Choose a building block. Wolters Kluwer Canada. Quebec 2017 Budget Dispatch A BUDGET FOR TODAY AND TOMORROW

Choose a building block. Wolters Kluwer Canada Quebec 2017 Budget Dispatch A BUDGET FOR TODAY AND TOMORROW

Wolters Kluwer Canada Date: March 28, 2017 Disclaimer Readers are urged to consult their professional advisers prior to acting on the basis of material in the Dispatch. Copyright 2017 Wolters Kluwer. All Rights Reserved. 2 WOLTERS KLUWER CANADA 2017 Wolters Kluwer. All Rights Reserved.

Content 1 A BUDGET FOR TODAY AND TOMORROW 5 2 PERSONAL INCOME TAX 6 2.1 Elimination of the Health Contribution for Low- and Middle-income Taxpayers 6 2.2 Increased Basic Tax Credit 6 2.3 Simplification of Personal Tax Credits 6 2.4 Tax Credit for Persons Living Alone, with respect to Age and for Retirement Income 6 2.5 Tax Credits for Dependants 7 2.6 Adjustment of the Basic Tax Credit following Receipt of an Income Replacement Indemnity 7 2.7 Clarifications Concerning Source Deductions of Income Tax 7 2.8 Presumption of Residence 7 2.9 Refundable Tax Credit for Childcare Expenses 7 2.10 Eligibility Period of RénoVert Tax Credit 7 2.11 Temporary Refundable Tax Credit for the Upgrading of Residential Waste Water Treatment Systems 8 2.12 Inhabitants of the Communauté Maritime des Îles-de-la-Madeleine 8 3 MEASURES CONCERNING BUSINESS 9 3.1 Hours Worked Criterion of the Small Business Deduction ( SBD ) 9 3.2 Additional Deduction for Transportation Costs of Certain Remote Manufacturing Small and Medium-sized Enterprises ( SMEs ) 9 3.3 Additional Deduction for Transportation Costs of all SMEs Located in the Special Remote Area 9 3.4 Tax Holiday for Large Investment Projects 9 3.5 Election enabling an Additional Phase to be added to a Large Investment Project 10 3.6 Additional Capital Cost Allowance of 35% 10 3.7 Refundable Tax Credit for Québec Film or Television Production 10 3.8 Refundable Tax Credit for Film Production Services 11 3.9 Applicability Condition for the Refundable Tax Credit for the Production of Multimedia Events or Environments staged outside Québec 11 3.10 Refundable Tax Credit for Corporations specialized in the Production of Multimedia Titles 11 3.11 Refundable Tax Credits aimed at encouraging the Creation of New Financial Services Corporations 11 3.12 Refundable Tax Credit for the Production of Ethanol in Québec 11 3.13 Major Investments by Fondaction in Social Economy Enterprises 12 3.14 Eligible Investments by Capital régional et coopératif Desjardins in the Société en commandite Essor et Coopération 12 4 TAX EVASION AND RELATED MEASURES 13 4.1 Passenger Transportation Services 13 4.2 Tourist Accommodation Sector 13 4.3 Criminal and Penal Case Processing and Court Procedures 13 5 OTHER MEASURES 14 5.1 Extension of the Compensation Tax for Financial Institutions 14 WOLTERS KLUWER CANADA 2017 Wolters Kluwer. All Rights Reserved. 3

5.2 Allowance for Community Consultations in the Mining Tax Act 14 5.3 Territorial Designation of the Northern Plan in Tax Measures Specific to the Mining Sector 14 4 WOLTERS KLUWER CANADA 2017 Wolters Kluwer. All Rights Reserved.

