BULLETIN D INFORMATION

Transcription

1 BULLETIN D INFORMATION June 29, 2000 Subject: New fiscal measures to support social and economic activity in Québec This information bulletin describes details of new fiscal measures aiming at supporting various social and economic activities in Québec, introduced today in a press release issued by the Deputy Prime Minister and Minister of State for the Economy and Finance, Bernard Landry. It also describes application details of various other measures, most of which are of technical character. For more information on the matters covered in this information bulletin, contact the Secteur du droit fiscal et de la fiscalité at (418) The French and English versions of this bulletin are available at the ministère des Finances Web site at: Paper copy of this document is also available on request at the Direction des Communications at (418)

2 - 1 - Bulletin d information New fiscal measures to support social and economic activity in Québec 1. MEASURES CONCERNING INDIVIDUALS Improvement of the refundable tax credit for home support of an older person Eligibility for the tax credit of household services supplied regarding a room Easing of the requirement concerning separate billing of eligible services Correlative changes stemming from the deferred taxation of the benefit relating to options to purchase certain securities Easing of reporting requirements Liability of value of the benefit subject to payment of various contributions based on salary Restriction as to the election to defer taxation of the value of the benefit Greater opportunity to use averaging for certain retroactive lump-sum payments Improvement of the tax credit for professional association dues Technical changes concerning the tax treatment of support allowance Adjustment to the calculation of family income caused by a refund of support allowance Broadening of the presumption applicable to certain maintenance expenses... 12

3 Technical change concerning the deductibility of income subject to the special tax relating to income splitting with a child MEASURES CONCERNING BUSINESSES Montréal s position on the global financial derivatives market Tax assistance regarding communications between corporations and investors Refundable tax credit for hiring junior financial analysts specializing in the securities of Québec corporations Introduction of a refundable tax credit for the construction of strategic buildings in the International Trade Zone at Mirabel Reflection concerning the tax credit for Québec film and television production Adjustments to the tax credit for Québec film and television production Changes to the criteria for recognition of a film as a Québec film Change to the eligibility conditions of a production to the increase concerning regional film or television productions Introduction of a tax holiday for foreign university professors working in Québec universities Easing of eligibility criteria respecting the tax holiday for foreign experts working for firms that engage in scientific research and experimental development Withdrawal of the super-deductions in respect of scientific research and experimental development Technical modifications concerning the linkage of certain tax holidays with rules governing stock options Foreign specialist employed by an international financial centre or a business operated in the International Trade Zone at Mirabel... 47

4 Employee of an international financial centre Sailor assigned to the international transportation of merchandise Changes concerning the tax on capital Easing of tax policy regarding reduction for investment Easing of the application details concerning deferred unrealized exchange gains and losses at the end of the year Extension of the refundable tax credit in respect of the declaration of tips Refundable tax credit for the maintenance of racehorses MEASURES CONCERNING CONSUMPTION TAXES Elimination of the Québec sales tax rebates for foreign tourists Harmonization with federal measures relating to export distribution centres and export trading houses ELIMINATION OF THE CONTRIBUTION TO PUBLIC TRANSIT FOR MOTORISTS IN KAHNAWAKE... 59

5 MEASURES CONCERNING INDIVIDUALS 1.1 Improvement of the refundable tax credit for home support of an older person Since January 1, 2000, persons 70 years of age or over may, under certain conditions, claim the refundable tax credit for home support of an older person. Essentially, this tax credit is designed to assist older persons who choose to stay in their home as long as possible by providing them with tax assistance equal to 23% of eligible expenditures they pay to obtain certain home support services, up to a maximum of $2 760 per year Eligibility for the tax credit of household services supplied regarding a room The home support services that can give rise to the tax credit are divided into two categories, namely direct personal services and household services. The household services category includes services for household maintenance, care of clothing, and supplies of day-to-day necessities, as well as light work outside the home. Under existing rules, household services give rise to the tax credit only if they are supplied regarding a dwelling that is a self-contained domestic establishment owned, leased or sub-let by the older person or his spouse, or for the land on which such dwelling is located, while this requirement does not exist for direct personal services. For the purposes of this tax credit, the expression "self-contained domestic establishment" means a dwelling-house, an apartment or other similar place of residence in which, as a general rule, a person takes his meals and sleeps. In this regard, the ministère du Revenu du Québec (MRQ) generally considers that a self-contained domestic establishment must be equipped with a bathroom and a space in which meals can be prepared. Accordingly, a room in a hotel or boarding house is not normally a self-contained domestic establishment.

