MEASURES AFFECTING INDIVIDUALS

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1 QUÉBEC BUDGET March 27, 2018 Carlos Leitão, the Minister of Finance of Québec, tabled his government s budget this afternoon. The budget contains many tax measures intended primarily to ease the tax burden of individuals and corporations. We note the two measures aimed at CRCD: the introduction of a new tax credit for share conversions and the drop in the tax credit rate for share purchases. MEASURES AFFECTING INDIVIDUALS Changes with regard to Capital régional et coopératif Desjardins (CRCD) The non-refundable tax credit will be reduced to 35% The tax credit for all CRCD shares acquired after February 28, 2018, will drop from 40% to 35%. In compliance with the fiscal rules, the annual maximum subscription amount by a shareholder will be determined by CRCD at a later date. Creation of a new share class that gives rise to a non-refundable tax credit of 10% For each of the years 2018, 2019 and 2020, a non-refundable tax credit of 10% will be granted for the conversion of CRCD shares of the current class that have been held for at least seven years. In compliance with the fiscal rules, the annual maximum conversion amount by a shareholder will be determined by CRCD at a later date. CRCD will be authorized to convert up to $100 million per period. The conversion will only be available for shareholders who have never asked to have their shares redeemed or sold their shares by mutual agreement. Shareholders will still be able to take advantage of the 35% tax credit for the acquisition of shares in the current class. However, neither the 10% credit nor the 35% credit will be available to individuals who have asked for redemption or sold by mutual agreement any shares of either the new class or the current class. The shares of the new class will be governed by the same rules as the current class of shares (purchase by mutual agreement, special recovery tax, investments not eligible for RRSP, RRIF or TFSA purchases). Measures designed to limit income splitting The budget proposes to harmonize with the measures announced by the federal government, designed to widen the application of the rules regarding tax on split income (kiddie tax) to certain private company revenue, and to extend its application to individuals 18 and older. These measures will come into effect on the same dates as those of the federal tax, i.e. starting in Page 1 of 5

2 The measures announced provide that family members of the business owner who fall into one or more of the following categories are not subject to the rules regarding income splitting:. individuals 18 and older who have made a significant labour contribution to the business during the current year or the previous five years;. individuals 25 and older who hold at least 10% of the voting shares of a company that derives less than 90% of its revenue from service delivery, and is not a professional corporation;. the spouse of the business owner who is 65 or older and has made a significant contribution to the business;. the individuals who derive capital gains from eligible shares of a small business or from agricultural or fishery assets, if they are not subject to the highest marginal tax rate on said gains. Modification of tax credit rates for dividends In order to take into account the gradual decline in the general tax rate, which will reach 11.5% in 2020, and the increase in the Small Business Deduction (SBD) rate that applies to companies as announced in the budget, the tax credit rates for dividends will be reduced gradually as follows: Tax credit rate for dividends (%) Dividends received or deemed to have been received From March 28 to December 31, From January 1 to March 27, 2018 Eligible dividends 11.9% 11.86% 11.78% 11.7% 11.7% Non-eligible dividends 7.05% 6.28% 5.55% 4.77% 4.01% New tax credit for first-home purchases The budget creates a new non-refundable tax credit for the purchase of a first home beginning in This credit, valued at $750 ($5,000 X 15%) may be shared between the home's co-owners. The conditions for applying this credit will be much the same as the ones for the federal tax credit. RénoVert refundable tax credit is extended to March 31, 2019 The budget extends the RénoVert tax credit to March 31, 2019, under the same conditions for households whose eligible expenses have not yet reached $52,500. Increase in the refundable tax credit for childcare expenses Effective in 2018, the budget proposes raising the limit for childcare expenses paid for a child with an impairment from $11,000 to $13,000, and the limit for a child under the age of 7 without an impairment from $9,000 to $9,500. The $5,000 limit in other cases remains unchanged. These limits will be annually indexed starting in Page 2 of 5

3 Improvement in the tax credit for experienced workers Beginning in 2018, the eligibility age for the experienced workers tax credit will be lowered to 61. This credit is equal to 15% of the eligible employment income above the first $5,000. The credit is reduced by 5% of net income above the $34,030 threshold for The table below shows the amounts that apply beginning in Other measures Experienced worker's age Maximum eligible employment income 65 and over 11, , , , ,000 The budget proposes, in particular, other measures for individuals as follows:. extending the 20% tax credit for acquiring Fondaction shares by May 31, 2021;. beginning in 2018, increasing the maximum raise in employment income eligible for the tax shield;. beginning in 2018, increasing the refundable tax credit for a volunteer respite of a caregiver;. beginning in 2018, increasing the refundable tax credit for the purchase or rental of equipment to help seniors continue living independently at home;. beginning in 2018, expanding the tax credit for a person living alone to encourage intergenerational cohabitation;. extending the tax credit for a first major cultural gift to 2022;. increasing, for 2017 and 2018, the refundable tax credit for taxi driver permit holders. MEASURES AFFECTING CORPORATIONS Increase in the Small Business Deduction (SBD) rate The budget proposes to gradually increase the SBD rate in order to progressively reduce the small tax rate from 8% to 4%, starting in This means that for 2018, the small rate will be lowered to 7% as of March 28, What's more, the rate of the additional deduction for SMBs in the primary and manufacturing sectors will gradually be reduced until it is repealed, effective January 1, 2021, in order to keep the reduced tax rate at 4%. The change will apply to tax years ending after March 27, 2018, and the instalments may be adjusted accordingly. For a fiscal year straddling the dates of the rate changes, the rate will be prorated according to the number of days of the fiscal year that fall in each period. Replacement of the 35% additional capital cost allowance by an additional capital cost allowance of 60% The budget proposes to increase to 60% the 35% additional capital cost allowance introduced in the 2017 budget for manufacturing or processing equipment and general-purpose electronic data processing equipment. The asset has to be new, and acquired after March 27, 2018, and before April 1, Page 3 of 5