1 A BUDGET FOR TODAY AND TOMORROW We are going to continue implementing our plan to improve the quality of life of all Québecers. With this budget, we are investing more in public services, in better access to the health network and for more quality services. We are also developing our public transit network. Lastly, we are continuing to reduce the tax burden on taxpayers. Carlos J. Leitão, Minister of Finance Québec s Finance Minister Carlos J. Leitão presented Budget 2017 A Budget for Today and Tomorrow ( Budget 2017 ) on March 28, 2017. Total government revenue is forecast at $106.3 billion in 2017-2018, with total expenses of $106.3 billion. Budget 2017 projects a surplus of $250 million for this year and balanced budgets in subsequent years. A number of tax measures were introduced in Budget 2017, highlights of which are outlined below. WOLTERS KLUWER CANADA 2017 Wolters Kluwer. All Rights Reserved. 5

2 PERSONAL INCOME TAX 2.1 Elimination of the Health Contribution for Low- and Middle-income Taxpayers The health contribution will be eliminated retroactively, effective as of 2016, for all adults whose income does not exceed $134,095. Also effective for 2016 and the following years, adults whose income was greater than $134,095, other than exempt individuals, will pay a reduced health contribution equal to the lesser of $1,000 or 4% of the amount by which their income for the year exceeds $134,095. Revenu Québec will be responsible for cancelling the health contribution amount payable by individuals with an income not exceeding $134,095 for 2016 and for recalculating the amount to be paid by individuals with an income greater than $134,095 for that year. A new notice of assessment for 2016 will be sent not later than June 30, 2017. 2.2 Increased Basic Tax Credit The basic tax credit granted to all individuals, other than trusts, is being increased. Currently, the basic tax credit enables individuals to reduce their income tax payable by $2,327. The threshold above which income tax would generally become payable in Québec for the 2017 taxation year (the zero-tax threshold ) corresponds to taxable income of $14,544. Budget 2017 raises the zero-tax threshold to $14,890 as of the 2017 taxation year, resulting in a credit of $2,382 (an increase of slightly over $55). 2.3 Simplification of Personal Tax Credits Currently, the Québec tax system is the only system in Canada that uses the rate applicable to the second taxable income bracket (20% in the province) to calculate personal tax credits. To simplify this, amendments will be made so that personal tax credits are calculated according to the rate applicable to the first taxable income bracket in Québec (16%) with no reduction in the value of the personal tax credits. Accordingly, each of the amounts granted for the purpose of calculating the other personal tax credits will be increased so that it represents, to the nearest upper dollar, 125% of the amount that would have been applicable for the 2017 taxation year. Eligible medical expenses, eligible expenses to obtain medical care not provided in the region where an individual lives, and interest paid on a student loan will continue to be converted into a tax credit at the rate of 20%. The same is true of the first $200 in gifts included in the calculation of the tax credit for gifts. As of the 2018 taxation year, each of the amounts granted for the purpose of calculating personal tax credits will be automatically indexed each year. 2.4 Tax Credit for Persons Living Alone, with respect to Age and for Retirement Income Two changes will be made to the terms of calculation of this tax credit as of the 2017 taxation year: First, for the purposes of the retirement income component of the credit, the aggregate of the amounts (each of which represents eligible retirement income of an individual) must be raised by 25%; Second, the reduction rate based on household income will increase from 15% to 18.75%. 6 WOLTERS KLUWER CANADA 2017 Wolters Kluwer. All Rights Reserved.

