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  • Date: 6/4/2014

Highlights of the 2014-2015 Quebec Budget 

Tax News Flash
Tax News Flash
Tax News Flash

Highlights of the 2014-2015 Quebec Budget

 

June 4, 2014

No. 2014-31

Today, Quebec's Minister of Finance and the Economy, Carlos Leitão delivered the province’s 2014 budget.

 

The budget, which anticipates a deficit of $2.350 billion for 2014-2015, confirms that two committees will be created, one to examine taxation in Quebec and another committee for a permanent review of Quebec’s programs. In this budget, the government maintains the objective of achieving its target of balancing the budget for 2015-16.

 

The budget announced a reduction of income tax rate for Quebec’s manufacturing SME. The corporate income tax rates as of March 1, 2015 will be as follows:

 

Corporate Income Tax Rates

 

 

As of January 1, 2014

 

For taxation years ending after
March 31,2015

 

Quebec

Combined Federal and Quebec

Quebec

Combined Federal and Quebec

 

General

11.9%

26.9%

11.9%

26.9%

 

M&P

11.9%

26.9%

11.9%

26.9%

 

Small business*

8.0%

19.0%

8.0%

19.0%

 

Small business*

8.0%

19.0%

4.0%**

15.0%**


*on first $500,000 of active business income.

** under certain conditions and for taxation years ending after March 31, 2015

 

No changes to Quebec’s personal income tax rate were announced in the budget. As a result, Quebec’s combined federal and provincial top marginal tax rates remain as follows:

Personal Combined Marginal Tax Rates for 2014 (Income > $100,971)

 

Interest and regular income

49.97%

 

Capital gains

24.99%

 

Eligible dividends

35.22%

 

Non-eligible dividends

39.79%

 

Economic and Budgetary Perspectives

 

An improved economic context

 

The circumstantial impacts of the Quebec low economic growth in 2013 should be softened and make place to economic growth. Business confidence and recovery of the US economy should improve the investment context. Also, the low Canadian dollar and reinforced commercial partnership should foster exports. In this context, the Quebec government anticipates a low economic recovery of 1.8% of its real GDP in 2014 following a previous 1.1% last year.

 

2015-16 is still the target to balance the budget

 

The government holds to the 2014-15 deficit targets announced in the last February budget and still plan to balance the budget for 2015-16. To do so, the government has identified a $5.9B gap for the 2014-15 fiscal year and a $7.6 billion gap for 2015-16. Those gaps will need to be addressed by various measures to raise revenues and lower or slow down expenses. The next figure illustrates the main measures for fiscal year 2015-16.

2015-16 is still the target to balance the budget
2015-16 is still the target to balance the budget

 

The difference between the total of all of these measures and the deficit is explained by the economic recovery    measures of $316M.

 

To lower its deficit and balance its budget, the government of Quebec plans to have close control on its expenses. For the next two years, the government’s target is to reach 1.8% and 0.7% expense growth compared to an average 2.6% from 2010-11 to 2013-14. The main expense growth will occur in the health and social services, and education program, while other programs will need to cut their expenses.

2015-16 is still the target to balance the budget
2015-16 is still the target to balance the budget

 

The government aims at around 3% revenue growth until 2018-19. To do so, three measures will be implemented to foster revenue growth until 2015-16: efforts to fight tax evasion ($133 million in 2015-16), improvement in the fairness of the tax system ($57 million in 2015-16), and an increase in the specific tax on tobacco and alcoholic beverages ($175 million in 2015-16).


The gross debt of the government of Quebec should increase by $8.7 billion in 2014-15, mainly because of immobilization investments ($5.5B) and budget deficit ($2.5 billion). If financial assets are included, the net debt reached $182 billion at the end of March 2014, the equivalent of 49.9% of the provincial GDP while its gross debt is at 54.3% of its GDP.

The budget also includes various measures. Following is a short but non-exhaustive list.

 

Innovation and regions support

 

  • Creation of the Créativité Québec program, with a budget envelope of $150 million over three years, to support the innovation and performance of SMEs
  • A holiday from the contribution to the Health Services Fund on salaries paid will be granted to eligible SMEs that hire specialized employees to foster innovation
  • An envelope of $500,000 will be allocated per year, over three years, to support the establishment and development of accelerators for the creation of technology companies within Quebec universities
  • An additional deduction for transportation costs of manufacturing SMEs that are far from large centres. This deduction will increase according to the remoteness of the SMEs.

