On March 27, 2018, Carlos J. Leitão, Québec Minister of Finance, filed his fifth budget. This budget is balanced and includes investments in infrastructure and public services, particularly in education and health. Several measures put forward in this budget have fiscal implications for investors, be they individuals or companies. This summary is intended for advisors and clients alike. Here are the main measures. Measures concerning businesses 1. Tax relief for small and medium-sized businesses (SMBs) 1.1. Gradual reduction of the Health Services Fund (HSF) contribution rate for all SMBs The 2018-2019 budget proposes to amend the Act for the purpose of calculating the employer's contribution to the HSF as follows: a) The $5 million threshold applicable to a specified employer s total payroll for the purpose of determining whether the employer is eligible for the rate reduction available to SMBs would be gradually raised over the four years as of 2019, reaching $7 million in 2022. b) This threshold will be automatically adjusted each year as of 2023. c) As of 2018, a new plan to reduce the HSF contribution rates for SMBs would be implemented, which would raise the rate reduction previously announced when the March 2016 Québec Economic Plan was tabled. The proposed rates for the current year and the next four years based on SMBs total payroll are presented in the following two tables:
Cf. Ministère des Finances du Québec, Additional Information 2018-2019, page A.52 Cf. Ministère des Finances du Québec, Additional Information 2018-2019, page A.55 1.2. Standardization of the tax rates for SMBs Currently in Québec, the general tax rate applicable to corporations is 11.7%. A Canadian-controlled private corporation whose paid-up capital is $10 million or less receives a tax reduction of 3.7% on the first $500,000 of annual income the business limit which lowers the tax rate applicable to this first $500,000 of income from 11.7% to 8%. This reduced tax rate is also known as the small business deduction, or SBD.
To qualify for the SBD, a corporation must also meet a criterion pertaining to the number of remunerated hours, or be a primary and manufacturing sectors corporation. A corporation other than in primary and manufacturing sectors receives the full SBD if, as applicable: - during the taxation year, the remunerated hours of its employees totalled at least 5,500 hours; - during the previous taxation year, the remunerated hours of its employees and those of the corporations with which it was associated totalled at least 5,500 hours. A primary and manufacturing sectors corporation may also claim the additional deduction for the SBD, lowering the tax rate on such income qualifying for the SBD to 4%. The 2018-2019 budget proposes to gradually raise the SBD rate so that the tax rate applicable to the portion of a corporation s income qualifying for the SBD (currently 8%) would reach 4% in 2021. Consequently, the rate of the additional deduction for primary and manufacturing sectors SMBs will be gradually reduced and the additional deduction would be eliminated in 2021. The minimum tax rates applicable to income eligible for the SBD would be the following: Cf. Ministère des Finances du Québec, Additional Information 2018-2019, page A.62 The proposed measures would apply to the corporation s fiscal years ending after the day of the budget speech. 2. Replacement of the additional capital cost allowance of 35% by an additional capital cost allowance of 60% In 2017, an additional capital cost allowance of 35% on top of the basic allowance was introduced for manufacturing or processing equipment and general-purpose electronic data processing equipment acquired before April 1, 2019. This additional allowance was available for a two-year period. The 2018-2019 budget proposes to replace this additional allowance of 35% by an additional capital cost allowance of 60%.