2.5 Tax Credits for Dependants To take into account the fact that the rate at which the amount for minor children engaged in vocational training or post-secondary studies and the amount for other dependants are converted into tax credits will drop from 20% to 16%. The correction factor respecting a dependant s income will be removed as of the 2017 taxation year. 2.6 Adjustment of the Basic Tax Credit following Receipt of an Income Replacement Indemnity To account for the changes to the amount used to calculate the basic tax credit and the rate for converting that amount into a tax credit, changes will be made to the various methods of calculating an adjustment relating to covered benefits. 2.7 Clarifications Concerning Source Deductions of Income Tax For the 2017 taxation year, income tax must be deducted at source as if the amounts used to calculate personal tax credits had not been increased and the rate applicable to the first taxable income bracket of the personal income tax table had not been retained as the rate for converting these amounts into tax credits. Amendments will be made to the legislation and regulations to confirm this procedure. In addition, the legislation and regulations will be amended, for the purpose of determining source deductions of income tax for a taxation year subsequent to the 2017 tax year, in order to give full effect to the general tax reduction (the increased basic tax credit) and the simplified calculation of personal tax credits. 2.8 Presumption of Residence Currently, the legislation states that the child of an individual, who is deemed to be resident in Québec because of his or her duties, is also deemed to be resident in Québec, provided the child is the individual s dependant and the child s income for the year does not exceed a certain threshold. For the purposes of this presumption, the limit on the child s income for a taxation year subsequent to the 2016 taxation year will be established on the basis of $9,582, which will be automatically indexed each year as of January 1, 2018. 2.9 Refundable Tax Credit for Childcare Expenses For the purposes of this tax credit, the definition of eligible child will be amended as of the 2017 taxation year to state that an eligible child of an individual for a taxation year means a child of the individual or the individual s spouse, or a child who is a dependant of the individual or the individual s spouse, and whose income for the year does not exceed $9,582, and who is under 16 years of age at any time during the year, or has a mental or physical infirmity and is dependent upon the individual or the individual s spouse. The $9,582 amount will be automatically indexed each year as of January 1, 2018. 2.10 Eligibility Period of RénoVert Tax Credit Currently, only expenditures attributable to the carrying out of recognized eco-friendly renovation work stipulated in an agreement entered into after March 17, 2016, and before April 1, 2017, with a qualified contractor having an establishment in Québec may be included in the calculation of qualified expenditures under the RénoVert tax credit. The Minister of Finance announced that the period during which a renovation agreement may be entered into with a qualified contractor for the purposes of the RénoVert credit will be extended by one year to March 31, 2018. Renovation agreements entered into after March 31, 2017, and before April 1, 2018, may relate to all eco-friendly renovation work currently recognized for the purposes of the RénoVert tax credit, with the exception of the construction, renovation, modification, or rebuilding of a system for the discharge, collection and disposal of waste water, toilet effluents, or grey water (a new refundable tax credit will apply to such work as of April 1, 2017). WOLTERS KLUWER CANADA 2017 Wolters Kluwer. All Rights Reserved. 7

2.11 Temporary Refundable Tax Credit for the Upgrading of Residential Waste Water Treatment Systems To financially assist owners who must undertake work to upgrade their septic systems, a new refundable tax credit for the upgrading of residential waste water treatment systems will be introduced temporarily. Financial assistance under this tax credit, which may reach $5,500 per eligible dwelling, will correspond to 20% of the portion in excess of $2,500 of qualified expenditures paid by an individual to have recognized work carried out to upgrade the waste water treatment system of the individual s principal residence or the individual s cottage. This tax credit will apply to individuals who have a qualified contractor carry out such work under a service agreement entered into after March 31, 2017, and before April 1, 2022. 2.12 Inhabitants of the Communauté Maritime des Îles-de-la-Madeleine To recognize that the cost of living in certain areas is higher than elsewhere because of their remote location, the province s tax system grants inhabitants of these areas a special deduction in the calculation of their income. This deduction is for individuals who usually reside in a designated remote area throughout a period of not less than six consecutive months. It is composed of a residency component to which is added a travel component for inhabitants who, because of their employment, receive certain taxable benefits regarding their travel outside the area. The amount that may be claimed by an individual depends on the area in which the individual is resident. Amounts are granted in full to inhabitants of the northernmost areas (northern zones) and reduced by 50% for inhabitants of intermediate zones. Québec s designated northern zones are the areas that lie north of 51 05 north latitude and those north of the Gulf of St. Lawrence and east of 63 00 west longitude. Québec s intermediate zones include certain territories adjacent to Québec s northern zones and the Magdalen Islands. The tax regulations will be amended so that the Magdalen Islands are considered northern zones as of the 2017 taxation year. 8 WOLTERS KLUWER CANADA 2017 Wolters Kluwer. All Rights Reserved.