 

Business financing and other supports

 

  • Creation of a venture capital fund in Quebec, in partnership with the private sector and the federal government, whose capitalization should reach $375 million.
  • The government is increasing the capitalization of the Anges Québec Capital fund by $25 million, to raise it to $100 million.
  • $20 million will be allocated over three years to the Ministère de l’Économie, de l’Innovation et des Exportations to fund Export Québec. These resources will help Quebec businesses, particularly SMEs, to develop, consolidate and diversify their markets outside Quebec.
  • Creation of a standing oversight committee on regulatory streamlining, to be chaired by the Minister for Small and Medium Enterprises, Regulatory Streamlining and Regional Economic Development.
  • The parameters of the Entrepreneur Program will be revised to make foreign entrepreneurs who meet certain conditions eligible to obtain a Quebec selection certificate.

 

The maritime strategy

 

  • Announcement of three initiatives concerning the development of port and river infrastructure:
  • Establishment of a logistical hub in the Montérégie region
  • Development of intermodal transportation, through optimization of access to the Port of Montréal
  • Redevelopment of the Dalhousie site.
  • Tax incentives to promote the modernization and renewal of vessels at Quebec shipyards.

 

Plan Nord revival and natural resources

 

  • Creation in the fall of the Capital Mines Hydrocarbures fund, provided for in Budget 2012-2013. An allocation of $1 billion will be made to the fund
  • The Northern Plan Fund, which will provide financial assistance to implement the Plan Nord, will be endowed with $63 million for 2014-2015
  • Intention to foster the construction of a new rail line providing access to the Labrador Trough, among the infrastructure projects the government wants to promote
  • Revival of the program for small hydroelectric plants for a limited number of projects whose development had been halted
  • Planning by Hydro- Québec of the construction of a fourth power line from northern Quebec
  • A bill will be tabled allowing Hydro-Québec to invest in public transit electrification projects.

 

Business Tax

 

Reduced tax rate for manufacturing SMEs

 

The budget announces the reduction of the tax rate applicable to Quebec manufacturing small and medium-sized businesses (SMEs) by creating an additional reduction of the rate applicable to manufacturing SMEs on their first $500,000 of income (or on a lower amount for corporations with paid-up capital between $10 million and $15 million).

 

The additional deduction applies to Canadian-controlled private corporations with paid-up capital of $15 million or less if at least 25% of their activities consist of manufacturing and processing activities. The proportion of a corporation’s activities attributable to manufacturing and processing activities is determined based on assets and labour, as follows:

 

Manufacturing and processing capital cost + manufacturing and processing labour cost

Capital cost + labour cost

 

The maximum additional deduction a manufacturing SME may claim will be two percentage points for taxation years ending after June 4, 2014 and will rise to four percentage points with respect to taxation years ending after March 31, 2015. The additional deduction rate is adjusted prorata temporis where the taxation year of a manufacturing SME includes June 4, 2014 or March 31, 2015.

 

A manufacturing SME whose proportion of activities attributable to manufacturing and processing activities, for a given year, is 50% or more, may benefit from the maximum additional deduction rate applicable for such taxation year. Where such proportion for a given taxation year is between 50% and 25%, the additional deduction rate the manufacturing SME may claim will be reduced linearly.

 

Additional deduction for transportation costs of remote manufacturing SMEs

 

The budget proposes to create an additional deduction for remote manufacturing SMEs in calculating their net income to reflect the higher transportation costs attributable to the distance of certain regions from Quebec’s large urban centers. The additional deduction rate will apply regarding a taxation year ending after June 4, 2014. The additional deduction rate will be adjusted prorata temporis for taxation year of a manufacturing SME that includes June 4, 2014.

 

The additional deduction will apply to Canadian-controlled private corporations whose paid-up capital is less than $15 million and if at least 25% of their activities consist of manufacturing and processing activities. The additional deduction rate for a taxation year may reach up to 6% of gross income for such taxation year. It will depend on the region where the corporation carries out its manufacturing activities, the level of such manufacturing activities, the size of the corporation, its gross income for the taxation year and the regional cap.

 

Reduced contribution to the Health Services Fund to boost innovation in SMEs

 

The budget temporarily reduces the contribution to the Health Services Fund for full-time jobs created in the natural and applied sciences sector by employers carrying on a business in Quebec, having an establishment in Quebec and which total payroll for the year is lower than $5 million.

 

The reduction will be available until 2020 for the increase in payroll attributable to the hiring of specialized employees. For employers whose payroll does not exceed $1 million, the reduction will completely eliminate the contribution to the Health Services Fund payable for such new specialized employees. Employers whose payroll is between $1 million and $5 million will receive a partial reduction in the contribution payable for such employees.

 

Special rules will be put in place to ensure that the amount of the excess contribution is not reduced or increased because of a business reorganization.

 

Introduction of incentives to foster the marine industry

 

The budget adds two new fiscal measures to the existing refundable tax credit for the construction or conversion of ships.