6 - 2 - For various reasons, many older persons occupy a room with board located in a residence for older persons where they receive meal services as well as various household services, including household maintenance and care of clothing. Other older persons prefer to live in a room in a hotel establishment or in a rooming-house that they lease for a long period. In most cases, such rooms cannot qualify as a self-contained domestic establishment, because they do not have a place in which to prepare meals or, in some cases, a private bathroom. Consequently, the household services supplied in their regard do not give rise to the tax credit, while direct personal services supplied to an older person living in such a room generally do. To enable older persons who live in a room in a residence for older persons and those whose principal residence is a room in a hotel establishment or in a rooming-house to take full advantage of the refundable tax credit for home support of an older person, a change will be made to this tax credit. More specifically, household services supplied in regard to the following may give rise to this tax credit: either a room which an older person or his spouse leases or sub-lets and which is located in a residence for older persons, i.e. a group residence of housing units or rooms, offering a more or less broad range of services and constituting the older person s principal place of residence; or a room in a hotel establishment or in a rooming-house that is rented by an older person or his spouse for a period of at least 60 consecutive days, provided such room is the older person s principal place of residence. For greater clarity, this change will not make household services supplied regarding any of the following rooms eligible for the tax credit: a room located in a facility maintained by a public or private institution under agreement that operates a hospital centre, a residential and long-term care centre or a rehabilitation centre covered by the Act respecting health services and social services, including an intermediate resource of a public institution as understood in such act, or located in a hospital centre or reception centre that is a public institution for the purposes of the Act respecting health services and social services for Cree Native persons or which has concluded a contract or an agreement in accordance with sections 176 or 177 of such act;

7 - 3 - a room occupied by an older person taken charge of by a person recognized as a foster home under the Act respecting health services and social services or by a foster family covered by the Act respecting health services and social services for Cree Native persons; a room located in a self-contained domestic establishment maintained by an individual who claims, or whose spouse claims, regarding the older person who occupies such room, the refundable tax credit for adults housing their parents. This change will apply regarding household services paid for after the day of publication of this information bulletin Easing of the requirement concerning separate billing of eligible services Under existing rules, when a person carrying on a business supplies an older person not only with eligible home support services, but also with other types of services or goods, the cost attributable to the eligible home support services to be paid for by the older person must be billed separately from the cost relating to other services or goods supplied, for such cost to constitute an expenditure eligible for the tax credit. For instance, for a meal preparation service, the cost reasonably attributable to the delivery of such service may be an expenditure eligible for the tax credit, provided it is billed separately from the cost of the food. Similarly, the portion of rent paid by an older person living in a dwelling located in a rental building and which is attributable to eligible home support services may be an expenditure eligible for the tax credit, provided the lessor bills this portion of the rent separately. The requirement for separate billing seems too restrictive in the circumstances, since it involves producing a separate bill for eligible home support services, while a simple itemization by the supplier of services of the total amount billed would achieve the intended result, namely the identification of the amount payable attributable to eligible services.

8 - 4 - Consequently, a change will be made to the application rules of this tax credit, to replace the requirement for separate billing with a more flexible requirement. Accordingly, when an amount is payable by an older person in consideration for both eligible home support services and other types of services or goods supplied by a person carrying on a business, the portion of such amount attributable to the eligible home support services may constitute an expenditure eligible for the tax credit, provided the respective value of each of these services is specifically indicated in writing by the person carrying on a business, and such value is reasonable. For instance, when the total amount payable represents a rent, the lessor may provide such written indication of the value of eligible services in an appendix to the lease. This change will apply as of taxation year Correlative changes stemming from the deferred taxation of the benefit relating to options to purchase certain securities An employee who receives an option to purchase securities (shares of a corporation or units of a mutual fund trust) granted by his employer, must include as a benefit, in calculating his income, an amount equal to the difference between the value of the securities at the time of acquisition, and the amount paid or payable to acquire both these securities and the right to acquire them. The value of this taxable benefit must, except in certain circumstances, be included in the calculation of the income of the employee for the year during which the securities are acquired. On February 28, 2000, the Minister of Finance of Canada tabled a Notice of Ways and Means Motion in the House of Commons to amend the Income Tax Act, describing the circumstances in which the taxation of a benefit stemming from the exercise of an option to purchase securities granted to an employee of a corporation, other than a Canadian-controlled private corporation (CCPC), or a mutual fund trust, could be deferred. In this regard, it was announced, in the March 14, 2000 Budget Speech, that Québec s tax legislation and regulations would be amended to incorporate this federal measure.