3 MEASURES CONCERNING BUSINESS 3.1 Hours Worked Criterion of the Small Business Deduction ( SBD ) The application of the hours worked criterion to determine the qualification for the SBD is being replaced with a new qualification criterion based on the minimum number of hours paid. This change will apply to corporate taxation years that commence after December 31, 2016. 3.2 Additional Deduction for Transportation Costs of Certain Remote Manufacturing Small and Medium-sized Enterprises ( SMEs ) To provide more assistance to SMEs operating in remote areas, particularly the special remote area, the 7% additional deduction for transportation costs currently afforded to those SMEs will be increased to 10%. This additional deduction will apply to taxation years beginning after March 28, 2017. 3.3 Additional Deduction for Transportation Costs of all SMEs Located in the Special Remote Area An additional deduction is introduced for transportation costs of certain SMEs operating in the special remote area. All Canadian-controlled private corporations whose paid-up capital, calculated on a consolidated basis, is less than $15 million may qualify for an additional deduction of up to 10% of their gross income. Paid-up capital, calculated on a consolidated basis, must not exceed $10 million to be eligible for the full deduction. Eligible corporations may benefit partially from the deduction for a taxation year where their paid-up capital, calculated on a consolidated basis for the year, is between $10 million and $15 million--the additional deduction will be reduced accordingly with the parameters currently in effect for the additional deduction for transportation costs of remote manufacturing SMEs. The SME must show that 50% of its cost of labour or over 50% of its cost of capital for the taxation year is attributable to carrying on business in the special remote area. SMEs will not be able to claim both the additional deduction for transportation costs mentioned above and this new credit. This new deduction will be available to an eligible corporation whose taxation year commences after March 28, 2017. 3.4 Tax Holiday for Large Investment Projects A corporation that carries out a large investment project in Québec may, under certain conditions, claim a tax holiday in respect of the income from its eligible activities relating to the project and a holiday from certain employer contributions to the Health Services Fund. This holiday may also apply to a partnership that qualifies, as well as a corporation that is a member of the partnership. Such a corporation may receive a tax holiday in respect of its share of the income from eligible activities of the partnership relating to the project. Such a tax holiday lasts 15 years. Currently, to claim the tax holiday a qualifying corporation must apply for an initial qualification certificate before November 20, 2017. The budget proposes that this timeline be extended so that a qualifying corporation has until December 31, 2020, to apply. WOLTERS KLUWER CANADA 2017 Wolters Kluwer. All Rights Reserved. 9

This amendment will apply to projects for which an application for initial qualifying certificate is filed after March 28, 2017. 3.5 Election enabling an Additional Phase to be added to a Large Investment Project Corporations that qualify for a tax holiday under the above provision are being granted a similar tax holiday for new activities that would also qualify under the parameters of the program. These are referred to as Phase II activities and must qualify the same way as the original project and activities, and must be applied for not later than the date on which the application for the first annual certificate relating to Phase I was issued, and before January 1, 2021. Other restrictions and regulations apply. These amendments will apply as of March 29, 2017. 3.6 Additional Capital Cost Allowance of 35% Corporations purchasing property that consists of general-purpose electronic data processing equipment and systems software for that equipment, as well as property that consists of machinery and equipment acquired mainly with a view to using them for manufacturing and processing goods intended for sale or lease, will be allowed an additional deduction of up to 35% of the amount of capital cost allowance claimed on that equipment in the year. The special deduction will only be available for a two year period: the year the asset is acquired and the immediate following year. As well, the property must be used for a period of 730 consecutive days following the date the property is first put to use. Failure to retain use for 730 days will result in the imposition of a special tax of the amount of the additional capital cost allowance claimed. Other rules apply. These changes will apply to qualifying property acquired after March 28, 2017, and before April 1, 2019. 3.7 Refundable Tax Credit for Québec Film or Television Production The extra regional credits are being increased from the current 8% to 10% in those regions that currently qualify for the 8% credit increase and to 20% in those regions that qualify for the current additional credit of 16%. The no-public funding credit will increase from 8% to 16%. The special effects credit will increase from 8% to 10%. The maximum rate of the tax credit for a film that is not adapted from a foreign format becomes 66%, whereas the maximum rate of the tax credit for a film that is adapted from a foreign format becomes 62%. These changes apply to productions for which an advance ruling is submitted to SODEC after March 28, 2017. 10 WOLTERS KLUWER CANADA 2017 Wolters Kluwer. All Rights Reserved.