 

Creation of a tax-free reserves

 

The budget proposes to allow Quebec shipowners to create a tax-free reserve to set up capital reserves to cover the cost of construction, renovation and maintenance work on qualified vessels, the execution of which is awarded to a Quebec shipyard. A qualified shipowner may receive a tax holiday, for a taxation year, regarding the interest income, dividends and capital gains realized for such year in relation to the eligible funds of the tax-free reserve that has not been terminated in such year. Where a tax-free reserve terminates in a taxation year, the qualified shipowner will be required to pay a special tax corresponding to the product of 1% of the fair market value of the balance of the eligible funds included in the tax-free reserve at the end of the taxation year preceding the one during which the reserve was terminated, multiplied by the number of taxation years during which the qualified shipowner had a tax-free reserve.

 

The creation of a tax-free reserve by a qualified shipowner will pre-require that such shipowner obtain a certificate from the Ministère de l’Économie, de l’Innovation. The qualified shipowner should also keep separate accounting. The tax-free reserve of a qualified shipowner will generally begin on the day when it sends a notice using the prescribed form to Revenu Quebec and will end no later than December 31, 2033.

 

Additional capital cost allowance of a vessel

 

The budget proposes to put in place an additional deduction of 50% of the amount a taxpayer deducts in calculating his income for a taxation year on account of the capital cost. The additional deduction will apply where a taxpayer has a Canadian vessel built or has renovation work done on it by a Quebec shipyard. A Canadian vessel means a vessel that was built and registered in Canada and was not used for any purpose before being acquired by the taxpayer. 

 

This measure will apply to the cost of work done by a qualified shipyard incurred with respect to a contract entered into after June 4, 2014 but before January 1, 2024.

 

Amendments to the Mining Tax Act

 

The budget proposes three amendments to the Mining Tax Act:

 

  • Adjustment to the rules used to determine the value of gemstones to allow, under certain circumstances and upon request from the mining operator to the Minister of Energy and Natural Resources, the value of mineral substances from a mine that are gemstones to be determined outside the mine site
  • Inclusion of hydrometallurgy in the definition of the expression “processing”
  • Changes to the calculation of the processing allowance to include hydrometallurgy to allow mining operator that carries out hydrometallurgy activities to deduct in calculating the output value at the mine shaft head for a mine it operates and the annual earnings from the mine, an amount on account of the processing allowance deductible in the computation of the mining tax.

 

The two last changes will apply to an operator for a fiscal year beginning after December 31, 2013.

 

Measures to offset the budgetary impasse

 

The budget proposes to reduce the rate of the following refundable tax credits by 20% in order to restore public finances and ensure adequate funding of public services as further described below.

 

Refundable tax credit for technological adaptation services

 

The budget proposes to reduce the rate of the refundable tax credit for technology adaptation services from 50% to 40%. This amendment will apply to expenditures incurred by an eligible corporation in relation to eligible liaison and transfer services in the course of a contract entered into with an eligible liaison and transfer centre or a college centre for technology transfer, as the case may be, after June 3, 2014.

 

Refundable tax credit for design

 

The budget proposes reducing the rate of the refundable tax credit for design from 15% to 12%. When a corporation qualifies as an SME, the rate will range from 12% to 24% based on the amount of the corporation’s assets and according to the current applicable terms and conditions.

 

This change will apply in relation to eligible design activities carried out as of June 4, 2014 under an outside consulting contract entered into after June 3, 2014 and to the eligible salaries incurred by an eligible corporation after that day for designers and patternmakers it employs.

 

Refundable tax credits for the production of multimedia titles

 

The budget proposes reducing by 20% the rate applicable to two refundable tax credits in respect of production of multimedia titles, as introduced by the May 9th, 1996 and March 31st, 1998 budget speeches.

 

For the purposes of these two tax credits, the tax assistance that an eligible corporation may receive will be determined based on the amount of the corporation’s eligible labour expenditure multiplied by a percentage which varies based on the category of multimedia titles produced by it. The tax assistance granted for multimedia title intended for commercialization - and that is not an occupational training title – is now reduced to 24%, plus a premium for French of 6%, and the rate for the other multimedia titles is now 21%.
The above noted rates will be applicable in relation to an eligible labour expenditure incurred after June 4, 2014 or regarding an eligible labour expenditure incurred under a contract entered into after June 3, 2014, as the case may be.

 

Refundable tax credit for major employment-generating projects

 

The budget proposes reducing by 20% the rate applicable to the temporary refundable tax credit for major employment-generating projects in the information technology sector, as introduced on April 21, 2005.

 

The maximum amount of this refundable tax credit will henceforth be reduced from $15,000 to $12,000 per eligible employee on an annual basis.

 

This amendment will apply regarding the eligible salary incurred by an eligible corporation in relation to an eligible employee after June 4, 2014 under an eligible contract.

 

Refundable tax credit for job creation in the resource regions, the Vallée de l’aluminium and in Gaspésie and certain maritime regions of Quebec

 

Briefly, this tax credit is granted regarding the increase in payroll attributable to the eligible employees of an eligible corporation. The tax legislation will be amended to reduce the rate of the tax credit to:

 

  • 9% for calendar year 2014 and 8% for calendar year 2015 for job creation for processing activities in the resource regions;
  • 18% for calendar year 2014 and 16% for calendar year 2015 for job creation in the Vallée de l’aluminium;
  • 18% for calendar year 2014 and 16% for calendar year 2015 for job creation in Gaspésie and certain maritime regions of Quebec.

 

Refundable tax credit for job creation in Gaspésie and certain maritime regions of Quebec in the fields of marine biotechnology, mariculture and marine products processing

 

The tax legislation will be amended so that the 40% rate applicable to the mariculture and marine biotechnology sectors is reduced to 36% for calendar year 2014 and 32% for calendar year 2015. Similarly, the tax legislation will be amended so that the 20% rate that applies to the marine products processing sector is reduced to 18% for calendar year 2014 and 16% for calendar year 2015.

 

Refundable tax credit for resources

 

Briefly, the refundable tax credit for resources whose rates can currently reach 38.75% will be reduced by 20%. Accordingly, following this reduction, the maximum rate of the refundable tax credit for resources will be 31%. This reduction in the rates of the refundable tax credit for resources will apply regarding eligible expenses incurred after June 4, 2014.

 

Tax benefits relating to flow-through shares

 

When certain conditions are met, the flow-through share regime allows a taxpayer who acquires a flow-through share to receive a base deduction equal to 100% of his acquisition cost.

 

The flow-through share regime also stipulates two additional deductions of 25% where exploration expenses are incurred in Quebec or where the expenses incurred by the issuing corporation, from the proceeds obtained from issuing the flow-through share, are surface mining exploration or oil and gas exploration expenses incurred in Quebec. These additional deductions will be reduced and consequently, the deductions an individual may claim will be equal to 110% or 120%, as the case may be, for mining, oil or gas exploration expenses incurred in Quebec.

 

Furthermore, for the calculation of the additional deduction for certain issue expenses allowed to acquirers of flow-through shares, the limit of 15% of the proceeds of the issue of flow-through shares will be replaced with a limit of 12%.
These reductions will apply regarding flow-through shares issued after June 4, 2014. However, they will not apply regarding flow-through shares issued after this day where they are issued either further to a placement made no later than June 4, 2014 or pursuant to an interim prospectus receipt application or a prospectus exemption application, as the case may be, made no later than June 4, 2014.

 

Refundable tax credit for international financial centres (“IFCs”)

 

Currently, a qualified corporation may claim a refundable tax credit of 30% of the eligible salaries incurred regarding eligible employees, which may not exceed $66 667 per employee annually. This credit can reach $20 000 per eligible employee annually. The rate of the refundable tax credit for IFCs will be reduced to 24% of the eligible salaries. Consequently, the maximum amount of this refundable tax credit will be $16 000 per eligible employee annually. This change will apply to the eligible salary incurred after June 4, 2014.

 

Refundable tax credit relating to a new financial services corporation

 

The rate of this refundable tax credit, which is currently 40%, will be reduced to 32%. Consequently, the maximum amount of this refundable tax credit will be $120 000 annually rather than $150,000. This change will apply to the eligible expenses incurred after June 4, 2014.

 

Refundable tax credit for the hiring of employees by a new financial services corporation

 

The rate of this refundable tax credit will be reduced to 24%. Consequently, the maximum amount of this refundable tax credit will be $24 000 rather than $30 000. This change will apply to the eligible salary incurred after June 4, 2014.

 

Refundable tax credit pertaining to the diversification of markets of Quebec manufacturing companies

 

The current rate of this temporary refundable tax credit is 30%. This credit is intended to support Quebec manufacturing companies that want to commercialize their products in markets outside Quebec. The rate of the tax credit will be reduced to 24% and the cumulative limit of $45 000 that applies to a corporation for the duration of this tax credit will be reduced to $36 000. This change will apply to a taxation year of a corporation beginning after June 4, 2014.

 

Refundable tax credit to foster the modernization of the tourism accommodation offering

 

The rate of the refundable tax credit to foster the modernization of the tourism accommodation offering will be reduced to 20% and the annual threshold of $50 000 of eligible expenditures regarding which an eligible corporation may not claim the tax credit will be replaced with a single threshold of $50 000.