9 Easing of reporting requirements On May 9, 2000, the Minister of Finance of Canada specified, in a news release 1, that the reporting requirements applicable to the proposal on securities options put forward as part of the 2000 budget, would not require employers to take into account dispositions of securities acquired under a securities option plan. In this regard, it stated that the reporting forms would emphasize the benefit obtained upon exercising the option, and on compliance with the $ ceiling. It follows that no information slip indicating the value of the taxable benefit should be produced at the federal level regarding the year in which the securities are alienated, namely the year in which the value of the benefit must be included in the calculation of the income of employees who choose to defer the taxation of the value of the benefit received from their office or employment. To simplify the task for employers, changes will be made to Québec s tax regulations to stipulate that a public corporation or a mutual fund trust that agrees to issue or sell its securities, or securities of an eligible entity (corporation or mutual fund trust) with which it is not at arm s length, to one of its employees or to an employee of an eligible entity with which it is not at arm s length, must file, for the year during which the options are exercised, an information statement, on the prescribed form, indicating the value of the taxable benefit stemming from such exercise. The person conferring such a benefit will not be required to file an information statement indicating the value of the benefit that must be included in calculating the income of the employee for the year in which the securities are alienated. These changes will apply to information statements that must be filed for taxation year 2000 and subsequent taxation years. 1 Federal Department of Finance news release

10 Liability of value of the benefit subject to payment of various contributions based on salary Under existing tax legislation, the value of the benefits that must be included in calculating the income of an employee for a given taxation year is generally taken into consideration for the purposes of calculating the various contributions based on the salary paid to an employee or the employer s payroll. As part of the March 14, 2000 Budget Speech, it was announced that in order to preserve the base on which the employer contribution to the Health Services Fund (HSF) is based for a given year, the Act respecting the Régie de l assurance maladie du Québec would be amended to deem that, in spite of the deferment of the time of inclusion, in calculating an employee s income, of the value of the benefit from the exercise of an option to purchase securities, such value would be included in calculating his income for the year during which the security is acquired. Since information reporting requirements have been eased and corporations, other than CCPCs, as well as trustees of mutual funds will no longer be required to have a mechanism to track the alienation of securities, the presumption applicable for the purposes of calculating the HSF contribution will be extended to all other contributions of employees and employers payable under a tax law. More particularly, the provisions of the Act respecting the Québec Pension Plan, the Act to foster the development of manpower training, the Act respecting labour standards and the provisions of the Taxation Act relating to the payment of the compensatory tax will be amended to stipulate that, in spite of the deferment of the time of inclusion, in calculating an employee s income, of the value of the benefit stemming from the exercise of an option to purchase securities, such value will be deemed to be included in calculating his income for the year during which he acquired the security. These changes will apply regarding an acquisition of a security made after February 27, 2000 under an agreement according to which a corporation, other than a CCPC, or a mutual fund trust, agrees to sell or to issue securities, or securities of an eligible entity with which it is not at arm s length, to one of its employees or to an employee of an eligible entity with which it is not at arm s length.

11 Restriction as to the election to defer taxation of the value of the benefit The unqualified inclusion in Québec s tax legislation of the federal measure regarding options to purchase securities would make the election allowed an employee to defer taxation of the value of the benefit stemming from the exercise of an option to purchase securities completely independent. The opportunity of making different elections in the federal and Québec tax systems could enable an employee to avoid payment of a provincial tax, which is counter to tax policy. For instance, if an individual decided to be taxed federally in the year he exercises options to purchase securities and elected in Québec to defer taxation of the value of his benefit, no provincial tax would be payable in every case where the individual leaves the province in a year following the exercise of the options to purchase securities but prior to their alienation. To prevent payment of a provincial tax from being circumvented, the Taxation Act will stipulate that when an individual elects to differ taxation of the value of the benefit resulting from the exercise of an option to purchase securities for federal purposes, he will be deemed to have made a similar election for the purposes of Québec s tax legislation. As a corollary, if no election is made for the purposes of the federal tax system, the individual may not defer taxation of the value of such a benefit for Québec tax purposes. These clarifications will apply regarding an option to purchase securities exercised after February 27, Greater opportunity to use averaging for certain retroactive lump-sum payments An individual who receives certain lump-sum payments, all or part of which relate to a prior year, may use a special mechanism to calculate his tax payable on such payments. This mechanism allows the individual to pay the tax relating to such retroactive payments as if they had been received during the year to which they relate.