This allowance of 60% would be available for a two-year period. The property in question must be new at the time of acquisition and be acquired after the day of the budget speech but before April 1, 2020. 3. Broadening the sectors of activity eligible for the tax holiday for large investment projects Currently, under certain conditions, corporations or partnerships that carry out a large investment project in Québec benefit from a tax holiday for large investment projects. As the case may be, this tax holiday corresponds to a tax exemption on the income from their eligible activities and a holiday from employer contributions to the HSF regarding the portion of wages paid to their employees that is attributable to the time they devote to such activities. The 2018-2019 budget proposes, under certain conditions, that an investment project includes the development of an eligible digital platform. An eligible digital platform would mean a computer environment that enables content management or use, that serves as an intermediary in accessing information, services or property supplied or edited by the corporation or partnership, or by a third party, and that is not tax-exempt platform. This measure would apply with regards to an investment project that would start after the day of the budget speech. 4. Enhancement of the refundable tax credit for on-the-job training periods Currently, under certain conditions, a taxpayer can claim the refundable tax credit for on-the-job training when, among other things, a student serves a training period in a business carried on in Québec by the taxpayer or a partnership of which the taxpayer is a member (eligible employer). The rate of the tax credit is 24% for eligible employers that are corporations and 12% where they are individuals. The 2018-2019 budget proposes the following measures: - Increase the rate of the refundable tax credit for on-the-job training in respect of trainees who are Aboriginal persons from 24% to 32%; - Increase the weekly qualified expenditure limits to: o o o $875 per week for trainees enrolled in a prescribed program, $1 225 per week where the trainee is a disabled person, and $700 in other cases. - Increase the maximum hourly rate of the refundable tax credit for eligible trainees to 21$ and, to 35$ for eligible supervisors. - Increase the refundable tax credit for on-the-job training periods in respect to eligible training periods in eligible regions (ex. Bas-Saint-Laurent, Saguenay-Lac-Saint-Jean, Abitibi-Témiscamingue, Gaspésie-Îles-de-la-Madeleine) from 32% to 50%. These measures would apply to qualified expenditures incurred after the day of the budget speech in respect of eligible training periods beginning after that day.
5. Introduction of a refundable tax credit to encourage qualifying training for workers employed in SMBs The 2018-2019 budget proposes to introduce, for the benefit of qualified corporations in Québec that carry on an SMB whose payroll is less than $7 million, a refundable tax credit of up to $5,460 a year for each eligible employee who participates in eligible training. This credit would apply to eligible training expenditures that a qualified corporation or the partnership incurs after the day of the budget speech and before January 1, 2023. Measures Concerning Individuals 1. Introduction of a first-time home buyers tax credit The 2018-2019 budget proposes to introduce a new non-refundable tax credit of a maximal value of $750 for the purchase of a first qualifying home located in Québec that is acquired at a particular time after December 31, 2017. The home must meet the following criteria to be considered a qualifying home: - The individual or the individual s spouse, or a specified disabled person, intends to inhabit the home as a principal place of residence not later than one year after the purchase; - The individual or the individual s spouse did not own a housing unit that was occupied by the individual in the period that began at the beginning of the fourth preceding calendar year that ended before the acquisition of the housing unit and that ended on the day before the acquisition of the housing unit. This new tax credit would be offered starting in taxation year 2018. 2. New extension, to March 31, 2019, of the eligibility period for the RénoVert tax credit Currently, a refundable tax credit is provided to individuals that have a qualified contractor carry out recognized ecofriendly renovation work on the individual s principal place of residence or on a cottage suitable for year-round occupancy that is normally occupied by the individual. This tax credit is called the RénoVert tax credit. To claim the tax credit, a renovation agreement had to be entered into with a qualified contractor after March 17, 2016 and before March 31, 2018. Capped at $10,000 per eligible dwelling, this tax credit corresponds to 20% of the portion, in excess of $2,500, of qualified expenditures paid after March 17, 2016 and before January 1, 2019. The 2018-2019 budget proposes to extend by one year the RénoVert tax credit. The deadline for entering into a work agreement with a qualified contractor would be postponed to March 31, 2019. 3. Greater access to the tax shield Currently, for the purpose of the tax shield, the maximum increase in eligible work income relative to the previous year that may be taken into account for each member of a household is set at $3 000. The 2018-2019 budget proposes to raise the maximum increase in eligible work income relative to previous year to $ 4 000, for each member of a household, as of the 2018 taxation year.
