Canadian Tax Adviser
October 4, 2011

Quebec to Harmonize its QST with Federal GST

Paul Hickey
Toronto, National Tax Centre

The federal and Quebec governments have announced that the Quebec sales tax (QST) and the federal goods and services tax (GST) will be harmonized as of January 1, 2013. According to a Memorandum of Agreement signed by the Government of Canada and Quebec on September 29, 2011, the QST rate will be 9.975% as of January 1, 2013. This rate, when combined with the 5% GST rate, will provide an effective rate of 14.98%. The Memorandum also notes that the Quebec Revenue Agency will continue to administer the QST and the GST in Quebec.

It is expected that a detailed agreement will be reached by April 1, 2012.

Effect on financial institutions
Although consumers should not be greatly affected by this news, financial institutions will likely need to implement considerable changes to manage this new harmonized tax system.

Under the new system, financial services will be exempt under the QST legislation. Although the Memorandum does not explain how this will be implemented, this will likely require significant system changes and should increase costs for many financial institutions, especially those who did not pay the compensatory tax. It appears that the compensatory tax will be eliminated, but the temporary increase in compensatory tax will remain until March 2014.

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