12 - 8 - To qualify for this mechanism, the retroactive payments received in a year must total at least $300 and represent a benefit paid under the Act respecting the Québec Pension Plan, the Canada Pension Plan or the federal employment insurance legislation, an employment income received pursuant to a judgment, support payment arrears or any other similar retroactive payment which, if taxed in the year it is received, would result, in the opinion of the Minister of Revenue of Québec, in an undue additional tax burden. Under this mechanism, an individual avoids paying, regarding such retroactive payments, more tax than what he would have paid had the payments been received and taxed on a continuous basis during each year in which they were payable. However, to take advantage of this mechanism, an individual must necessarily determine his tax payable, for the taxation year in which the eligible retroactive lump-sum payment is received, according to the rules of the general tax system. While the circumstances surrounding the late payment of such amount are generally beyond the individual s control, he must waive, for the taxation year in which such payment is received, the benefits of the simplified tax system, though he generally would have been able to benefit from it, had the amount owed been paid to him as it fell due. To avoid penalizing individuals who otherwise would have been able to benefit from the advantages of the simplified tax system for the taxation year in which an eligible retroactive lump-sum payment is received, the tax legislation will be amended to enable individuals to use this special mechanism for calculating tax regarding such payments under the simplified tax system. This change will apply to taxation year 1998 and subsequent taxation years. 1.4 Improvement of the tax credit for professional association dues Under existing rules, an employee who calculates his tax payable according to the rules of the general tax system and who pays annual dues to a professional association can generally obtain a non-refundable tax credit of 22% of the dues thus paid. However, the amount of the professional dues giving rise to this tax credit does not include the portion that represents the Québec sales tax (QST) or the goods and services tax (GST).

13 - 9 - This exclusion reflects the fact that under the rules of the QST or GST system, employees can usually obtain a refund of taxes payable regarding such dues, so that there is no justification, in similar circumstances, for allowing a tax credit regarding such amount. In addition, an employee may sometimes obtain a refund from his employer of the amount he paid as annual dues to a professional association, or that the employer pays such dues for him directly to the professional association. In such cases, such refund or payment constitutes a taxable benefit for the employee, since the obligation to pay such dues is imposed on him as a personal obligation. Consequently, when an employer pays annual dues to a professional association on behalf of one of his employees, or refunds such dues paid by the employee, the latter must include, in calculating his income from an office or employment, the value of the benefit conferred by such payment or refund. As a general rule, such value represents the amount disbursed by the employer for the professional dues, including the associated QST and GST. For the purposes of the tax credit for professional association dues, the MRQ considers that the amount thus included in the calculation of income from an office or employment of an individual is deemed to have been paid by the latter regarding professional dues, so that such individual may claim, under certain conditions, the tax credit regarding such an amount, with the exception of the portion representing the QST or the GST. Contrary to the usual situation when an employee pays his annual professional dues himself, the employee whose professional dues are reimbursed or paid directly by his employer may not, in general, obtain a refund of either the QST or of the GST attributable to such dues, even if the amount of such taxes has been included in calculating his income from an office or employment as a taxable benefit. In such circumstances, the refusal to allow the tax credit for professional association dues regarding the amount of such taxes does not seem justified, no more than when an employee may, otherwise, be eligible for a refund claim of the QST or GST he paid in relation to his annual dues to a professional association.

14 Accordingly, to correct this situation, the tax legislation will be amended so that the portion of the amount paid by an employee for such dues that represents the QST or the GST gives rise to the tax credit for professional association dues, provided such employee is not entitled to obtain, under the rules of the QST or the GST system, a refund of such taxes. This change will apply to taxation year 1997 and subsequent taxation years. 1.5 Technical changes concerning the tax treatment of support allowance Adjustment to the calculation of family income caused by a refund of support allowance Under existing tax legislation, a taxpayer who calculates his tax payable according to the rules of the general tax system and pays support allowance may, in certain circumstances, deduct the amount he paid in this regard in calculating his net income. However, this deduction is not allowed in the calculation of his family income, which is used as the reference for the purposes of refundable of non-refundable tax credits and various social and tax measures, such as the refundable tax credit for the Québec sales tax and the property tax refund. Essentially, a taxpayer s family income, for a taxation year, corresponds to his net income and that of his spouse, if any, at the end of the year, determined according to the rules of the simplified tax system. Under these rules, no amount is deductible in calculating net income for support allowance. When a support allowance that was deducted in calculating a taxpayer s net income is subsequently refunded to him pursuant to an order by a competent court, the taxpayer must include the amount of such refund in calculating his net income for the taxation year in which it is received, whether he calculates his tax payable for the year according to the rules of the general or simplified tax system. Consequently, the amount of such refund is also included in calculating the taxpayer s family income for such taxation year.

