Budget Quebec Measures concerning individuals. Measures concerning businesses

Transcription

1 Highlights Budget Quebec Measures concerning individuals Gradual elimination of the health contribution as of January1, 2017 Introduction of a tax shield Increase in investments in Québec businesses made by the tax-advantaged funds, particularly in the regions (Labour sponsored funds FTQ, CSN etc.) Several measures mainly aimed at seniors Measures concerning businesses Reorganization of corporate income tax Reduction of the general corporate tax rate Elimination of the SBD for small businesses with less than three employees Easing of the tax provisions applicable to the transfer of family businesses Gradual reduction of the Health Services Fund contribution rate for SMBs in the service and construction sectors Revision of the various business tax credits The particulars contained herein were obtained from sources which we believe reliable but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein. The Firm may act as financial advisor, fiscal agent or underwriter for certain of the companies mentioned herein and may receive remuneration for its services. The Firm and/or its officers, directors, representatives, associates, may have a position in the securities mentioned herein and may make purchases and/or sales of these securities from time to time in the open market or otherwise.

2 MEASURES CONCERNING INDIVIDUALS Gradual elimination of the health contribution as of January 1, 2017 To reduce the tax burden on individuals, the health contribution will be gradually eliminated beginning in 2017 and will be removed completely by The following table illustrates the gradual elimination of the health contribution for the year preceding its complete elimination. Illustration of the gradual elimination of the health contribution for 2017 and 2018 Adult s income 1 ($) Health contribution ($) Higher than Without exceeding Current situation , , , to , , to to to , to 1, to to (1) The income brackets indicated in this table do not take into account the fact that the thresholds are automatically indexed each year on January 1. Introduction of a tax shield Tax assistance to individuals generally decreases as income rises, and is intended to help lower-income households. However, the prospect of losing this tax assistance once income exceeds a certain threshold can diminish an individual s motivation to work more. To increase the appeal of working more, the government acknowledges that it must improve the financial incentives offered to Québec workers. In this regard, the Québec Taxation Review Committee recommends creating a new measure: the tax shield. Beginning in 2016, households may request a tax shield benefit on their tax returns if they meet the following criteria: their work income increased from the previous year; their socio-fiscal transfers associated with the work premium and tax credit for childcare expenses are reduced due to the increase in their work income. Determining the tax shield benefit To determine the value of the tax shield benefit, households may deduct from their net family income an amount equal to 75% of whichever of the following is lower: the increase in work income; the increase in household net income; a maximum of $2,500 for each spouse. Therefore, if the work income of each spouse increases by $2,500 or more, the maximum for the couple will be $5,000. Reducing the net family income will result in a smaller reduction in socio-fiscal transfers. As such, the eligible household will receive tax assistance allowing it to recover up to 75% of the transfers relating to the work premium and the tax credit for childcare expenses. 2 Budget Quebec

3 Increase in investments in Québec businesses made by the tax-advantaged funds, particularly in the regions (Labour sponsored funds FTQ, CSN etc.) In Budget , the government maintains its support for the three tax-advantaged funds by giving them the means they need to continue contributing to the economic development of Quebec and encouraging Quebecers to save. The government confirms that the ceilings set on issuing shares in labour-sponsored funds for their financial year will be removed as of , and that Capital régional et coopératif Desjardins (CRCD) will be permitted to issue shares worth $150 million in 2015; ( i.e. increase of share available for the public). It announces an increase in the Fondaction tax credit from 15% to 20% for its financial year. Enhancement of the tax credit for experienced workers To encourage a greater number of experienced workers to remain in or re-enter the labour market, several changes will be made to the tax credit for experienced workers as of taxation year Over a two year period, these changes will lower the age of eligibility for the tax credit from 65 to 63 and gradually increase the maximum amount of eligible work income on which the tax credit is calculated until it reaches $10,000 for all workers age 65 and over. Also, to ensure that this measure is directed primarily toward persons who could be influenced by such an incentive to remain in or re-enter the labour market, the tax credit will be reduced based on work income. Adjustment of maximum eligible work income above the first $5,000 based on worker s age Maximum eligible work income ($) Age of experienced worker and later 65 and over 4,000 6,000 8,000 10, ,000 6,000 8, ,000 6,000 Increase in the eligibility age for the tax credit with respect to age Currently, the tax system grants every low-or middle-income individual a non-refundable tax credit calculated based on an amount of $2,460 if the individual has reached 65. As of taxation year 2016, the eligibility age for the amount with respect to age will gradually be raised until it reaches a minimum age of 70 for any taxation year after The following table illustrates the change: Gradual rise in the eligibility age for the tax credit with respect to age Eligibility age for the tax credit Budget Quebec