 

This reduction in the rate of the tax credit will apply regarding an eligible expenditure incurred by an eligible corporation or by an eligible partnership after June 4, 2014. However, it will not apply to such an expense incurred after June 4, 2014, but before July 1, 2015, if the eligible expenditure is incurred under an eligible contract entered before June 4, 2014. As for the annual threshold, this change will apply to a taxation year of a corporation ending after December 31, 2013.

 

Refundable tax credit for Quebec film and television production

 

In general, the refundable tax credit for Quebec film and television production applies to the labour expenditures incurred by an eligible corporation that produces a Quebec film and corresponds to 45% or 35% of the eligible labour expenditure incurred to produce the film. These base rates may be increased when certain conditions are met to a maximum rate of 65% of the eligible labour expenditure. The tax legislation will be amended to reduce these rates by 20%. Consequently, the base rates will be 28% and 36% and the maximum rate 52%.

 

These changes will apply regarding a film or television production for which an application for an advance ruling or an application for a certificate is submitted to the SODEC:

 

  • After June 4, 2014 if SODEC considers that the work on the production was not sufficiently advanced on June 4, 2014
  • Otherwise, after August 31, 2014.

 

Refundable tax credit for film production services

 

The rate of this tax credit will be reduced to 20% and the rate of the increase for computer animation and special effects will be reduced to 16%. These changes will apply regarding an eligible production or eligible small-budget production for which an application for an approval certificate is filed with SODEC:

 

  • After June 4, 2014 if SODEC considers that the work on the production was not sufficiently advanced on June 4, 2014
  • Otherwise, after August 31, 2014.

 

Refundable tax credit for film dubbing

 

The rate of the tax credit applicable to an eligible expenditure for film dubbing will be reduced to 28%. This change will apply regarding a production for which dubbing is completed after August 31, 2014.

 

Refundable tax credit for sound recording production

 

The rate of the tax credit applicable to an eligible labour expenditure will be reduced to 28%. This change will apply regarding an eligible property for which an application for an advance ruling or an application for a certificate is submitted to SODEC:

 

  • Aafter June 4, 2014 if SODEC considers that the work on the production of such property was not sufficiently advanced on June 4, 2014
  •  Otherwise, after August 31, 2014.

 

Refundable tax credit for the production of shows

 

The rate of the tax credit applicable to an eligible labour expenditure will be reduced to 28% and the tax credit threshold for an eligible show will be $1 million where the eligible show is a musical comedy and $600,000 otherwise.

 

These changes will apply regarding a show for which an application for an advance ruling in relation to the initial eligibility period or an application for a certificate is submitted to SODEC:

 

  • After June 4, 2014 if SODEC considers that the work on the production of such show was not sufficiently advanced on June 4, 2014
  • Otherwise, after August 31, 2014.

 

Refundable tax credit for book publishing

 

The refundable tax credit rates applicable to an eligible labour expenditure regarding (i) the preparation costs and digital version publishing costs of an eligible book or eligible group of books, or (ii) the printing and reprinting costs of such books, will hereafter be reduced to 28% and 21.6%, respectively. The tax credit, for an eligible book or a book that is part of an eligible group of books, may not exceed $350,000.   

 

These amendments will apply regarding a book or a book that is part of an eligible group of books for which an application for an advance ruling, or an application for a certificate if no application for an advance ruling was already filed regarding such book or such eligible group of books, is submitted to SODEC:

 

  • After June 4, 2014 if SODEC considers that the work on the preparation of such book or such book that is part of an eligible group of books was not sufficiently advanced on June 4, 2014
  • Otherwise, after August 31, 2014.

 

Tax credit for the production of multimedia environments or events staged outside Quebec

 

The budget proposes reducing by 20% the rate applicable to the refundable tax credit for the production of multimedia environments or events staged outside Quebec – which events must offer an educational or cultural experience for entertainment purposes – regarding an eligible labour expenditure incurred after March 20, 2012, but before January 1st, 2016.

 

The tax credit rate applicable to an eligible labour expenditure will be reduced from 35% to 28%, and the tax credit in connection with a production will be capped at $280,000.

 

These amendments will apply regarding a production for which an application for an advance ruling, or an application for a certificate if no application for an advance ruling was already filed, is submitted to SODEC:

 

  • After June 4, 2014 if SODEC considers that the work on the production was not sufficiently advanced on June 4, 2014;
  • After August 31, 2014, otherwise.

 

Refundable tax credit for on-the-job training period

 

The budget proposes reducing by 20% the rate applicable to the refundable tax credit for the on-job-training periods where a student carries out an eligible training period with a business carried on in Quebec.

 

Where the eligible taxpayer that carries on a business in Quebec is a corporation, the base rates of this tax credit is now reduced to 24%, and where the eligible trainee is a handicapped person or an immigrant, the base rate is raised to 32%. Where the eligible taxpayer is an individual, both rates are reduced to 12% and 16% respectively.