15 The taxpayer who opts for the general tax system may, however, under existing legislation, make use of a special mechanism to calculate tax payable regarding such a refund. Under this mechanism, he may elect to deduct, in calculating his taxable income, the portion of such refund that is attributable to a support allowance that has been deducted in calculating his net income for a prior taxation year, provided such portion is at least $300 if the individual has not received other payments relating to a prior year totalling more than $300. The taxpayer s tax otherwise payable for the year is then increased by the amount of additional tax that would have been payable for such prior year, if the refunded support allowance had then been included in calculating his taxable income. While this special mechanism for calculating tax may spare the taxpayer from having to pay more tax than what he would have had to pay if the refunded support allowance had not been deducted in calculating his net income for a prior taxation year, it is still the case that it has no impact on the calculation of his family income. As a result of the current rules applicable for such calculation, when the payment of support allowance that gives rise to a deduction in calculating net income and the refund of such allowance are spread over more than one taxation year, the same amount is included twice for the purposes of calculating a taxpayer s family income, namely, for the taxation year of the payment of the support allowance and again for the taxation year in which it is refunded. Consequently, the current system may result in a reduction in the amount a taxpayer may receive as refundable or non-refundable tax credits and various social and tax measures based on family income. To enable taxpayers to benefit fully from these tax credits and social and tax measures, changes will be made to the tax legislation. In particular, a change will be made to the special mechanism for calculating tax, as it applies regarding a refund of a previously deducted support allowance, to replace the election to deduct such refund in calculating taxable income for the taxation year in which it is received, with an election to not include such refund in calculating net income, determined according to the rules of the general or simplified tax system and, by the same token, family income, established for such year.

16 Contrary to the existing rules, this new election will be available under both the general and simplified tax systems. In addition, this election may be made even if the refunded support allowance relating to a prior year is less than $300. For greater clarity, as is the case under existing rules, this new election will generate an addition to the taxpayer s tax otherwise payable for the taxation year in which the refund of the support allowance previously deducted is received. Such addition will correspond to the amount of additional tax that would have been payable by the taxpayer, for the prior taxation year to which the support allowance for which a refund is received relates, if such allowance was then included in calculating his taxable income for such prior year. These changes will apply regarding support allowance paid after taxation year Broadening of the presumption applicable to certain maintenance expenses Under the existing tax legislation, when an amount that does not otherwise qualify as support allowance becomes payable by a person, pursuant to an order by a competent court or a written agreement, regarding an expense (medical fees, tuition fees, etc.) incurred in particular for the maintenance of a spouse or former spouse, such amount may be deemed to be an amount payable to such spouse or former spouse and receivable by him as a periodic allowance he may use at his discretion, if certain conditions are met. This presumption makes it possible to consider such an amount as a support allowance, even if it fails to satisfy the conditions required in this regard, so that its payment may give rise to a deduction in calculating the income of the payer and an inclusion in calculating the income of the payee. One of the necessary conditions for the application of this presumption is that the order of the competent court or the written agreement, as the case may be, expressly stipulate that sections and of the Taxation Act apply to an amount payable pursuant to such document.

17 Pursuant to an administrative practice, the MRQ considers that this condition is met even if the order or the agreement does not refer to these provisions of Québec s tax legislation, but rather refers to the corresponding provisions of the federal tax legislation, namely paragraphs 56.1(2) and 60.1(2) of the Income Tax Act. In this way, in accordance with its administrative practice, the MRQ may allow a deduction in the calculation of the payer s income regarding an amount paid pursuant to an order of a competent court or a written agreement that refers solely to the provisions of the federal tax legislation. However, it is less clear that the MRQ may include such amount in the income of the payee, because of the principle that a tax may not be levied simply on an administrative basis. Consequently, the tax legislation will be amended to stipulate that an amount that has become payable pursuant to an order by a competent court or to a written agreement may, under certain conditions, be deemed payable and receivable as a periodic allowance that may be used on a discretionary basis, even if such order or agreement, as the case may be, does not expressly stipulate that sections and of the Taxation Act apply to such amount, but rather stipulates that paragraphs 56.1(2) and 60.1(2) of the Income Tax Act apply to it, unless the order or agreement, as the case may be, stipulates that this reference to the federal tax legislation is not valid for the purposes of the Québec tax system. This change will apply regarding an order by a competent court or a written agreement reached after the day of publication of this information bulletin. 1.6 Technical change concerning the deductibility of income subject to the special tax relating to income splitting with a child As part of the 1999 federal budget, it was announced that an income splitting tax would be implemented as of taxation year 2000, to discourage income splitting with minors. Essentially, it was announced that the income subject to this special tax, hereunder called "split income", would be deductible in calculating the taxable income of the child and the tax payable on such split income would be calculated at the marginal rate applicable, according to the personal tax table, to the last taxable income bracket.