4 New assistance program for seniors to partially offset a municipal tax increase pursuant to a new assessment roll To support seniors having to cope with such increases in their property taxes, an assistance program will be introduced as of An individual can receive a grant for a particular year regarding an entirely residential assessment unit consisting of only one dwelling (hereafter called a specified assessment unit ), if the following conditions are met: the individual was resident in Québec at the end of December 31 of the preceding year; the individual turned 65 before the beginning of the year; at the end of December 31 of the preceding year, the individual had been the owner of the specified assessment unit for at least 15 consecutive years; the individual is a person to whom the tax account for the specified assessment unit was sent for the year; the specified assessment unit is the individuals principal place of residence; Revision of the solidarity tax credit To improve management of the solidarity tax credit (STC) and follow through on the recommendations of the Auditor General of Québec, Budget provides for a major reform of the administration of the STC that will facilitate its application. The main features of the reform are the following: the tax assistance granted will be determined based on the household s situation on December 31 of the taxation year preceding the payment period; changes in the household s situation will no longer be reported to Revenue Québec during the year, in order to ease the current administrative burden; a new record for the housing component will be produced, in particular to enable verification of the information transmitted and control of tax expenditure; the number of payments will depend on the amount of annual assistance granted: a single payment if $240 or less, quarterly payments if more than $240 but less than $800, and monthly payments if $800 or more. The new terms will apply to payments beginning in July Budget Quebec

5 MEASURES CONCERNING BUSINESSES Reorganization of corporate income tax Currently, the general corporate tax rate in Québec is 11.9%. However, Canadian-controlled private corporations enjoy a tax rate reduction on the first $500,000 of annual income - the business limit - from an eligible business, which lowers the tax rate from 11.9% to 8% on that bracket of income. Reduction of the general tax rate As of January 1, 2017, the general corporate tax rate will be reduced by one tenth of a percent annually through January 1, 2020, at which point this general corporate tax rate will have reached 11.5%. Modification of the small business deduction (SBD) The Budget proposes to modify the eligibility criteria to the SBD. Only some of the corporations presently eligible for the SBD will be able to continue claiming the full or partial amount of the deduction. More specifically, for a taxation year, an eligible corporation will be: a corporation that employs in its business throughout the year more than three full-time employees, or if any other corporation associated with it provides financial, administrative, maintenance, managerial or other similar services to the corporation in the year and the corporation could reasonably be expected to require more than three full-time employees if those services had not been provided; a corporation in the primary or manufacturing sector. Therefore, starting January 1, 2017, construction and service sector businesses with three employees or less will no longer be eligible for this preferential tax measure. Extension of the additional deduction for small business in the primary sectors Effective January 1, 2017, Budget provides for a reduction from 8% to 4% in the income tax rate for primary sector SMBs. SMBs that will benefit from this reduced tax rate will be those that are currently eligible for the reduced tax rate for SMBs and operate mainly in the agricultural, forestry, mining or fishing sectors. The following table summarize the changes: Minimum tax rate applicable to income eligible for the SBD Until and after General tax rate 11.9% 11.8% 11.7% 11.6% 11.5% Tax rate on SMB: SMB more than 3 employees 8.0% 8.0% 8.0% 8.0% 8.0% SMB of 3 employees and less 8.0% 11.8% 11.7% 11.6% 11.5% SMB primary /manufacturing 1 8.0%/4.0% 4.0% 4.0% 4.0% 4.0% Note 1 : The applicable rate if proportion of activities in the primary sector or the manufacturing and processing sector for a particular taxation year is 50% or more. Easing of the tax provisions applicable to the transfer of family businesses Currently, taxpayers are eligible for advantageous tax treatment on capital gains realized from the sale of shares of an eligible corporation: a cumulative lifetime capital gains exemption of up to $813,000 for the sale of qualifying small business shares or $1 million for the sale of a farm or fishing business; taxation on 50% of the value of the capital gains. 5 Budget Quebec

