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2010-2011 Quebec budget highlights



Canadian Tax Alert, March 30, 2010

Economic situation
Measures concerning businesses
Measures concerning individuals
Measures related to commodity taxes
Other measures

Please download the PDF document below.

Mr. Raymond Bachand, Minister of Finance of Québec, tabled the 2010-2011 provincial budget in the National Assembly on March 30, 2010. The following is a summary of the highlights contained in the budget.

Economic situation

According to the Minister, Quebecers must address three challenges:

  1. The economic situation and actions to be taken in the short term.
  2. The imbalance in Québec’s public finances to be resolved in the medium term.
  3. Demographic changes and the related consequences for development potential in the long term.

The Budget forecasts that the deficit should amount to $4.3 billion in 2009-2010 and to $4.5 billion in 2010-2011. These projections include reserve funds of $300 million for each of these fiscal years. In accordance with the Balanced Budget Act, a fiscal balance should be attained in 2013-2014. The Budget will implement a spending control plan through which growth in program spending will be reduced to 2.2% as of 2011-2012, until budgetary balance is restored. The Minister also announced the creation of the Agence du revenu du Québec, which will take over from Revenu Québec as of April 1, 2011; it will be responsible for collecting all government revenues. The fight against tax evasion will be stepped up in certain sectors. The government will also intensify the fight against economic and financial crime.

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Measures concerning businesses

  •  The rules related to the refundable tax credit for R&D salaries will be expanded with regards to the clinical trials carried out by businesses in the pharmaceutical industry.
  • Where work is performed on behalf of the taxpayer by a corporation or partnership with which he is at arm’s length during a tax year for which the prescription period has not yet elapsed, the refundable tax credit for R&D salaries will be broadened such that the work performed by a person who is not an employee of the corporation or partnership but who is the shareholder or member, depending on the circumstances, will also be eligible.
  • The tax legislation will be clarified so that an expenditure incurred by a taxpayer after March 30, 2010 is not eligible for the refundable tax credit for technology adaptation services if it is otherwise eligible for one of the refundable tax credits for R&D.
  • The twelve-month period for filing a prescribed form for the purposes of refundable tax credits or a prescribed form in relation to an expenditure reported on account of R&D spending will be eased to allow a taxpayer to amend his initial election of a refundable tax credit where such election is subsequently modified by Revenu Québec.  In the event where a taxpayer wishes to amend his election on his own initiative, an amendment may be made subject to Revenu Québec’s discretion. This measure will apply to claims made after March 30, 2010.
  • The refundable tax credit for the development of e-business activities will be amended to facilitate the qualification of certain IT corporations that transfer activities to another corporation as well as business start-up situations. An adjustment will also be made to the notion of non-arm’s length relationship for purposes of the criterion relating to services supplied.
  • For certification applications filed with Investissement Québec after March 30, 2010, adjustments will be made to the refundable tax credits for the production of multimedia titles through the introduction of a new type of eligible title called “eligible related title,” which covers the creation of intellectual property that is directly related to the eligible multimedia titles but that are not incorporated therein. The period used in determining eligibility of the production work following completion of a final version will also be extended from 24 to 36 months.
  • For productions for which a final certification application is filed with Société de développement des enterprises culturelles (SODEC) after March 30, 2010, the eligible tax credit for film dubbing will increase from 30% to 35% and the cap on the consideration paid for the execution of a film dubbing contract will increase from 40.5% to 45%. Moreover, the audition, preparation of texts and the production of video titles for a version in a language other than the original will qualify as eligible expenditures for purposes of this credit.
  • The refundable tax credit for Québec film and television production will be amended effective January 1, 2009 so that financial assistance received from the Fonds francophone d’aide au développement cinématographique or from the Mesure régionale d’aide au démarrage de productions cinématographiques et télévisuelles constitute excluded amounts for purposes of this credit.
  • Starting with taxation year 2010, individuals who sojourn in Québec and occupy a key position in a foreign film production may be entitled to claim a deduction equal to payments received in connection with services rendered in Québec as part of the foreign production.
  • A series of amendments will be made to the mining duties regime:
    • The current 12% tax rate will be raised, i.e., to 14% after March 30, 2010, to 15% on January 1, 2011 and to 16% on January 1, 2012.
    • The rate of the depreciation allowance will be reduced from 100% to 30% for property regularly used in mining operations acquired after March 30, 2010.
    • The parameters used to calculate the processing allowance will be reviewed.
    • The additional allowance for a northern mine will be replaced with an additional allowance for a mine located in Northern Québec.
    • Changes concerning exploration, mineral deposit evaluation and mine development expenses will be made.
    • A new way of determining the gross value of precious stones will apply.
  • The international financial centres (IFC) regime will be replaced with a refundable tax credit on the salaries of eligible employees of an IFC operator.
    • All the partial exemptions that an IFC operator currently enjoys regarding income tax, capital tax and the employer contributions to the Health Services Fund (HSF) as well as the deduction in calculating taxable income that an IFC employee other than a foreign specialist can claim, will be replaced with a refundable tax credit for the IFC operator of up to $20,000 per eligible employee on an annual basis.
    • Operators of existing IFCs may elect, as of the day following the day of the Budget Speech, to receive this new refundable tax credit. Operators of existing IFCs that do not elect the new refundable tax credit may continue to be covered by the existing regime until December 31, 2012 where the operator is a corporation.
    • A partnership will not be eligible for the new measure but may continue to benefit under the current regime until December 31, 2013.
    • An IFC employee, who currently claims a deduction in the calculation of taxable income of up to $50,000 per year may continue to receive a tax benefit, which, however, will gradually decline, until December 31, 2013.
  • The Budget increases from 40% to 60% the capital cost allowance rate applicable to trucks and tractors designed for hauling freight and introduces an additional deduction of 85% in respect of those trucks and tractors that run on liquefied natural gas. The measure will apply to new property acquired after March 30, 2010.
  • The refundable tax credit of 90% applicable to construction and major repair of public access roads and bridges in forest areas will be extended until March 31, 2013, but the tax credit will be reduced to 80% for expenses incurred in calendar year 2011, 70% in calendar year 2012, and 60% in calendar year 2013.
  • The rates applicable to two bases of the compensatory tax on financial institutions will be temporarily increased (for taxation years ending after March 30, 2010 and beginning before April 1, 2014). 

