March 20, 2012
Highlights of the 2012 Quebec Budget
Quebec Minister of Finance and Minister of Revenue, Mr. Raymond Bachand, tabled the Quebec provincial budget for 2012-2013 earlier today. The government announced that the deficit would be $3.3 billion for 2011-2012 and $1.5 billion for 2012-2013. The budget is expected to be balanced in 2013-2014.
The Minister indicated that the government will intensify its actions against tax evasion, allocating increased resources to that initiative.
Following are the highlights of the 2012 Quebec budget.
Purchase of shares of a labour fund by employers for the benefit of their employees
The value of the taxable benefit related to amounts paid by an employer to acquire a share or fraction of a share issued by the Fonds de solidarité FTQ or Fondaction for the benefit of employees will be excluded from the base wages of employees for Quebec payroll tax purposes.
Reduction in contributions to the Health Services Fund
In order to counter the decline in Quebec’s working-age population attributable to the aging of the population, the budget provides for a reduction in the contributions to the Health Services Fund of private-sector employers who employ workers aged 65 or over. This new incentive is introduced to encourage private-sector employers to hire or keep such workers. This new measure, which will take the form of a reimbursement starting in 2013, will be worth up to $400 in 2013 per employee, $500 in 2014, $800 in 2015 and $1,000 afterward. This measure is in addition to the tax credit previously announced by the government in the 2011-2012 budget and is designed to eliminate the tax payable by persons aged 65 or over on part of their earned income in excess of $5,000.
Public transportation organized by employers
In order to encourage employers to cover part of the cost of public transit use of their employees, the government introduced two fiscal measures in the past to encourage the set-up of workplace programs that promote the regular use of public transit. The first measure allows for a deduction in the calculation of the employer’s income, of an additional amount equal to 100% of the amount otherwise deductible for reimbursements paid to employees for the cost of an eligible transit pass (eligible transit passes are provided by a public entity authorized by law to organize such a service), or for the cost of transit passes supplied to employees. Under the second measure, the value of the benefit received from their employer will not be included in the employees’ income.
Since these services are still insufficient in some regions of Quebec, or even non-existent, amendments will be made to the tax legislation so that intermunicipal public transportation services organized by an employer, alone or jointly with other employers, for a large number of employees receive a similar tax treatment. More specifically, the employer may deduct, in the calculation of its income, an additional amount equal to 100% of the amount otherwise deductible for the setting up and operation of such a service. Employees will not be required to include the value of the benefits in the calculation of their income.
These measures will be effective for 2012 taxation years.
Extension of the refundable tax credit for labour training in the manufacturing, forestry and mining sectors
This refundable tax credit is equal to 30% of eligible training expenditures incurred for employees before January 1, 2012. Considering the benefits arising from this tax credit for eligible employees who participate in training activities as well as for the businesses that benefit from them, the tax legislation will be amended to extend the refundable tax credit until December 31, 2015 under the same terms and conditions.
Changes to the refundable tax credits for multimedia titles and for corporations specialized in the production of multimedia titles
The 1996 budget introduced the refundable tax credit for multimedia titles and, in 1998, a second refundable tax credit applying specifically to corporations whose activities consist essentially in producing such titles was introduced (the Refundable Tax Credit for Corporations Specialized in the Production of Multimedia Titles). There are certain differences between the two tax credits, in particular with respect to certificates that are required and the way the amount of tax assistance is determined.
Both of these tax credits will be changed to simplify their application. Accordingly, amendments to the tax legislation as well as to the sectoral parameters will be made in relation to the categorization of multimedia titles (including the withdrawal of the notion of titles resulting from an order), the specialized corporation certificate, the rules applicable to subcontracting, and eligible production work. In regards to the specialized corporation certificate, the condition requiring that all or almost all of the activities a corporation carries out in Quebec consist in producing eligible multimedia titles will be changed so that a corporation may obtain a specialized corporation certificate if 75% of the activities are eligible activities. This change is made to take into consideration all the other activities carried out in the normal course of carrying on a business.
These changes will apply to a certification application filed with Investissement Québec after March 20, 2012 regarding a given taxation year ending after that day.
Improvement to the investment tax credit relating to manufacturing and processing equipment
The tax legislation will be amended so that property used primarily in the course of ore smelting, refining or hydrometallurgy activities other than ore from a gold or silver mine, extracted from a mineral resource located in Canada, may qualify as qualified property for the purposes of the investment tax credit.
To qualify, such property must be acquired after March 20, 2012 and before January 1, 2018, in addition to satisfying the other conditions stipulated by the tax legislation.