18 In this regard, it was announced, as part of the Budget Speech, that Québec s tax legislation and regulations would be amended to incorporate these measures and that these measures would only be adopted after any federal legislation arising from such notice of motion was assented to, taking into account the technical changes that could be made to it before assent or adoption. On December 7, 1999, the Minister of Finance of Canada tabled a Notice of Ways and Means Motion seeking to amend the Income Tax Act, the Excise Tax Act and the Budget Implementation Act, 1999, in which he proposed that the deduction of split income be allowed in calculating the net income of the child, and not in calculating his taxable income. To prevent the child s income, which is used in particular in calculating various tax credits for dependent children that an adult may claim for him, from being unduly reduced, the Taxation Act will stipulate that the deduction of split income will be allowed in calculating the child s taxable income, regardless of the tax system under which the child calculates his tax payable for the year. This clarification will apply as of taxation year 2000.

19 MEASURES CONCERNING BUSINESSES 2.1 Montréal s position on the global financial derivatives market The Montréal Exchange now enjoys exclusive rights in Canada to a significant growth sector, namely financial derivatives. Over the years, with the presence of the stock exchange, the academic and professional communities have contributed to the development in Montréal of leading expertise in this niche. Beyond its positive impact on the local financial community, the exchange s activity in the highly competitive financial derivatives market helps to raise Montréal s international profile as a sophisticated financial centre. The Montréal Exchange is currently in the process of finalizing its reorganization and expects to launch new products that will be more readily available to international users through its membership in the Globex alliance. In this vein, discussions have been initiated between the Québec government and the Montréal Exchange with a view to formulating measures supporting financial derivatives to ensure that the benefits gained are long-lasting and foster the sector s growth over the next few years. 2.2 Tax assistance regarding communications between corporations and investors A corporation that has a class of its shares listed on an exchange, or is in the process of being listed, and which wishes to obtain financing by means of a public offering or to disclose the details of a major development that may affect the value of its stock, must be in a position to communicate effectively with financial market professionals and investors to achieve better valuation of its securities. One of the preferred methods used by corporations for such purposes involves organizing a promotional tour in the major cities with markets on which its stock is traded. These promotional tours, also known as "road shows", offer a direct and preferential contact between the corporation and investors. For many Québec corporations, the cost of such road shows is often an obstacle to their participation in this type of event. In addition, the low participation of Québec corporations in such road shows may make access to capital markets more difficult for these corporations, which may affect their growth.

20 To encourage Québec corporations to participate more actively in this type of activity, tax assistance will be provided for expenditures incurred by Québec corporations in the course of road shows staged for financial market professionals and investors. More particularly, such tax assistance will consist of a refundable tax credit and will be granted, for a taxation year, to an eligible corporation that, during such year, incurs eligible communications expenditures in relation to an eligible road show. Subject to the rules described below, the tax credit an eligible corporation may receive, for a taxation year, will be equal to 40% of the amount of eligible communications expenditures it incurs, during such year, in relation to an eligible road show. However, the maximum amount of such tax credit, for a taxation year, will be limited to $40 000, calculated on an annual basis. Eligible corporation The expression "eligible corporation", for a taxation year, means a corporation, other than an excluded corporation, which, during such year, carries on a business in Québec, has an establishment there and holds, for such year, an eligibility certificate issued by the Minister of Finance certifying that at some point during such year, a class of shares of its capital stock is listed on a recognized exchange or is in the process of being listed. A recognized exchange, for the purposes of this tax credit, means a prescribed exchange for the purposes of section of the Taxation Act. For greater clarity, a corporation shall be considered to have a class of its capital stock in the process of being listed on a recognized exchange at the time it files a preliminary prospectus with the appropriate securities regulatory or oversight bodies. To qualify as an eligible corporation, for a taxation year, a corporation must also satisfy the following conditions: more than half of the salaries paid to its employees during the preceding taxation year or, if the corporation is in its first taxation year, during the current taxation year, were paid to employees of an establishment located in Québec;