3.8 Refundable Tax Credit for Film Production Services The government is proposing to change the parameters under which the tax credit for film production services is granted. The category of eligible small-budget productions will be eliminated, and Magazine and variety-type programs will no longer be eligible. The categories that still qualify will have their entitlements lowered. These changes will apply in respect of an eligible production for which an application for an approval certificate is filed with the Société de développement des entreprises culturelles ( SODEC ) after March 28, 2017. 3.9 Applicability Condition for the Refundable Tax Credit for the Production of Multimedia Events or Environments staged outside Québec To qualify for this credit, certain conditions must be met. The condition that requires the absence of an establishment in Québec for the co-contractor is eliminated. The co-contractor must, however, be someone with which the corporation is dealing at arms-length. This condition will apply in respect of an eligible production whose first public performance takes place after March 28, 2017, and for which an application for an advance ruling or an application for a certificate is submitted to SODEC after that day. 3.10 Refundable Tax Credit for Corporations specialized in the Production of Multimedia Titles Budget 2017 proposes to ease the rules for certain productions to qualify for the credit where components of the production are eligible multimedia titles. The changes are in effect for applications for a specialized corporation certificate submitted to Investissement Québec after March 28, 2017. 3.11 Refundable Tax Credits aimed at encouraging the Creation of New Financial Services Corporations One of the criteria for a new financial services corporation to qualify for this credit is to file an application with the Minister of Finance no later than December 31, 2017. Budget 2017 proposes to extend this limit to December 31, 2022. The fees relating to the constitution of a prospectus required by a recognized regulatory or selfregulatory organization of a financial market will now be eligible for the credit, as well as the fees paid to a compliance consultant to ensure compliance with the requirements of a recognized regulatory or self-regulatory organization of a financial market. These changes apply to qualifying expenses arising during the qualifying period and after March 28, 2017. 3.12 Refundable Tax Credit for the Production of Ethanol in Québec To qualify for the production of ethanol in Québec tax credit, the production by a qualified producer must take place no earlier than April 1, 2006, and end no later than March 31, 2018. However, a WOLTERS KLUWER CANADA 2017 Wolters Kluwer. All Rights Reserved. 11

qualified corporation cannot claim the tax credit for more than ten years. This period is being extended to cover the full time period from April 1, 2006, to March 31, 2018, so for a full 12 years. This change applies to all qualified companies whose taxation year ends after March 28, 2017. Budget 2017 also proposes to extend this credit to the production of biodiesel fuel. The biodiesel fuel must be produced and sold after March 31, 2017, and before April 1, 2018. Other rules apply. 3.13 Major Investments by Fondaction in Social Economy Enterprises Budget 2017 will change the maximum that Fondaction can invest in social economy enterprises, within the meaning of the Social Economy Act. This change applies to any year of Fondaction beginning after May 31, 2016. 3.14 Eligible Investments by Capital régional et coopératif Desjardins in the Société en commandite Essor et Coopération Budget 2017 will change the statute of incorporation of Capital régional et coopératif Desjardins to facilitate the increased investment of qualified funds in the Société en commandite Essor et Coopération to a total of $85 million. These assets may, however, not exceed 12% of the fund s net assets as at the end of the preceding year. 12 WOLTERS KLUWER CANADA 2017 Wolters Kluwer. All Rights Reserved.