Introduction of fiscal measures to encourage the creation of new financial services corporations
The budget introduces two new refundable tax credits for a period of five years in order to encourage the creation of new corporations in the financial services sector. The refundable tax credit for the hiring of employees by a new financial services corporation will represent 30% of the eligible salary that an eligible corporation pays to its eligible employees during a taxation year included in the five-year period of eligibility for this fiscal measure, but the credit will be limited to $30,000 per eligible employee on an annual basis. The refundable tax credit relating to a new financial services corporation will represent 40% of the eligible expenditures (essentially expenses related to the regulatory environment, to a participation in a stock exchange or to financial analysis or research services) that an eligible corporation pays during a taxation year included in this same five-year period but will be limited to $150,000 on an annual basis.
Additionally, the budget provides a five-year tax holiday for foreign specialists whose duties will consist in carrying out specific activities with an eligible corporation under an employment contract entered into after March 20, 2012 as an expert in the field of finance. This tax holiday will consist of a deduction in the calculation on the employee’s taxable income and will generally correspond to a percentage of his salary.
Introduction of a refundable tax credit pertaining to the diversification of markets of Quebec manufacturing companies
The budget introduces a new refundable tax credit on a temporary basis in order to support Quebec manufacturing companies that want to commercialize their products in markets outside Quebec. An eligible corporation (i.e., a corporation at least 75% of the activities of which are described in specific NAICS codes for the year) that obtains an eligibility certificate after March 20, 2012, may receive a refundable tax credit equal to 30% of the eligible certification expenses it incurs regarding an eligible product that day but before January 1, 2016, up to a maximum of $45,000.
Changes to the refundable tax credit for resources
The budget provides a 10 percentage point reduction in the tax credit rate on eligible expenses for resources available to corporations that develop no mineral resource, oil or natural gas well. The rate of the tax credit available to such corporations regarding eligible expenses relating to other natural resources will be reduced by five percentage points. Regarding other corporations for which tax credits are available concerning eligible expenses relating to mining resources, oil or natural gas and other natural resources, the budget provides that the rate will be reduced by five percentage points. The rates relating to renewable energy and energy savings will not be changed.
Additionally, the budget provides that an eligible corporation planning to incur exploration expenses in the mining, oil or gas field may claim an increase in the tax assistance in exchange for an option in favour of the Quebec government to acquire an equity stake in the development which will be managed by Resources Québec. More specifically, for corporations that develop no mineral resource, oil or natural gas well, the budget provides an increase of 10 percentage points for eligible expenses relating to mining resources, oil and natural gas and an increase of five percentage points for eligible expenses relating to other natural resources. For other corporations, the budget provides an increase of five percentage points for the aggregate eligible expenses.
These changes will apply regarding eligible expenses incurred after December 31, 2013.
Recognition of an eligible public research centre
The budget provides the recognition of the Institut national de santé publique du Québec as a new eligible public research centre for the refundable tax credit for scientific research and experimental development.
This recognition will apply after December 3, 2011.
Measures pertaining to tourism
A temporary refundable tax credit of up to $175,000 per taxation year is introduced in order to increase private investment and the development of Quebec’s tourism potential.
This credit will be granted to corporations that own a hotel establishment, a tourist home, a resort, a bed and breakfast establishment or youth hostel located in Quebec, outside the Montreal and Quebec metropolitan areas, and that carry out renovation or improvement work on their establishment. In order to be eligible, corporations must in particular have a gross revenue of at least $100,000 for the given taxation year or immediately preceding taxation year and assets for such preceding taxation year of at least $400,000. Corporations that are members of a partnership may also benefit from the tax credit under similar conditions.
The tax credit is equal to 25% of the portion of the eligible expenditures incurred in the year to carry out eligible work that exceeds $50,000. Eligible expenditures correspond to the total of the amounts representing the cost of labour supplied by the contractor to carry out eligible work and the cost of acquisition of goods that enter into the execution of the work, without exceeding an annual limit of $750,000. When corporations are associated, the annual limit must be covered by a sharing agreement within the group of associated corporations.
The tax credit will apply regarding an eligible expenditure incurred after March 20, 2012 for eligible work done before January 1, 2016 and for goods acquired after March 20, 2012 and before January 1, 2016.
Moreover, to ensure that the regional tourist associations (RTA) in every tourist region of Quebec receive adequate financial support to play their role in tourist development and promotion, the government offers them a new option for the lodging tax. Thus, RTAs have the option to choose between a tax of $2 or $3 per overnight stay, or a tax of 3% of the price of each overnight stay.