21 the amount of its assets at the end of its preceding taxation year, according to the financial statements submitted to its shareholders for such year, or the amount of its total market capitalization at the end of its preceding taxation year, is less than $1 billion. In the latter regard, if, at any time during a taxation year, a corporation is associated with one or more other corporations, the amount of its total market capitalization and the amount of its assets will be determined on a consolidated basis. Eligible communications expenditures "Eligible communications expenditures" incurred by an eligible corporation, during a taxation year, mean the communications expenditures incurred by such corporation, during such year, in relation to an eligible road show, provided they are reasonable in the circumstances, that are directly related to such road show, and correspond to the following expenses: the travel and lodging expenses of an employee of the eligible corporation as well as the portion eligible as a deduction, in calculating the income of the corporation, of the expenses for food and beverages consumed by such employee or his guests; expenses for renting rooms, including the portion eligible as a deduction, in calculating the income of the corporation, of the expenses of a catering service; the expenses for renting computer and audio-visual equipment needed to give a public presentation; the expenses relating to the preparation of documentation made available to financial market professionals and investors during the eligible road show; advertising expenses for the eligible road show; expenses for consultants in public relations or staging of public events. For greater clarity, the expenses relating to compliance with the regulatory requirements to which the eligible corporation is subject do not constitute eligible communications expenditures.

22 Furthermore, the amount of eligible communications expenditures incurred by an eligible corporation, for a taxation year, will be limited to $ , calculated on an annual basis, and must be reduced by the amount of any government assistance, any non-government assistance and any profit or benefit, according to the usual rules. Eligible road show An "eligible road show", for a taxation year of an eligible corporation, means an activity held during such year by such corporation, in one or more cities, and for which an eligibility certificate has been issued by the Minister of Finance, certifying that the road show held by the eligible corporation is intended to enable its senior management either to promote the corporation s stock among financial market professionals or investors, or disclose the details of a major development that may affect the value of the corporation s stock. If an eligible corporation participates in more than one eligible road show, during a taxation year, the eligibility certificate issued by the Minister of Finance, for such year, will certify the eligibility of each road show held by the eligible corporation during such year. For greater clarity, if, regarding an eligible road show, communications expenditures are incurred by an eligible corporation during a taxation year and the eligible road show to which such expenditures relate is held during a subsequent taxation year, a provisional eligibility certificate may be issued by the Minister of Finance, for that year, regarding the activities that gave rise to such communications expenditures, provided the eligible road show is held during a subsequent taxation year and subject to the issuing of an eligibility certificate, for this subsequent taxation year, regarding the eligible road show. Other application details If an eligible communications expenditure for which a tax credit has been granted is refunded to the eligible corporation, the tax credit thus granted will be recaptured by means of a special tax. In addition, such special tax will also be payable if a provisional eligibility certificate has been issued to the eligible corporation and the conditions or requirements giving rise to the issuing of such provisional eligibility certificate are not met or are breached.

23 This tax credit may be applied against any tax instalments that must be made by an eligible corporation. An eligible corporation that wishes to claim this tax credit, for a taxation year, must enclose with its tax return, for such year, a form prescribed by the Minister of Revenue, as well as a copy of the eligibility certificate, or the provisional eligibility certificate, as the case may be, issued by the Minister of Finance regarding the eligible corporation and the eligible road show for which the eligible corporation claims a tax credit. Lastly, the eligible communications expenditures for which a tax credit is claimed by an eligible corporation must have been paid at the time the tax credit is claimed. Excluded corporation An "excluded corporation", for a taxation year, means: a corporation that is exempt from tax for the year; a Crown corporation or a wholly-owned subsidiary of such corporation. Application date This measure will apply regarding eligible communications expenditures incurred by an eligible corporation after the day of publication of this information bulletin and before July 1, 2003, in relation to an eligible road show for which an eligibility certificate has been issued by the Minister of Finance after the day of publication of this information bulletin. 2.3 Refundable tax credit for hiring junior financial analysts specializing in the securities of Québec corporations To gain access to capital on financial markets, a corporation needs a degree of recognition. For a corporation that needs additional capital, such recognition can be obtained in particular by distributing financial assessments and analyses produced by financial analysts working in brokerage houses and portfolio management companies.