4 Taxation Administrative Department Gradual reduction of the Health Services Fund (HSF) contribution rate for all small and medium businesses (SMBs) The budget proposes several modifications to the calculation of the employer contribution to the HSF:. the $5 M threshold applicable to the total payroll of an employer to determine whether it is eligible for the rate reduction offered to SMBs will, in general, be raised progressively over 4 years, starting in 2019, to reach $7 M in This threshold will be indexed annually starting in 2023;. for SMBs in sectors other than the primary or manufacturing sectors, i.e. services and construction, the HSF contribution rate for employers with a total payroll not exceeding $1 M will gradually go from 2.3% to 1.65%, over a period of five years; the HSF contribution rate for employers in these sectors with a total payroll higher than $1 M but not exceeding $5 M in 2018, or not exceeding the corresponding threshold for subsequent years, will also be entitled to a gradual reduction over five years of the rate applicable for the calculation of their contribution;. SMBs in the primary and manufacturing sectors with a total payroll not exceeding $5 M in 2018, or not exceeding the threshold relative to the total payroll applicable for a year prior to 2018, will also benefit from a gradual reduction of the HSF contribution rate. HSF contribution rates for SMBs in sectors other than primary and manufacturing (%) Total Payroll 1 M or less $2 M $3 M $4 M $5 M $5.5 M $6 M $6.5 M $7 M Until March 27, 2018 Current rate After March 27, 2018 Rate for the year Rate for the year Rate for the year Rate for the year Rate for the year HSF contribution rates for SMBs in the primary and manufacturing sectors (%) Total Payroll 1 M or less $2 M $3 M $4 M $5 M $5.5 M $6 M $6.5 M $7 M Until March 27, 2018 Current rate After March 27, 2018 Rate for the year Rate for the year Rate for the year Rate for the year Rate for the year Introduction of a refundable tax credit to foster qualifying training for workers employed by SMBs The budget proposes the introduction of a refundable tax credit that will allow a company with a total payroll lower than $7 M to benefit from fiscal assistance of up to $5,460 annually for every full-time employee who attends an eligible training program in a recognized institution after March 27, 2018, and before January 1, Page 4 of 5

5 Enhancement of the refundable tax credit for on-the-job training periods The budget proposes to increase the refundable tax credit for on-the-job training periods regarding Aboriginal trainees and eligible training periods served in establishments located in resource regions. In addition, the weekly ceiling of the eligible expense and the maximum hourly rate of this refundable credit will be raised for all categories of eligible trainees. These modifications will apply to eligible training periods which start after March 27, Québec Sales Tax (QST) on e-commerce The budget proposes that a new mandatory registration system be created, in which a non-resident supplier that does not have a physical or significant presence in Québec will be required to collect and remit QST for certain supplies provided directly or via a digital platform, to a specified Québec consumer. These measures will apply beginning on January 1, 2019, for suppliers located outside Canada and on September 1, 2019, for suppliers located within Canada. Other measures The budget proposes, in particular, other measures for companies as follows:. expanding the sectors of activity eligible for the tax holiday for large-scale investment projects;. introducing a refundable tax credit to support the digital transformation of print media companies;. amendments to the following refundable tax credits: - for the production of events or multimedia environments staged outside Québec; - for film production services; - for Québec film and television production; - for film dubbing; - for the production of biodiesel fuel in Québec; - for the production of cellulosic ethanol in Québec; - for the production of ethanol in Québec;. introducing a temporary refundable tax credit for pyrolosis oil production in Québec;. creating an environmental study allowance for a mining operator for a fiscal year ending after March 27, 2018;. amending the compensation tax for financial institutions;. harmonizing certain measures announced in the recent federal budget, in particular: - expanding the scope of the rules for artificial tax losses using equity-based financial arrangements and securities lending arrangements; - amending the stop-loss rules on share repurchase transactions applicable to shares held as mark-to-market property; - adding transparency measures to counteract cross-border surplus stripping through partnerships and trusts; - tightening rules on foreign affiliates. The purpose of this document is to provide general information, which is not to be construed as tax advice. While reasonable steps have been taken to ensure the accuracy of this information, Desjardins offers no guarantee whatsoever as to this. Page 5 of 5