Measures pertaining to culture
A new refundable tax credit for the production of multimedia environments or events staged outside Quebec is introduced. Quebec corporations may, under certain conditions, claim a refundable tax credit equal to 35% of labour expenditures incurred to carry out a production certified by the Société de développement des enterprises culturelles (SODEC) and consisting of either an event staged in an entertainment venue, or of a multimedia event carried out under a contract entered into with a person who does not have an establishment in Quebec. The labour expenditures giving rise to this tax credit may not exceed 50% of production expenses. The tax credit allowed regarding a production is limited to $350,000.
The budget also changes certain parameters of the existing rules supporting businesses in the cultural sector. New positions are recognized for purposes of the tax relief granted to foreign workers holding a key decision-making position as part of an eligible foreign production. In addition, the enhancement applicable to certain French-language film or television productions for the purposes of the refundable tax credit for Quebec film and television production is broadened to apply to certain animated films of fiction. Finally, the cap of the refundable tax credit for the production of performances is increased regarding musical comedies.
Capitalization of businesses
Refundable tax credit pertaining to the costs of issuing shares as part of an initial public offering under the Stock Savings Plan II (SSP II)
The SSP II is a plan that helps small corporations to raise capital. This plan already provides for tax assistance that enables individuals to deduct the adjusted cost of an eligible share in calculating their taxable income. The deduction may not exceed 10% of the individual’s total income. The tax assistance is broadened to corporations that incur share issue expenses in an initial public offering under the SSP II (subject to certain limits). The corporation will be entitled to a refundable tax credit on 30% of the eligible issue expenses for the year provided an advance ruling from the Minister of Revenue is issued in accordance with the rules applicable of the SSP II. This credit is applicable to expenses incurred after March 20, 2012 and will end on December 31, 2014.
Fonds de solidarité FTQ and Fondaction
Changes are made to an Act to establish the Fonds de solidarité des travailleurs du Québec (Fund) to increase the authorized percentage from 5% to 10% of the total amount of the Fund’s investments in certain corporations, including a financial institution registered with the Autorité des marchés financiers or the Office of the Superintendant of Financial Institutions. In addition, the investment requirement imposed on the Fund requiring that its eligible investments represent at least 60% of the average of its net assets is broadened to allow the Fund to increase its major investments in Quebec corporations.
The tax credit for the acquisition of a share issued by Fondaction, which will end when Fondaction reaches a level of capitalization of at least $1.25 billion, is modified in two ways. First, the capitalization limit is raised over the next three years in order to allow Fondaction to collect additional capital of $150 million. Second, at the end of the three-year period, the rate of the tax credit will be brought down to 15%.
Voluntary Retirement Savings Plans
As expected, the budget announces the introduction of Voluntary Retirement Savings Plans (VRSP) which are, in fact, collective pension plans that all Quebec employers will be required to implement if they have at least five employees with at least one year of uninterrupted service, if they do not have a retirement savings plan through payroll deductions already in place.
With the exception of the mandatory nature of VRSPs in Quebec, the rules proposed by the Quebec government are generally similar to the rules announced by the federal government on November 17, 2011 with respect to Pooled Registered Pension Plans (PRPPs).
Employers will not be required to contribute to the VRSP put in place for their employees although, if they do decide to contribute, their contributions will not be subject to Quebec payroll taxes, as is the case of employer contributions to registered pension plans, and will be tax-deductible.
Where an employer is required to offer a VRSP, employees with more than one year of uninterrupted service will be automatically enrolled unless they elect to opt out of the plan within 60 days of enrolment. The government is proposing to establish the following employee contributions rate, by default:
· 2% from January 1, 2013 to December 31, 2015
· 3% from January 1, 2016 to December 31, 2016
· 4% as of January 1, 2017.
A participant will be able to choose another contribution rate, change it or even cease contributions for a certain period of time. In addition, a participant will be able to continue contributing to the same VRSP after changing employers.
As is the case with RRSPs, a participant will be able to withdraw his or her contributions before retirement although they will be taxable at that time. However, if an employer decides to make contributions to a VRSP set up for its employees, the employer contributions can only be withdrawn as of age 55. Participant contributions to a VRSP will be tax-deductible and will share the same annual maximum contribution amounts as RRSPs.
Finally, persons who are not automatically enrolled, such as self-employed workers and individuals, will be able to enroll in a VRSP by contacting a plan administrator directly.
Quebec intends on tabling the necessary legislative provisions in the spring of 2012 so that VRSPs are in place by the target date of January 2013. Businesses that are required to implement VRSPs will have two years to comply, i.e., by January 1, 2015. After the initial compliance period, employers required to offer a VRSP will have one year to comply.
Tax assistance for seniors living independently
The budget includes a series of measures to assist seniors who continue living in their homes.
