and a rate of $0.07/m³ will apply for those using water as a component of their products.

Corrective measures – Refundable tax credit for e-business development

Quebec tax legislation currently provides for a refundable tax credit for eligible corporations that run a business involving activities in the information technology sector. This tax credit corresponds to 30% of eligible salaries that an eligible corporation pays after March 13, 2008, and before January 1, 2016, to carry out eligible activities related to the development of e-business. The amount of tax credit an eligible corporation can receive for a given tax year may not exceed C$20,000 per eligible employee.

Measures were announced to ease the eligibility requirements for the credit for business start-ups and corporations involved in a transfer of activities from another entity. Provided certain conditions are met, a start-up corporation may be eligible for the credit for a portion of a taxation year, as soon the eligibility criteria are met. Similarly, the transfer of activities during a year from one entity to another may allow a corporation involved in such a transfer to qualify as an eligible corporation only for a portion of a taxation year.

These adjustments will apply to salaries incurred by an eligible corporation and paid to eligible employees between March 13, 2008, and January 1, 2016.

Research and development tax measures

Quebec's tax legislation includes various types of refundable tax credits related to scientific research and experimental development (R&D). The Budget announces several measures to make it easier to calculate the refundable tax credit for R&D salaries. The proposed tax credit for R&D salaries will (i) deem a research subject participating in clinical trials to carry out work for the purposes of the credit and (ii) harmonize the treatment of the indemnity paid to a research subject regardless whether a subcontractor is at arm's length with the taxpayer benefiting from the R&D salaries credit or whether the research subject is an employee of the subcontractor.

These proposed measures were desirable and take account of the business reality involving clinical trials. They will apply to expenditures incurred for a taxation year for which the Minister of Revenue of Quebec may, on March 30, 2010, determine or redetermine the refundable tax credit for R&D salaries, for such year, and make an assessment or a new assessment or establish a supplementary assessment in relation to such tax credit.

Administrative measures

Facilitate the Obtaining of Refundable Tax Credits

The principal measures announced in the Budget involving tax administration include a measure to harmonize all refundable tax credits relating to businesses. It is not unusual for a taxpayer to claim a refundable tax credit offered by Quebec tax legislation and be denied the credit following a review by the Ministère du Revenu du Québec. In most cases, as the deadline has passed, the taxpayer is barred from claiming another credit that would have been applicable were it not for the credit initially claimed by the taxpayer. Quebec law is already quite flexible in this respect but only for tax credits for R&D. Under certain conditions, the taxpayer can claim an alternative tax credit for R&D to replace the credit initially claimed.

The tax legislation will be changed so that an expense incurred by a taxpayer regarding which the taxpayer filed a prescribed form for the application of a refundable tax credit on time may be declared by the taxpayer for the same taxation year on a prescribed form, after the deadline, for the application of another refundable tax credit he claims to replace the one he initially applied for.

This amendment will apply to a claim or a new claim regarding a refundable tax credit made after March 30, 2010.

Agence du Revenu du Québec and Aggressive Tax Planning

The Quebec government is continuing its fight against aggressive tax-planning schemes, generally described as an operation that complies with the letter of the law but betrays its spirit. Last October, the Ministère des Finances du Québec introduced stricter oversight measures regarding this type of planning. Quebec was the first in Canada to introduce such measures. The federal government followed suit to a lesser extent in its recent budget. Please see our March 2010 Blakes Bulletin on Tax: 2010 Federal Budget concerning the most recent federal budget.

To be even more efficient, the Ministère des Finances du Québec announced the creation of the Agence du revenu du Québec. The agency will take over from Revenu Québec on April 1, 2011. Additional sums will also be devoted to the fight against tax evasion and the collection of all government revenues. The main sectors targeted by the tax evasion initiatives will be unreported work in the construction industry, the restaurant industry and economic and financial crime. Through these measures, the government expects to bring in close to C$1.2-billion over four years, including at least C$120-million during this fiscal year.

According to the Ministère des Finances du Québec, the creation of the agency, in addition to being a standalone, accountable entity responsible for collecting all government revenues, will give the government revenue collection agency more autonomy, improve delivery of services to the public and ensure rigorous accountability by systematically assessing results and measuring performance.

Prison Sentences and Tax Evasion

To further dissuade defrauders, the Budget announced that the maximum prison term for serious tax offences, including tax evasion, will be raised from two to five years less a day. The government is therefore elevating major tax offences to the same level as major economic crime. The measure will come into force on the date the bill introducing the new measure is enacted.

Harmonization with certain measures relating to latest federal Department of Finance budget

As expected, the Budget announced the harmonization of Quebec legislation with several measures announced by the federal Finance Minister in the federal budget presented on March 4, 2010. However, the Ministère des Finances du Québec will announce its position regarding a few important measures announced in the latest federal budget at a later date.

The measures that will be harmonized include:

  • the addition of a requirement to be entitled to the deduction for employee stock options (BR 18 to BR 21)
  • the changes made to the definition of "taxable Canadian property" and the correlative adjustments (BR 38 to BR 40)
  • the withdrawal of the election to defer taxation of a benefit arising from the exercise of a stock option granted to an employee of a corporation, other than a Canadian-controlled private corporation (CCPC), or a mutual fund trust and the obligation to withhold tax at source (BR 25 to BR 28)
  • the temporary relief allowed individuals who elected to defer taxation of a benefit arising from the exercise of a stock option granted to an employee of a corporation, other than a CCPC, or a mutual fund trust (BR 29 a) to c), BR 30 and BR 31), subject to specific features
  • the changes made to the definition of "principalbusiness corporation" applicable as part of the flowthrough share system (BR 34)
  • the changes made to the acquisition of control rules upon the conversion of a specified investment flowthrough entity to a corporation (BR 35 to BR 37)
  • the changes made to foreign tax (BR 42 to BR 44)
  • the changes concerning the accelerated capital cost allowance on account of clean energy generation
  • the changes to specified leasing property rules.

These measures will only be adopted following the assent given to any federal legislation and/or adoption of any federal regulation giving effect to the measures. These measures will apply on the same dates as those retained for the purposes of the federal measures.

The Ministère des Finances du Québec, however, remains cautious and will only announce at a later date whether it intends to harmonize with the following measures: proposed changes relating to foreign investment entities and non-resident trusts; possible changes to the tax rules for corporate groups; and the creation of federal credit co-operatives.

A few measures announced during the latest federal budget will not be retained, including those relating to information reporting of tax avoidance transactions (since Quebec's tax regime is sufficient in this regard) and the mineral exploration tax credit (since the features of Quebec's tax regime are different in this regard).

For further information on the measures proposed by the federal government in its most recent budget, please see the previously mentioned March 2010 Blakes Bulletin on Tax.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions