2015 Issue No. 20 26 March 2015 Tax Alert Canada Quebec budget 2015-16 After six consecutive years of deficits [ ] Quebec is finally returning to budget balance in 2015-16. EY Tax Alerts cover significant tax news, developments and changes in legislation that affect Canadian businesses. They act as technical summaries to keep you on top of the latest tax issues. For more information, please contact your EY advisor. Carlos Leitão, Quebec Finance Minister Budget speech 2015-16 Quebec Finance Minister Carlos Leitão today tabled the province s 2015-16 budget titled Together, building our economy. As forecast last June and announced in December s economic update, the deficit for fiscal 2014-15 stands at $2.35 billion. The minister is aiming for a return to budget balance in 2015-16 mainly by restoring sound public finances and putting government finances in order. Spending growth of 2.3% in fiscal 2014-15 will be reduced to 1.5% for fiscal 2015-16. As the minister stated, it seems clear that budget balance cannot be achieved overnight. According to preliminary results, as at 31 March 2015, the province s gross debt should stand at $206 billion, compared with $197 billion as at 31 March 2014. As at 31 March 2015, the debt is expected to represent 54.9% of GDP and the forecast is to reduce that percentage to 49.4% in 2020. As promised, the budget contains no tax or user-fee increases. To create favourable conditions for economic growth, the minister announced new measures to ease the tax load and stimulate investment and employment. Over 20 of these were drawn directly from the report of the Quebec Taxation Review Committee. However, given current budget constraints, most of the measures will only come into effect starting in 2017. Following is a brief summary of the key tax measures.
Corporate tax measures Corporate business income tax rate Reduction of the general tax rate The general tax rate will be gradually reduced by 0.4% from 2017 to 2020. Current 2017 2018 2019 2020 11.9% 11.8% 11.7% 11.6% 11.5% Where a corporation s taxation year does not coincide with the calendar year, the tax rate effectively applicable will be a weighted rate. Small-business deduction (SBD) Despite the reduction of the general tax rate, the SBD will be maintained at 8%. However, to benefit from the SBD, for a taxation year beginning after 31 December 2016, a corporation must generally have more than three full-time employees or be a corporation in the primary and manufacturing sectors. Changes are made to the additional deduction for manufacturing small and medium-sized businesses (SMBs) to extend eligibility for the additional deduction to corporations in the primary sector. The additional deduction rate will reach 4% where the proportion of activities in the primary and manufacturing sectors is 50%, and will be reduced linearly where the proportion is between 50% and 25%. These amendments will apply for taxation years beginning after 31 December 2016. Health Services Fund The Health Services Fund contribution rate for SMEs in the service and construction sectors with a payroll of than $5 million will be reduced gradually over three years starting in 2017. Place where the property acquired is to be mainly used Rates applicable before January 1, 2017 Paid-up Paid-up capital of capital of $250 $500 million or million or more Rates applicable after December 31, 2016 Paid-up Paid-up capital of capital of $250 $500 million or million or Remote zones 32% 4% 24% 4% Eastern part of the Bas-Saint- Laurent administrative region 24% 4% 16% 4% Intermediate zones 16% 4% 8% 4% Other regions 8% 4% 0$ 0$ The Act will be amended so that equipment may qualify for the purposes of the tax credit if it is acquired before 1 January 2023. Tax credit for on-the-job training Subject to certain conditions, the base rate of the refundable tax credit for on-the-job training will be increased to 40% for corporations and to 20% for individual taxpayers. These amendments will apply in respect of a qualified expenditure incurred after the day of the budget speech relative to an eligible training period beginning after that day. Refundable tax credits for the production of multimedia titles The tax legislation will be amended to provide that the former rates of the tax credit regarding general component and specialized component will be restored to the maximum rates of 37.5% and 26.25%, respectively. In addition, the qualified labour expenditure in respect of an eligible employee may not exceed $100,000, calculated on an annual basis. However, this limit will not apply in certain circumstances. The changes to this credit will apply for expenditures incurred after 26 March 2015. For a corporation s taxation year that includes this day, the limit will be prorated. Tax credit relating to manufacturing and processing equipment The tax credit rate relating to manufacturing and processing equipment will be revised as follows: Quebec budget 2015-16 2
Refundable tax credit for the development of e-business(tceb) and addition of a nonrefundable tax credit The planned end date of 31 December 2025 for this tax credit will be eliminated. Changes will be made to provide for the exclusion of qualified wages of employees working on certain government contracts. An additional nonrefundable tax credit of 6% will be added to the current 24% refundable TCEB. These amendments will apply to wages incurred by a qualified corporation s eligible employees after the day of the budget speech. Tax credits for the cultural sector The budget restores the initial rate of 35% for refundable tax credits for the production of sound recordings, the production of performances, film dubbing, book publishing and the production of multimedia environments or events staged outside Quebec. Refundable tax credit for international financial centres (IFC)and addition of a non-refundable tax credit A number of changes will be made to the refundable tax credit for IFCs to replace it by a non-refundable tax credit of 24%, up to a maximum of $16,000 per employee. However, the refundable tax credit will be maintained for back-office activities. These amendments will apply to a corporation s taxation year beginning after the day of the budget speech. Personal tax measures Gradual elimination of the health contribution The health contribution will be gradually eliminated beginning in 2017 and will be completely eliminated by 2019. The maximum amount payable will decrease from $1,000 to $800 in 2017, then to $600 in 2018. For taxpayers with income below $40,000, the elimination will be completed in 2017. Enhancement of the tax credit for experienced workers The age of eligibility for the tax credit for experienced workers will be lowered from 65 to 63. In addition, the maximum amount of eligible work income on which the tax credit is calculated, currently set at $4,000, will be increased to $10,000 for all workers age 65 and over. This tax credit will be reducible based on work income. Introduction of a tax shield To encourage households to increase their