4 TAX EVASION AND RELATED MEASURES 4.1 Passenger Transportation Services The government announced that starting at the end of 2019, sales recording modules will be implemented in all vehicles offering passenger transportation services, whether they be conventional taxis or ride sharing vehicles (such as Uber). The recorder will collect and record information on vehicle operation for each driver and transmit the information to Revenu Québec in real time. 4.2 Tourist Accommodation Sector In light of the growth of rentals through online marketplaces like Airbnb, the government intends to delegate a part of the Ministère du Tourisme s inspection powers to Revenu Québec to ensure compliance with the legislation and with the operators tax obligations. Revenu Québec will deploy an additional team of auditors to carry out awareness, inspection, and investigation activities addressed specifically to these operators. 4.3 Criminal and Penal Case Processing and Court Procedures To expedite criminal and penal case processing, especially considering the Jordan v. R. decision of the Supreme Court of Canada fixing the wait times for trials, the Québec government announced the following measures: an increase of more than 570 employees for the Directeur des poursuites criminelles et pénales, the Ministère de la Sécurité publique, and court houses; the opening of seven court rooms in 2017; an increase in the number of judges in Québec courts; additional staffing for Revenu Québec for case processing in penal prosecutions; and additional staffing for the Autorité des marchés financiers. Legislative amendments will also be proposed amending the rules for summary appeals in tax matters before the Small Claims Division of the Court of Québec in order to: enable small businesses with ten employees or fewer to contest an assessment of less than $15,000; raise from $4,000 to $15,000 the maximum eligibility threshold applicable to individuals; provide for Revenu Québec to transmit to taxpayers, prior to the hearing, its arguments (legislation, regulations, position defended, and supporting documents); provide for the court to take such case processing measures as it deems appropriate to conciliate between the parties during the hearing or at a case settlement conference; refer the parties to alternative dispute resolution methods (recourse to mediation); and enable a taxpayer who is a natural person, if prevented from acting, to be represented by his or her spouse, a relative, a person connected by marriage or civil union, or a friend. WOLTERS KLUWER CANADA 2017 Wolters Kluwer. All Rights Reserved. 13

5 OTHER MEASURES 5.1 Extension of the Compensation Tax for Financial Institutions For taxation years beginning before April 1, 2019, a financial institution must pay a compensation tax that was scheduled to be eliminated as of March 31, 2019, but will now be extended until March 31, 2024. The current compensation tax rates will be maintained for an additional period of five years and will continue to apply until March 31, 2022. The 2.8%, 2.2%, 0.9%, and 0.3% compensation tax rates initially prescribed for the period beginning April 1, 2017, will now apply to their respective tax bases for the period from April 1, 2022, to March 31, 2024. 5.2 Allowance for Community Consultations in the Mining Tax Act To provide additional support to businesses at various stages in the development of their projects, an allowance for expenses related to community consultations will be introduced into the mining tax regime. This allowance will be taken into account in calculating the operator s annual profit or annual loss. The allowance will apply to an operator s fiscal year ending after March 28, 2017, in respect of consultation expenses incurred after that day. 5.3 Territorial Designation of the Northern Plan in Tax Measures Specific to the Mining Sector To ensure that the territorial designations assigned to the Northern Plan territory and those used in the Taxation Act and the Mining Tax Act are harmonized, the concept of Near North, to which these two statutes refer, will be modified to enlarge its territory southward, while the concept of Far North to which these two statutes also refer, will remain unchanged. Specifically, Near North will designate the territory located in Québec north of 49 north latitude and north of the St. Lawrence River and the Gulf of Saint Lawrence, and south of the territory of the Far North. These changes will apply in respect of exploration expenses incurred after March 28, 2017. This Dispatch Letter and other official Budget 2017 documents will be included on Intelliconnect and with the next DVD. 14 WOLTERS KLUWER CANADA 2017 Wolters Kluwer. All Rights Reserved.