6 In the case of business transfers between related persons, however, the legislation includes an integrity rule that prevents the seller from benefitting from these tax advantages. More specifically, on the disposition of qualified shares to a corporation with which the individual is not dealing at arm s length, an individual cannot take the proceeds of sale and claim the capital gains exemption in such a situation, since the gain on the disposition of the shares is generally treated as a deemed dividend, not as a capital gain. Thus, as a result of this situation, where the buyer is not dealing at arm s length with the seller and wants to acquire qualified shares through a corporation, the seller is generally required to pay tax on a deemed dividend instead of realizing a capital gain, and therefore cannot claim the capital gains exemption This problem is not unique to Québec. All Canadian entrepreneurs face this situation. In fact, Québec, like the other provinces, has harmonized its tax treatment of business transfers between non-arm s length individuals with the federal government. In Budget , the Québec government is taking the first step to solve this problem and will make adjustments to grant tax relief for business transfers between family members, similar to that offered for other types of business transfer. Québec will also call on the federal government to find a solution to this tax problem for Québec entrepreneurs. Starting January 1, 2017, the taxpayers eligible for tax relief must be owners of a business that operates mainly in the primary and manufacturing sectors. With regard to eligibility for this tax relief, the government will continue to work in the coming year to identify eligibility criteria that will make it possible to restrict the relief solely to legitimate business transfers. These criteria will be clarified by the time Budget is unveiled. Gradual reduction of the Health Services Fund contribution rate for SMBs in the service and construction sectors Under the Act respecting the Régie de l assurance maladie du Québec, an employer must pay a contribution to the Health Services Fund (HSF) in respect of the wages that the employer pays for an employee. The applicable rate for the purposes of calculating the contribution to the HSF payable by a specified employer, other than an eligible specified employer, is 2.7% if the employer s total payroll for the year is $1 million or less. That rate rises linearly to 4.26% for specified employers whose total payroll is between $1 million and $5 million. Thus, in order for all SMBs to benefit from a reduction in payroll tax, Budget provides for a gradual reduction in the HSF contribution rate as of January 1, 2017 for all SMBs in the service and construction sectors with a payroll of less than $5 million. SMBs with a total payroll of $1 million or less will see their contribution rate gradually decrease from 2.7% to 2.25%: 2.55% on January 1, 2017; 2.40% on January 1, 2018; 2.25% on January 1, When fully implemented, SMBs with a payroll greater than $1 million, but less than $5 million, will be subject to a contribution rate that increases linearly from 2.25% to 4.26%. Revision of the rates of the tax credit for investments (corporations paid-up capital of $250 million or less) The tax legislation will be amended so that the increase in the rate of the tax credit for investments applicable to qualified property acquired to be used mainly in a remote zone, the eastern part of the Bas-Saint-Laurent administrative region or an intermediate zone is reduced by eight percentage points. 6 Budget Quebec