income levels while limiting the reduction in tax incentives or credits that could result from the increase in their income, a new refundable tax credit, called the tax shield, will be implemented as of 2016. The purpose of the tax shield is to offset, further to an increase in work income, a part of the loss of the socio-fiscal transfers designed specifically to incentivize work. Increase in the eligibility age for the tax credit with respect to age The eligibility age for the tax credit will gradually be raised from 65 in 2015 until it reaches a minimum age of 70 for any taxation year after 2019. Review of the operating terms of the solidarity tax credit New measures will be taken to improve the management of the solidarity tax credit. Among them, the tax credit will be determined annually rather than monthly, based on the information contained in the tax return. However, depending on the value determined, the tax credit will be paid on a monthly, quarterly or annual basis. New assistance program for seniors to partially offset a municipal tax increase As of 2016, the Act respecting municipal taxation will be amended to provide that seniors who are long-time homeowners can, provided certain conditions are met, receive a grant to partially offset the municipal taxes on their Quebec budget 2015-16 3
residence following an increase in its value if the increase significantly exceeds the average increase for certain residential immovables for the municipal territory as a whole. Other tax measures Interposition of a trust or partnership for the purposes of preferential tax measures To counteract legal structures involving the interposition of a trust or partnership, the tax legislation will be amended to deem the attributes of a trust or partnership to be those of a corporation for the purposes of the integrity rules pertaining to certain tax credits that call into play the notions control of a corporation, persons not dealing at arm s length, associated corporation or corporation exempt from tax. These measures will apply to a taxation year ending after the day of the budget speech. Change to the calculation of a taxable benefit of an employee for the purposes of a refundable tax credit A general amendment will be made to the tax legislation so that the value of a taxable benefit may be factored into the calculation of an employee s salary or wages for the purposes of refundable tax credits only where the employer paid the value of the benefit by means of a monetary amount. This amendment will not apply to refundable tax credits in respect of which a restriction on employee benefits already exists. This amendment will apply to a taxpayer s taxation year beginning after the day of the budget speech. Changes to the rules pertaining to the 12-month time period for applying for a refundable tax credit The Tax Administration Act will be amended to withdraw Revenu Québec s discretion regarding the late filing of an application for a certificate or other document necessary for the purposes of a refundable tax credit. This amendment will apply to a taxpayer s taxation year beginning after the day of the budget speech. Changes to the compulsory disclosure mechanism for certain transactions The tax legislation will be amended to broaden the scope of the existing obligation to disclose aggressive tax planning schemes. In particular, any transaction involving conditional remuneration that is aimed at obtaining a refundable tax credit and that will result in a tax benefit of $25,000 or more will now have to be disclosed in accordance with the compulsory disclosure mechanism. With certain exceptions, these amendments will apply to transactions carried out as of the day of the budget speech. Easing of the tax provisions applicable to the transfer of family businesses Amendments will be made to the Taxation Act to ease the rule requiring the disposition of shares between related persons to be treated as a deemed dividend instead of a capital gain. This easing will be applicable where the seller claims the capital gains exemption in respect of a capital gain realized on the disposition of qualified shares in the primary and manufacturing sectors to a corporation with which the seller is not dealing at arm s length in conjunction with the transfer of a qualified family business. These amendments will apply to share dispositions after 31 December 2016. Increase in the threshold for mandatory participation in workforce skills development As of 2015, only employers whose total payroll for a year exceeds $2 million (formerly $1 million) will be required to participate in the development of workforce skills. Quebec sales tax The QST regime will be amended to phase out restrictions, from 2018 to 2021, on input tax refunds in respect of certain goods and services applicable to large corporations. Quebec budget 2015-16 4
Harmonization measures Quebec tax legislation will be amended to incorporate the amendments announced on 1 March 2015 by the federal Department of Finance with respect to the eligibility of certain expenses incurred as Canadian exploration expenses. Learn more For more information, please contact your EY or Couzin Taylor advisor or one of the following professionals: Stéphane Leblanc, Montreal +1 514 879 2660 stephane.leblanc@ca.ey.com Sandy Maag, Montreal +1 514 874 4377 sandy.maag@ca.ey.com André Vézina, Quebec +1 418 640 5127 andre.vezina@ca.ey.com Esther Gaulin, Quebec +1 418 640 5115 esther.gaulin@ca.ey.com And for up-to-date information on the federal, provincial and territorial budgets, visit ey.com/ca/budget. EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. About EY s Tax Services EY s tax professionals across Canada provide you with deep technical knowledge, both global and local, combined with practical, commercial and industry experience. We offer a range of tax-saving services backed by in-depth industry knowledge. Our talented people, consistent methodologies and unwavering commitment to quality service help you build the strong compliance and reporting foundations and sustainable tax strategies that help your business achieve its potential. It s how we make a difference. For more information, visit ey.com/ca/tax. About Couzin Taylor Couzin Taylor LLP is a national firm of Canadian tax lawyers, allied with Ernst & Young LLP, specializing in tax litigation and tax counsel services. For more information, visit couzintaylor.com. 2015 Ernst & Young LLP. All Rights Reserved. A member firm of Ernst & Young Global Limited. This publication contains information in summary form, current as of the date of publication, and is intended for general guidance only. It should not be regarded as comprehensive or a substitute for professional advice. Before taking any particular course of action, contact EY or another professional advisor to discuss these matters in the context of your particular circumstances. We accept no responsibility for any loss or damage occasioned by your reliance on information contained in this publication. ey.com Quebec budget 2015-16 5