24 There is little coverage in the financial analysis field of small and medium-size Québec companies. This situation can cause a lack of recognition of Québec corporations, which is often reflected in more difficult access to capital markets, and an undervaluation of the stock of such corporations. To encourage broader coverage of Québec corporations by financial analysts, while encouraging the training and development of young financial analysts in Québec, a new refundable tax credit will be implemented. Briefly, an eligible corporation that, during a taxation year, employs an eligible junior financial analyst, may claim a tax credit equal to 40% of the eligible salary paid to such financial analyst, for such year, for any week or part thereof within the period covered by an eligibility certificate issued by the Minister of Finance regarding such eligible junior financial analyst. Eligible corporation An "eligible corporation", for a taxation year, means a corporation, other than an excluded corporation, that, during such year, carries on a business in Québec, has an establishment there and is registered with the Commission des valeurs mobilières du Québec (CVMQ) as an unrestricted practice investment dealer or unrestricted practice securities adviser. Eligible junior financial analyst An "eligible junior financial analyst" of an eligible corporation means an individual, other than a specified shareholder of the eligible corporation, who is an employee of an establishment in Québec of such corporation. Such individual must also hold an eligibility certificate issued by the Minister of Finance. In addition, an annual eligibility certificate must be obtained from him.

25 Eligibility certificate An "eligibility certificate", regarding an eligible junior financial analyst, means a certificate issued by the Minister of Finance regarding a financial analyst employed by an eligible corporation, certifying that at the beginning of the period covered by the first eligibility certificate issued regarding such financial analyst: he held a university diploma in a relevant discipline and had less than two years of experience in the securities analysis field; or if he does not hold a university diploma in a relevant discipline, he passed the first examination leading to the title of Chartered Financial Analyst (CFA) less than 24 months earlier. The eligibility certificate will also indicate the period for which the financial analyst may qualify as an eligible junior financial analyst, though such period may not exceed three years. Accordingly, if many certificates are issued for one financial analyst, for instance if he changes employer, such period will end no later than three years after the beginning of the period covered by the first certificate issued regarding such financial analyst. Annual eligibility certificate An "annual eligibility certificate", regarding an eligible junior financial analyst, for a taxation year of an eligible corporation, means a certificate issued by the Minister of Finance regarding eligible junior financial analyst employed by the eligible corporation, certifying, for such year, that: his employment contract stipulates at least 26 hours of work a week for an expected minimum of 40 weeks; he devotes more than 75% of his work time to securities analysis activities in an establishment of his employer located in Québec; more than 50% of his securities analysis activities are financial analysis activities regarding Québec corporations.

26 Eligible salary The "eligible salary" of an eligible junior financial analyst, for a week, is the employment income of such financial analyst, for such week, calculated according to the Taxation Act, and paid by the eligible corporation that employs him. However, such income must be reduced by the amount of any government assistance, any non-government assistance and any profit or benefit, according to the usual rules. Furthermore, the amount of eligible salary regarding which a tax credit may be granted in relation to an eligible junior financial analyst, for the period covered by an eligibility certificate issued regarding such financial analyst that is within a taxation year of the eligible corporation, is limited to $ per eligible junior financial analyst, calculated on annual basis. Accordingly, the amount of the tax credit, for a taxation year, may not exceed $ per eligible junior financial analyst. Québec corporation The expression "Québec corporation" means a corporation that, for the taxation year for which a tax credit is claimed by the eligible corporation, satisfies the following conditions: at any time during such year, a class of shares of its capital stock is listed on a recognized exchange or is in the process of being listed; more than half the salaries paid to its employees during the preceding taxation year or, if the corporation is in its first taxation year, during the current taxation year, were paid to employees of an establishment located in Québec; the amount of its assets at the end of its preceding taxation year, according to the financial statements submitted to its shareholders for such year, or the amount of its total market capitalization at the end of its preceding taxation year, is less than $1 billion. In the latter regard, if, at any time during a taxation year, a corporation is associated with one or more other corporations, the amount of its total market capitalization and the amount of its assets will be determined on a consolidated basis.

27 For the purposes of this tax credit, a recognized exchange means a prescribed exchange for the purposes of section of the Taxation Act. Other application details If a salary expenditure for which a tax credit has been granted is refunded to the eligible corporation, the tax credit thus granted will be recaptured by means of a special tax. This tax credit may be applied against any tax instalments that must be made by an eligible corporation. An eligible corporation that wishes to claim this tax credit, for a taxation year, must enclose with its tax return, for such year, a form prescribed by the Minister of Revenue, as well as a copy of the eligibility certificates issued regarding the eligible junior financial analysts for whom it claims a tax credit. Lastly, the salaries regarding which a tax credit is claimed by an eligible corporation must have been paid at the time the tax credit is claimed. Excluded corporation An "excluded corporation", for a taxation year, means: a corporation that is exempt from tax for the year; a Crown corporation or a wholly-owned subsidiary of such corporation. For greater clarity, a corporation that is an investment dealer or an investment adviser exempted from registering with the CVMQ is also an excluded corporation.