4. Enhancement of the tax credit for experienced workers The 2018-2019 budget proposes to lower from 63 to 61 the age of eligibility for the tax credit for experienced workers as of the 2018 taxation year. For the new category of workers 61 years of age, the maximum amount of eligible work income on which the tax credit would be calculated is $3 000. Moreover, the tax legislation would be amended to provide, as of the 2018 taxation year, that the maximum amount of eligible work income on which the tax credit will be calculated for experienced workers aged 62 and over would be increased by $ 1000. The following table shows the adjustment of the tax credit for experienced workers as of the 2018 taxation year: Cf. Ministère des Finances du Québec, Additional Information 2018-2019, p. A.26 5. Changes to the refundable tax credit for informal caregivers of persons of full age 5.1 More flexible refundable tax credit conditions to further recognize informal caregivers Currently, a refundable tax credit is granted to individuals who house a severely disabled relative at least 18 years of age, or an elderly relative, in order to help the relative. Individuals who co-reside with a person suffering a major loss of independence who is a relative at least 18 years of age, or an elderly spouse, may also claim this refundable tax credit. The refundable tax credit for informal caregivers of persons of full age breaks down into three components based on whether an individual houses or co-resides with a relative, or is the relative s spouse. The 2018-2019 budget proposes, as of the 2018 taxation year, the addition of a new component to the tax credit for informal caregivers who do not co-reside with the disabled person or the person suffering a major loss of independence (eligible relative).
On certain conditions, for each eligible relative, the new component of the tax credit would consist of $533 reducible on the basis of the eligible relative s income for the year for which the tax credit would be claimed. This amount would be reduced at a rate of 16% for each dollar of income that exceeds a threshold of $23,700. 5.2 Recognition of nurse practitioners respecting certification required for the purposes of the refundable tax credit for informal caregivers of persons of full age For the purposes of the new co-residency-free component of the tax credit, the informal caregivers must attach to the tax return for the year for which they claim the tax credit, the certification from a physician confirming that the eligible relative, because of the relative s severe and prolonged impairment in physical or mental functions, needs assistance in carrying out a basic activity of daily living. For the purposes of the refundable tax credit for informal caregivers of persons of full age, the 2018-2019 budget proposes that nurse practitioners would be authorized to issue certifications confirming that the eligible relative, because of the relative s severe and prolonged impairment in physical or mental functions, is unable to live alone or needs assistance in carrying out a basic activity or daily living, as the case may be. These amendments would apply as of the day of the budget speech. 6. Enhancement of the refundable tax credit for volunteer respite provided to informal caregivers The 2018-2019 budget proposes to raise the annual envelope at a person s disposal for recognition purposes, in relation to each caregiver of whom the person is an informal caregiver from $1 000 to $1 500. In addition, the budget proposes to adjust the maximum amounts given for volunteer respite provided to an informal caregiver based on the number of hours of volunteer respite services provided to the informal caregiver in respect of the care recipient: - $250 for at least 200 hours; - $500 for at least 300 hours; - $750 for at least 400 hours. 7. Enhancement of the refundable tax credit for the acquisition or rental of property intended to help seniors live independently longer The 2018-2019 budget proposes: - To reduce from $500 to $250 the threshold at which refundable tax credit may be claimed in respect of expenses paid for qualified property; - To broaden the existing list of qualified property. 8. Broadening of the tax credit for persons living alone, in order to encourage intergenerational cohabitation