 

The eligible expenditure consists of the wage or salary paid to the trainee and the wage or salary paid to an eligible supervisor, such wages and salaries are subject to a maximum hourly rate. The eligible expenditure is also subject to a weekly cap that depends on the training period and the trainee concerned.

 

These changes will apply regarding an eligible expenditure incurred after June 3, 2014 in relation to an eligible training period beginning after that day.

 

Refundable tax credit for manpower training in the manufacturing, forest and mining sectors

 

The budget announces a 20% reduction to the rate of the tax credit for manpower training in the manufacturing, forest and mining sectors.

 

An eligible employer can now claim a refundable tax credit for a taxation year equal, for each eligible employee, to 24% of an eligible training expenditure incurred regarding such eligible employee during such taxation year.
These changes will apply regarding an eligible training expenditure incurred under an eligible training contract entered into after June 3, 2014.

 

Other measures tightening tax assistance intended for businesses

 

Measures concerning scientific research and experimental development

 

The budget proposes a 20% reduction in the rate of the refundable tax credit concerning scientific research and experimental development (R&D):

 

  • The rate of the refundable tax credit “R&D salary” that applies, among others, to the salary a person pays its employees, when he or she carries out R&D work in Quebec, or to half the amount of the research contract, where the R&D work is awarded to a subcontractor at arm's length with such person, will be reduced to 14%. In the case of a Canadian-controlled corporation, the new rates will vary between 14% and 30%
  • The rate of the refundable tax credit “R&D university”, that applies, among others, to 80% of the amount of a research contract where the R&D work is subcontracted to an eligible university entity, an eligible public research centre or an eligible research consortium to which the person awarding the R&D subcontract is not related, will be reduced to 28%
  • The rate of the refundable tax credit concerning precompetitive research carried out in private partnership that applies to R&D work that a number of persons agree to do jointly in Quebec or have done for their benefit in Quebec under a research contract, will be reduced to 28%
  • The rate of the refundable tax credit concerns contributions paid to an eligible research consortium that essentially applies to the contributions a person pays to an eligible research consortium and that can reasonably be considered to relate to the R&D work done by the consortium in relation to a business of such person, will be reduced to 28%.

 

The increase from 17.5% to 27.5% in the rate of the refundable tax credit for R&D salary in relation to biopharmaceutical activities will be eliminated.  Currently, an eligible biopharmaceutical corporation may receive, for a taxation year, a refundable tax credit for R&D salary equal to 27.5% of its eligible R&D expenditures for such year (up to 37.5% for a Canadian-controlled corporation). As of June 4, 2014, the initial eligibility certificate as well as the annual eligibility certificate regarding each taxation year on which it wishes to benefit from the increased rate of the refundable tax credit for R&D salary will no longer be issued by Investissement Quebec.  However, a corporation previously recognized by Investissement Quebec as an eligible biopharmaceutical corporation may continue to benefit from the increase in the rate of the refundable tax credit for R&D salary for its taxation year including June 4, 2014, at a maximum rate of 22%, with an increased rate from 22% up to 30% for Canadian-controlled corporations.

 

This change will apply to R&D expenditures incurred after June 4, 2014 or regarding R&D expenditures incurred under a research contract entered into after June 3, 2014, as the case may be.

 

The refundable tax credit for the development of e-business granted to a qualified corporation that pays salaries to eligible employees carrying out an eligible activity, will be reduced to 24% and the annual cap of $20 000 per employee will be maintained at that amount and will not be raised as of January 1, 2016. This change will apply to salaries incurred regarding an eligible employee after June 4, 2014.

 

Tax credit for investments relating to manufacturing and processing equipment

 

Briefly, a qualified corporation, for a taxation year, that acquires qualified property may receive, regarding the eligible expenses it incurred, the tax credit for investments relating to manufacturing and processing equipment (“tax credit for investments”).The 5% base rate of the tax credit for investments may rise where the qualified property is acquired for use mainly in identified zones and in some cases, depending on whether or not the corporation, or a corporation with which it is associated, receives the refundable tax credit for job creation in the resource regions, the Vallée de l’aluminium or Gaspésie and certain maritime regions of Quebec (“Tax credit for job creation”).  The budget announces the following changes to the tax credit for investments:

 

  • the reduction by 20% of the base rate as well as the elimination of the rise of 5% of the increase of the rate of the tax credit for investments granted to a qualified corporation that does not receive the tax credit for job creation regarding qualified property acquired for use mainly in the eastern part of the Bas-Saint-Laurent administrative region or in an intermediate zone. Therefore, the base rate will be 4% and the maximum increased rate will be 24%.
  • the elimination of the additional increase of ten percentage points in the rate of the tax credit for investments that applies regarding expenses eligible for the additional increase of a qualified corporation, for a taxation year.