Refundable credit for home-support services for seniors: A number of enhancements are being made to this credit as of January 1, 2013 as follows:
· The tax credit rate will gradually increase by one percent per year from 30% in 2012 to 35% in 2017
· The cap on expenses eligible for the tax credit will be increased from $21,600 to $25,500 for dependent seniors, and from $15,600 to $19,500 for other seniors, an increase of $3,900
· The income-based reduction to the credit for seniors recognized as being dependent is eliminated and, where the credit is determined in respect of a couple, the elimination of the reduction will apply as soon as one of the members of the couple is recognized as being dependent
· Services related to the use of remote monitoring systems for seniors not living in a private seniors’ residence will be recognized as eligible home-support services for purposes of the credit
· The tables that must be used by persons aged 70 years and older living in a residence for the elderly to determine the amount of eligible expenses included in their rent and eligible for the credit are amended and the maximum amounts regarding most types of expenses are being increased.
Refundable credit for informal caregivers caring for an elderly spouse: The amount of the credit is increased to $700 in 2012 (from $607) and will be gradually increased thereafter by $75 each year to reach $1,000 as of 2016. The credit will then be indexed annually after that time.
New refundable tax credit for costs incurred by seniors for a stay in a rehabilitation centre: This new refundable tax credit will be available as of the 2012 taxation year and will be equal to 20% of the total amounts paid by a Quebec resident aged 70 years or older at the end of the year for a stay in a public or private rehabilitation centre. There will be no limit to the quantum of expenses nor with respect to the taxpayer’s income.
New refundable tax credit for the purchase or rental of equipment to help seniors continue living independently at home: This new refundable tax credit, which will be available as of 2012, will be equal to 20% of the amounts in excess of $500 paid for the purchase or rental of equipment to increase the sense of security of seniors 70 years of age or older or to maintain their independence, such as walk-in bathtubs, hospital beds, or remote monitoring devices such as “panic buttons”. There will be no limit regarding the quantum of expenses nor with respect to the taxpayer’s income.
Tax credit for new graduates working in a remote resource region
Since 2006, a non-refundable tax credit is granted to new graduates who decide to begin their career in a remote resource region. This tax credit reduces the tax payable by up to $3,000 per year, up to a cumulative amount of $8,000 when the new graduate resides on a continuous basis in a remote resource region and holds a job there related to his or her field of specialization.
To encourage more new graduates who have completed post-secondary studies to begin their career in a remote resource region, the tax legislation will be amended to stipulate, in certain circumstances, an increase of the cumulative amount to $10,000.
Cooperatives and Trusts
Cooperative Investment Plan
Members and workers of a cooperative acquiring qualifying securities issued by the cooperative can deduct, in calculating their taxable income, an amount representing 125% of the acquisition cost of the securities (without taking into account borrowing expenses and other expenses related to the acquisition). Many changes are brought to the Cooperative Investment Plan concerning the special tax relating to the redemption or repayment of qualifying securities within five years following the date of issuance of the securities (in case of the winding-up of the cooperative) and also concerning the nature of the payment of interest on preferred units (the interest must now be payable in cash rather than in preferred units of the cooperative). In addition, the measures applicable to shareholding workers cooperatives and work cooperatives eligible for the Cooperative Investment Plan are tightened.
Renewal of the patronage dividend tax deferral mechanism
The budget renews for an additional period of 10 years the mechanism that allows tax to be deferred on the amount of the patronage dividend attributed to a taxpayer that consists of a preferred unit of the cooperative until the units are disposed of. In addition, the budget tightens the rules regarding the issuance of a qualification certificate that is mandatory to benefit from the mechanism.
Change to the tax payable by an inter vivos trust
The tax rate applicable to inter vivos trusts (including a mutual fund trust and a specified investment flow-through trust) is increased from 20% to 24% to correspond to the highest tax rate applicable to an individual. This change applies for taxation years of an inter vivos trust ending after March 19, 2012.
Changes to the taxation of trusts that are not residents of Canada
A specified trust (i.e., an inter vivos trust non-resident in Canada and not tax-exempt) will be required to pay an annual tax at the rate of 5.3% on its property income derived from the rental of immovable properties located in Quebec. This tax applies for taxation years ending after March 19, 2012.
As of March 20, 2012, an inter vivos trust that begins to reside in Canada will be deemed to dispose (and reacquire) its immovable properties located in Quebec at their fair market value immediately before its immigration. As a result, the trust will be liable for Quebec tax on the taxable capital gain and the recaptured depreciation that may arise. The trust will have to obtain a compliance certificate before the disposition and pay the tax or provide sufficient security to guarantee payment of such tax.
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.
Information is current to March 20, 2012. 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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