7 Consequently, the tax credit rate applicable to a qualified corporation in respect of qualified property acquired to be used mainly in a remote zone will decrease from 32% to 24%. For property acquired to be used mainly in the eastern part of the Bas-Saint-Laurent administrative region the tax credit will decrease from 24% to 16%. For property acquired to be used mainly in an intermediate zone the tax credit will decrease from 16% to 8%. For all other regions, the decrease will be from 8% to 0%. Increasing the tax credit for workplace training The tax credit for workplace training will be increased in Budget for employers that regularly welcome trainees enrolled in a vocational, technical or university training program. The tax-credit rates for eligible businesses will be increased from 24% to 40% and from 32% to 50% when the trainees are immigrants or people with handicaps, two groups that are underrepresented in the labour market. To benefit from this increased rate, an employer must have incurred eligible expenses of at least $2 500 for the year, and in the previous two years, which generally corresponds to the cost of welcoming and supervising a trainee for a four-week period. Extension of the tax credit for integrating information technologies in manufacturing SMBs and expansion to primary sector SMBs In October 2013, a tax credit for IT integration expenses in manufacturing SMBs was introduced to encourage them to integrate high value-added software in their business process. When the government announced the creation of the Québec Taxation Review Committee in Budget , it suspended the tax credit while it evaluated the best way to support IT integration in manufacturing SMBs. In its report, the commission recommended that the tax credit be renewed, given that Québec businesses are somewhat behind in the integration of IT in their business processes, particularly in terms of management software packages. The tax credit for IT integration in manufacturing SMBs will be reinstated at a rate of 20% the day after the Budget Speech, and its period of application will be extended through December 31, In addition, to allow a greater number of businesses to benefit from this tax measure, eligibility for the tax credit will be expanded to primary sector SMBs. Modifications to various tax credits for businesses. The government is offering businesses various tax incentives such as tax credits in order to encourage the development of certain sectors or activities deemed strategic for Québec s economy. In the June 4, 2014 budget, a 20% reduction in tax assistance was applied to certain measures intended for businesses. Budget proposes the adjustment of the tax credits for the new economy. The maximum rate of the tax credit for the production of multimedia titles is increased from 30% to 37.5%, with maximum tax assistance set at $37,500. The tax credit for the development of e-business is raised by 6 percentage points and the maximum tax assistance per job is set at $25,000. The budget also proposes an increase in the rates of the tax credits for Québec s cultural sector. The government is raising the rates of the tax credit for Québec film and television production. This measure will also apply to coproductions. In addition, the government is raising to 35% the tax credits for: 7 Budget Quebec

8 book publishing; production of performances; sound recording production; film dubbing; and production of multimedia environments or events staged outside Québec. Sectoral tax credits The day following the day of the Budget Speech Tax credits Before Budget After Budget % 37.5% New economy Production of multimedia titles Titles intended for commercialization, other than titles for professional training (1) Other titles, including professional training titles 21% 26.25% Development of e-business 24% 30% (2) Culture Quebec film or television production French-language or giant format production (3) Original production 36% 40% Foreign format 36% 36% Other productions (3) Original production 28% 32% Foreign format 28% 28% Film production services (4) 36% 36% Film dubbing 28% 35% Show production 28% 35% Production of sound recordings 28% 35% Book publishing 28% / 21.6% 35% / 27% Production of multimedia environments or events staged presented outside Québec 28% 35% Finance International financial centres 24% 24% (5) (1) The base rate includes an increase in the French premium equal to 6% before Budget and 7.5% the day following the day of the Budget Speech. (2) The tax assistance includes a refundable tax credit of 24% and a non-refundable tax credit of 6%. (3) For an original production, the rate may reach 56% with the addition of the applicable premiums, instead of the 52% applicable before Budget The Maximum rate is still 52% for foreign formats. (4) Including the 16% premium for special effects and computer animation. (5) A limit has been placed on the refundability of the tax credit that applies to the salaries of employees involved in client management activities. 8 Budget Quebec