The 2018-2019 budget proposes to broaden the application of the tax credit for persons living alone to an individual ordinarily living throughout the year or throughout the period of the year before the time of the person s death, in a selfcontained domestic establishment maintained by the individual and in which no person, other than the individual, a person under 18 years of age or an eligible student of whom the individual is either the father, mother, grandfather or grandmother, or the great-grandfather or great-grandmother. This measure would apply to taxation years subsequent to 2017. 9. Enhancement of the refundable tax credit for childcare expenses Currently, families who pay childcare expenses may claim a refundable tax credit compensating them for part of the expenses. However, expenses paid by a taxpayer for the purpose of providing childcare services for the taxpayer s child, in respect of which the tax credit may be claimed, may be subject to the annual limit applicable on the basis of the child s age and condition. The present limits are as follows: - $11 000 in the case of a child with a severe and prolonged impairment in mental or physical functions, - $9 000 in the case of a child under 7 years of age at the end of the year who does not have such an impairment, and - $5 000 in all other cases. The 2018-2019 budget proposes to enhance the limit applicable to childcare expenses paid in respect of a child with a severe and prolonged impairment in mental of physical functions and the limit applicable to childcare expenses paid in respect of a child who does not have such an impairment and who is under 7 years of age at the end of a year, or who would have been had the child been living. As of the 2018 taxation year, these limits would be $13 000 and $9 500, respectively. Furthermore, the 2018-2019 budget proposes the annual and automatic adjustment of the three annual limits ($13 000, $9 500 and $5 000) according to a specific index. This measure would apply as of the 2019 taxation year. 10. Extension of the tax credit for a first major cultural gift Currently, under certain conditions, a non-refundable tax credit of up to $6 250 is granted to individuals in respect of a first major cultural gift made after July 3, 2013 but before January 1, 2018. A major cultural gift means the eligible amount of a gift of money, up to $25 000, made by the individual in the taxation year or in any of the four preceding taxation years to an eligible cultural donee, if the eligible amount of the gift is at least $5 000. The 2018-2019 budget proposes to extend this tax credit for five years. Individuals would be allowed to claim this tax credit for a first major cultural gift made before January 1, 2023. 11. Correlative amendments respecting the implementation of the Aim for Employment Program The 2018-2019 budget proposes to end, as of April 1, 2018, the Youth Alternative Program and to implement the Aim for Employment Program. Benefits received under this new program would be taxable. Correlative amendments to the following fiscal measures would be made:
- Tax credit for child assistance; - Tax credit for informal caregivers of persons of full age. - Solidarity tax credit; - Premium payable under the Basic Prescription Drug Insurance Plan 12. Change to the rates of the dividend tax credit In 2015, a reduction of the general corporate tax rate was announced, gradually reducing it from 11.9% in 2015 to 11.5% in 2020. However, no change was announced at that time to the rate of the dividend tax credit for eligible dividends. Because of this general tax reduction and the increase in the small business deduction (SBD) announced as part of this budget, a gradual reduction of the dividend tax credit for eligible and non-eligible dividends was proposed. In that regard, the rate of the dividend tax credit for eligible dividends (currently 11.9%) applicable to the dividend gross-up amount would be reduced to: - 11.86% of the gross-up amount of a dividend received or deemed received after the day of the budget speech but before January 1, 2019; - 11.78% of the gross-up amount of a dividend received or deemed received in 2019; and - 11.7% of the gross-up amount of a dividend received or deemed received after December 31, 2019. Similarly, the rate of the dividend tax credit for non-eligible dividends (currently 7.05%) applicable to the dividend gross-up amount would be reduced to: - 6.28% of the gross-up amount of a dividend received or deemed received after the day of the budget speech but before January 1, 2019; - 5.55% of the gross-up amount of a dividend received or deemed received in 2019; - 4.77% of the gross-up amount of a dividend received or deemed received in 2020; and - 4.01% of the gross-up amount of a dividend received or deemed received after December 31, 2020. No change would be made to the dividend gross-up rates. Other measures 1. Measures relating to the Québec Sales Tax (QST) and E-Commerce Currently, there are no special rules under the Québec sales tax (QST) system for online transactions. Suppliers that make supplies of taxable movable property or services over the Internet are required to register for the QST only if they have a physical presence or a significant presence in Québec.