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Measures concerning individuals

  •  As of July 1, 2010, a health contribution will be introduced. Individuals aged 18 or older and residing in Quebec at the end of a given year will be required to pay a health contribution, for that year, equal to $25 for 2010, $100 for 2011, and $200 for 2012 and subsequent years. Adults will be exempt from paying the health contribution if his or her family income is equal to or less than the exemption threshold determined based on the composition of the adult’s household. This exemption threshold will equal the amount that will be granted as a deduction for the purposes of calculating the Quebec public prescription drug insurance plan.
  • The QST refundable tax credit, property tax refund, and the refundable tax credit for individuals living in a northern village will be grouped, as of July 2011, into a single refundable tax credit—the solidarity tax credit. This new credit for low- and middle-income households will be paid monthly to eligible, Quebec residents aged 18 or older at the start of a given month. The credit will first be determined based on a formula and will be reduced by 3% or 6%, as the case may be, of family income in excess of $30,490 for taxation year 2011. Parameters will be indexed and further adjustments will be made over time. The solidarity tax credit will impact the amount that a student may transfer to his or her parents in respect of the recognized parental contribution.
  • Adjustments will be made to the credit for the home support of elderly persons to reduce the prescribed frequency of housekeeping services and nursing services required for these to qualify for the tax credit. These adjustments will be effective starting in 2010.
  • As of 2011, advance payments of the tax credit for child-care expenses and the work premium will be made on a monthly rather than on a quarterly basis.
  • The limit relating to the deductibility of investment expenses will be adjusted so that the notion of investment expenses no longer includes an amount of bad debt deducted by an individual in calculating his property income for the year for taxation year 2009 and subsequent years.

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Measures related to commodity taxes

  •  The Québec sales tax (QST) rate will be increased by an additional percentage point as of January 1, 2012, bringing it to 9.5%. A one-percent increase (effective January 1, 2011) had previously been announced in the 2009-2010 budget, which had brought it to 8.5%.
  • The QST rebate regarding a new residential unit will be increased. The rate will rise from 36% to 50% and the threshold value of a new residential unit at which no rebate is granted will be raised from $225,000 to $300,000. Generally, after December 31, 2010, the maximum rebate that may be obtained will be $8,772.
  • On April 1 of each year, from 2010 to 2013, the fuel tax rates will increase by 1 cent, rising from 15.2 cents per litre of gasoline and 16.2 cents per litre of diesel fuel until they reach 19.2 cents and 20.2 cents, respectively, as at April 1, 2013. 

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Other measures

  •  Harmonization with federal legislation and regulations from the March 4, 2010 federal budget

Quebec's tax legislation and regulations will be amended to incorporate, with adaptations based on their general principles, the measures relating to:

    1. The taxation of employee stock options, specifically: (i) the addition of a requirement to be entitled to the employee stock option deduction; (ii) the withdrawal of the election to defer taxation of the benefit arising from the exercise of a stock option granted by a corporation (other than a CCPC) or a mutual fund trust; (iii) the obligation to withhold tax at source; and (iv) the temporary relief granted to individuals who elected to defer taxation of a benefit arising from the exercise of a stock option granted by a corporation (other than a CCPC) or a mutual fund trust. With regards to the temporary relief, special rules will apply to determine the additional stock option deduction amount by taking into account the date on which the securities were disposed or exchanged. As well, a special tax, equal to 50% of the proceeds of disposition of the securities, will have to be paid by the individual for the given year.
    2. The transfer of amounts received by a child or grandchild from certain registered retirement plans to a registered disability savings plan (RDSP) and the tax treatment of amounts paid by a provincial government into a registered education savings plan or RDSP.
    3. The disbursement quota that registered charities must satisfy.
    4. The non-taxation of part of certain benefits received under U.S. social security legislation.
    5. The changes made to the definition of “principal-business corporation” applicable as part of the flow-through share system.
    6. The changes made to the acquisition of control rules upon the conversion of a specified investment flow-through entity to a corporation.
    7. The changes made to the definition of “taxable Canadian property,” their correlative adjustments as well as changes made to the relief mechanism applicable to foreign tax paid.
    8. The changes concerning capital cost allowance and the changes to the specified leasing property rules.

Other measures have not been retained because Quebec’s tax system is viewed as being satisfactory in these areas, including:

    • The exclusion of purely cosmetic medical or dental services from the list of expenses qualifying for the medical expense tax credit;
    • The determination of the exemption regarding scholarships and bursaries;
    • The interest paid on overpayments of tax; and
    • The reporting of tax avoidance transactions.

Quebec will announce its position concerning changes relating to foreign investment entities and non-resident trusts, as well as to the tax rules concerning loss consolidation in corporate groups at a later date.

  • The Act respecting the ministère du Revenu will be amended to raise the maximum prison sentence that a court may impose for major tax offences to five years less one day. This measure will come into force on the date the bill giving effect thereto is enacted.

For further details, we refer you to the Quebec Finance website, where you can access the official budget documents without charge.

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This publication is produced by Deloitte & Touche LLP as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors. Your use of this document is at your own risk.