 

These changes to the tax credit for investments will apply regarding eligible expenses incurred after June 4, 2014. However, these changes will not apply regarding eligible expenses incurred after June 4, 2014, but before July 1, 2015, to acquire a qualified property no later than June 4, 2014 or to acquire a qualified property after such day, where:

 

  • The qualified property is acquired in accordance with a written obligation entered into no later than June 4, 2014
  • The qualified property is a property whose construction by the qualified corporation, or by the qualified partnership, or on its behalf, was underway June 4, 2014.

 

Tax credit for buildings

 

The refundable tax credit relating to buildings used in the course of manufacturing or processing activities by a Quebec manufacturing small- and medium-sized enterprise (SME) (“tax credit for buildings”) will be eliminated as of June 5, 2014. Accordingly, expenditures relating to a building incurred after June 4, 2014 will not give rise to the tax credit for buildings. However, a qualified corporation, or a qualified corporation that is a member of a qualified partnership, may continue to receive the tax credit for buildings regarding its expenditures relating to a qualified building, or its share of the expenditures relating to a qualified building incurred after June 4, 2014, but before July 1, 2015, if such expenditures are incurred to acquire a building, or an addition to a building, no later than June 4, 2014 or for such an acquisition after that day where:

 

  • Such property is acquired in accordance with a written obligation entered into no later than June 4, 2014
  • Construction of such property by the qualified corporation, or by the qualified partnership, or on its behalf, was underway June 4, 2014.

 

Refundable tax credit for the integration of information technologies in manufacturing SMEs

 

This tax credit is equal to 25% of the expenses relating to a qualified information technologies integration contract for which Investissement Quebec has issued a certificate. As of June 4, 2014 and for the entire period of the revision of this fiscal measure, Investissement Quebec will stop issuing the certificates necessary to receive the refundable tax credit for the integration of information technologies in manufacturing SMEs.

 

Changes to certain specific taxes

 

Quebec’s 2014-2015 budget proposes to increase the tobacco tax by $4 per carton of 200 cigarettes effective June 5, 2014  as the budget also standardizes the rates of the specific tax on alcoholic beverages.

 

Personal Tax

 

Enhancement of the tax credit for experienced workers

 

The tax credit currently eliminates the income tax payable by workers 65 or older on their first $3,000 of eligible work income in

excess of the first $5,000 of such income. As of the 2015 taxation year, the credit will be calculated on the first $4,000 of eligible work income in excess of the first $5,000 of such income.

 

Introduction of a refundable tax credit for seniors’ activities

 

To support the regular participation of seniors in structured activities intended to enhance their well-being, a refundable tax credit of up to $40 a year will be granted to low- or middle-income persons 70 or older who register to recognized activity programs.
This credit will apply to amounts paid after June 4, 2014 for the registration or membership of an eligible individual in a recognized program of activities, provided the amounts are attributable to activities that take place after that day.

 

Other measures

 

Retirement Income Splitting

 

The eligibility of life annuity payments from a registered pension plan for the income-splitting mechanism, independent of age, is modified. The budget announces that, for the income splitting mechanism to be applicable in a particular taxation year, the person whose income is split must have reached 65 years of age before the end of the year, or, if the person died or ceased to be resident in Canada in the year, on the date of his or her death or on the date on which he or she ceased to be resident in Canada.

 

This amendment will apply as of the 2014 taxation year.

 

Salary paid for the purposes of determining employer contributions

 

The budget modifies the base wages, as defined in the Taxation Act for the purposes of the compensatory tax required of financial institutions, which is used as the point of departure in determining the contributions required under the Act respecting the Quebec Pension Plan, the Act respecting the Régie de l’assurance maladie du Quebec, the Act respecting Labour Standards, the Act respecting industrial accidents and occupational diseases, and the Act to promote workforce skills development and recognition.

 

The definition of "base wages" will be changed to include any amount paid, allocated, granted or awarded to the employee because of, or in the course of his office or employment by a person not at arm’s length with the given employer, unless such amount were excluded from the employee’s base wages if it were paid, allocated, granted or awarded by the employer.
The application of this amendment will be declaratory.

 

Labour Funds

 

Temporary cap on government assistance for the capitalization of labour funds
The budget announces that the restriction to the amount of the Fonds de solidarité FTQ paid-up capital in respect of shares or fractions of shares giving rise to a tax benefit that may, with government support, be raised during its fiscal year beginning June 1, 2014 and ending May 31, 2015 will be limited to $650 million. Previously the FTQ was under no restriction as to the issue, during a given fiscal year, of such shares or fractions of shares.