The 2018-2019 budget proposes to implement a new registration system whereby suppliers who are non-resident of Québec would be required to collect the QST on products and services supplied to Québec consumers when all taxable supplies exceed $30 000. The requirement to register would extend to digital platforms that supply products and services to Québec consumers. Non-resident suppliers required to register may elect to do so under the new specified registration system or the general registration system. Non-resident suppliers who register under the general QST system should also register under the general GST/HST system. They would then be able to claim an input tax refund in respect of property and services acquired in the course of their commercial activities. The measures would apply as of: - January 1, 2019 in the case of non-resident suppliers outside Canada. - September 1, 2019 in the case of non-resident suppliers located in Canada. 2. Changes to various parameters of Capital régional et coopératif Desjardins The 2018-2019 budget proposes to amend the Act constituting Capital régional et coopératif Desjardins so as to create a new class of shares that will carry the same rights as those of the existing class, in respect of which a non-refundable tax credit may temporarily be claimed. Shareholders who will be have the right to purchase shares of this new class are those who: - Have held shares of the existing class for at least seven years; - Have never requested the redemption of their shares; - Exchange shares of the existing class held for at least seven years for shares of the new class. The 2018-2019 budget proposes to implement a non-refundable tax credit in respect of the conversion of shares or fractional shares of Capital régional et coopératif Desjardins during the subscription periods that begin on March 1, 2018, 2019 and 2020. To be eligible for this credit during a given year, an individual must: - Have acquired, after February 28, 2018, shares or fractional shares of the new class of capital stock of Capital régional et coopératif Desjardins in a conversion period beginning in a given taxation year; - Be a resident in Québec at the end of December 31 of a taxation year in respect of which he or she converted the share or fractional shares; - File an income tax return for that year and attach a copy of the prescribed form received in that regard from Capital régional et coopératif Desjardins. This credit would correspond to 10% of the value of the shares or fractional shares converted, up to $15 000 (maximum credit of $1 500).
The non-refundable tax credit in respect of the acquisition of shares of the existing class would be reduced from 40% to 35% in respect of all shares acquired after February 28, 2018. 3. Temporary maintenance of the increased rate of the tax credit in respect of the acquisition of shares in Fondaction The 2018-2019 budget proposes to maintain the current rate of the tax credit at 20% in respect to any class A or class B share or fractional share issued by Fondaction and acquired during the three fiscal years, before June 1, 2021. 4. Adjustments to the compensation tax for financial institutions The 2018-2019 budget proposes that as of April 1, 2018: - The rates of the compensation tax applicable to wages paid by financial institutions be revised downwards; - The maximum amount of wages subject to the compensation tax be modified as follows: o o o In the case of a bank, loan corporation, trust corporation or corporation trading in securities: $1.1 billion; In the case of a savings and credit union: $550 million; In the case of any other person: $275 million. Federal Legislation and Regulation 1. Harmonization with News Release 2017-124 of the Department of Finance Canada Income Sprinkling Using Private Corporations On December 13, 2017, the Department of Finance Canada released legislative proposals aiming to restrict income sprinkling using private corporations. The proposed federal amendments broaden the application of the tax on split income to individuals aged 18 and over and to other types of income. Exclusions have also been provided for. Amendments are also proposed so that the tax on split income does not limit eligibility for the cumulative capital gains exemption. The 2018-2019 Québec budget proposes to amend the Québec tax legislation to incorporate, with adaptations on the basis of its general principles, federal legislative proposals pertaining to tax on split income. Requirements applicable to trusts The Department of Finance Canada also released legislative proposals to introduce a reporting requirement with respect to a trust s tax account number and bring in requirements for tax slips applicable to partnerships and trusts. The 2018-2019 Québec budget proposes to retain these legislative proposals for the purposes of Québec legislation. These proposals do not require legislative or regulatory amendments in all cases. The Minister of Revenue will therefore be able to require a trust account number, within the meaning of the federal tax legislation, to be provided.
2. Harmonization with certain measures announced in the federal budget of February 27, 2018 On February 27, 2018, the Minister of Finance of Canada presented his budget for 2018. The measures put forward in this budget bear on, among other things, international taxation (i.e. addition of look-through rules, rules governing foreign affiliates). Amendments were also proposed to prevent taxpayers from sustaining artificial losses using financial arrangements. The 2018-2019 Québec budget proposes to amend Québec tax legislation and regulation to incorporate these measures, with adaptations on the basis of their general principles. The Ministère des Finances du Québec will make known at a later date its position on the other tax measures announced at the time of the federal budget of February 27, 2018. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. This should not be construed to be legal or tax advice, as each client s situation is different. Please consult your own legal and tax advisor. LBC Financial Services Inc. (LBCFS) is a wholly owned subsidiary of Laurentian Bank of Canada and is a corporate entity separate from Laurentian Bank, B2B Trustco, and from Mackenzie Investments. The registered LBCFS representative is also a Laurentian Bank employee.