 

For the fiscal year beginning June 1, 2014 and ending May 31, 2015, the limit previously set on the capital that Fondaction is authorized to collect will be reduced by $25 million.

 

Recognition of certain investments made by labour funds

 

Since the financing of labour funds is made easier by granting a tax benefit, an investment requirement exists to ensure, in particular, that the funds collected are used as a financing tool contributing to the development of Quebec entities. Accordingly, for each fiscal year, the eligible investments of these funds – that include no security bond or hypothec – must represent, on average, at least 60% of their average net assets for the preceding fiscal year.

 

The budget announces the establishment of a new venture capital fund of funds whose mission will be, among other things, to recapitalize the most successful private funds as well as the creation of a new investment fund, consisting of a limited partnership set up to accelerate the development of the residual forest biomass sector.
The investments made by Fonds de solidarité FTQ in the new venture capital fund of funds and the investments made by Fondaction in the new investment fund will be considered as eligible investments for the purposes of the 60% requirement applicable to them.

 

Capital régional et coopératif Desjardins (CRCD)

 

The budget announces a greater recognition of investments made in territories facing economic difficulties. For the purposes of the regional component of CRCD’s investment requirement, investments made in territories facing economic difficulties will be acknowledged.

 

The budget announces that an investment that does not include any security or hypothec made by CRCD, after December 31, 2013 and before January 1, 2018, in an eligible entity located in a territory identified as facing economic difficulties will, up to an amount of $500,000, be deemed grossed up by 100% for the purposes of the investment requirement. Similar measures are announced with regards to investments made in certain limited partnerships.

 

The budget announces that the applicable rate for the purposes of the calculation of the tax credit for the acquisition of CRCD shares will be reduced from 50% to 45% for shares acquired after February 28, 2014. Consequential change to the special tax relating to the recovery of the tax credit for the purchase of shares and to the special tax relating to excessive capitalization are also announced.

 

 

Changes to the refundable tax credit for resources announced in the March 20, 2012 Budget Speech

 

The measures announced in the Budget Speech of March 20, 2012, namely the reduction of the rates of refundable tax credit for resources in respect of expenses incurred after December 31, 2013 and the conditional improvement of such credit for qualified corporations regarding eligible expenses incurred after December 31, 2013, are deferred to January 1, 2015.

 

Transfer to Revenu Quebec of responsibilities relating to the application of the Mining Tax Act

 

The responsibilities relating to the application of the Mining Tax Act, currently held by the Minister of Energy and Natural Resources will be assumed as of April 1, 2015, by the Minister of Revenue.

 

Harmonization

 

Federal budget of February 11, 2014

 

The budget confirms that the legislation and regulations will be amended to incorporate some of the measures announced in the 2014 federal budget. However, the following measures will not be retained:

 

  • The increase of the maximum expenditures eligible for the adoption expense tax credit
  • The extension of the mineral exploration tax credit for flow-through shares investors.
  • The automatic determination of the GST/HST credit
  • Consequential amendments arising from the elimination of graduated rate taxation for certain trusts and estates
  • The extension from five to ten years of the deferral period of gifts of eco-sensitive land made by corporations
  • The addition of a specific anti-avoidance rule concerning tax withholding on interest payments.

 

Changes will be made to the Quebec sales tax (QST) system to incorporate, with adaptations, the federal measures relating the election for closely related persons and those seeking to strengthen compliance with registration requirements.

 

Offshore Tax Informant Program

 

The Quebec’s legislation and regulations will be amended to incorporate, with adaptations, the federal amendments relating to the tax treatment applicable to awards paid under the Offshore Tax Informant Program. The rate of withholding at source will be 20%.

 

Technical measures of April 8, 2014


The income tax measures relating to the Canadian Film or Video Production Tax Credit and the communication of information will not be retained for harmonization.


With respect to QST, the Quebec’s tax system will be amended to incorporate, with adaptations, the following federal measures:

 

  • Technical changes to provisions concerning real property
  • Clarifying the application of GST/HST public service body rebates
  • Zero-rating precious metals
  • Simplifying the  tax treatment of temporary importation of certain railcars
  • Codifying the tax treatment of re-entry in Canada of goods previously taxed.

 

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We can help

 

Your KPMG adviser can help you assess the effect of the tax changes in this year's Quebec budget on your personal finances or business affairs, and point out ways to take advantage of their benefits or ease their impact. We can also keep you abreast of the progress of these proposals as they make their way into law and help you bring any concerns you may have to the attention of the Quebec Ministry of Finance and the Economy.

 


 

Information is current to June 4, 2014. The information contained in this TaxNewsFlash-Canada is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500.

 

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