Highlights

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Michel Audet, Québec Minister of Finance, delivered today, March 23, 2006, the 2006/2007 Budget of the Québec Government. Below are the highlights of the most important tax measures included in the Budget.

The budget does not modify the income tax rates for individuals and the rate of the Quebec sales tax.

Measures concerning individuals

• The maximum amount of the deduction for workers will be doubled, from $500 to $1,000, as of the 2007 taxation year.
  
  
• Québec legislation will be modified and harmonized with the federal changes announced on November 23, 2005 concerning the tax treatment applicable to certain taxable dividends paid to individuals (dividends out of income taxed at the general corporate income tax rate). The following changes will apply to eligible dividends that are paid or are deemed to have been paid after March 23, 2006:
  
  
  • the gross-up of dividend income is increased from 25% to 45% and
  • the Québec dividend tax credit will be increased from 10.83 % to11.9% of the gross-up dividend.

The Québec dividend tax credit applicable to a dividend other than an eligible dividend will be reduced to 8% of the grossed-up dividend, applicable for dividends that are paid or are deemed to have been paid after March 23, 2006.

• The tax legislation will be amended to enable employers to deduct, in the calculation of their income from a business, an additional amount equal to 100% of an amount, otherwise deductible in the calculation of their income, relating to employee transit passes and to specify that the reimbursement to the employee does not constitute a taxable benefit. This measure is generally applicable for reimbursements to the employee made after March 23, 2006.

• The tax legislation will be amended, as of the 2006 taxation year, to reduce the threshold above which the tax credit for donations and gifts applies to a rate of 24%. More specifically, the threshold of $2,000 will be lowered to $200.

• The rate to calculate the tax credit respecting the acquisition of Capital régional et coopératif Desjardins shares will be lowered from 50% to 35% for shares acquired after March 23, 2006. Thus, the maximum amount that individuals may deduct in the calculation of their income tax payable will decrease from $1,250 to $875.

• The refundable tax credit for home support for elderly persons will be increased.

• The small tax rate applicable to the business ceiling of corporations (first $400,000 of annual income from an eligible business) will be reduced, from 8.5% to 8%, as of March 24, 2006. The rate reduction will apply in proportion to the number of days of such taxation year following that day.

• The tax legislation will be amended to extend the carry-forward period for donations made by corporations from five to 20 years.

• Changes are introduced to the refundable tax credit for major job-creating projects, especially regarding the treatment in situations of business reorganization and business continuation.

• Changes are made to the SME Growth Stock Plan to clarify the eligibility period of a holding corporation.

• The criteria of installation activities is eliminated for several refundable tax credits granted for job creation in resource regions.

• Technical adjustments to various refundable tax credits for R&D expenses are announced, including:
  
  
  • the tax credit for R&D salary;
  • the refundable tax credit for university R&D;
  • the refundable tax credit for pre-competitive R&D;
  • the refundable tax credit for Québec film and television production regarding television series;
  • the fiscal measures relating to carrying out eligible activities in a designated site.

• Introduction of a refundable tax credit for private partnership pre-competitive research.

• Rate of the capital tax credit will be raised from 5% to 15% regarding eligible investments in this sector, i.e. assets acquired after March 23, 2006 and before January 1, 2010. (subject to transitional rules)

• Introduction of a temporary refundable tax credit for the construction or major repair of public access roads and bridges in forest areas equal to 40% of the amount of eligible expenses. The expenses must be incurred by a corporation or a partnership after March 23, 2006 and before January 1, 2011. (subject to transitional rules and governmental approvals)

• Introduction of a deferral for the averaging of a portion of the income derived from the sale, to a buyer with an establishment in Québec, of timber relating to the operation of a private woodlot, for a period of not more than four years.

• Changes will be made to the calculation of forest royalties. The Minister of Natural Resources and Wildlife will soon release other measures designed to encourage silvicultural investments, along with the related terms and conditions.

• Introduction of a tax credit for the hiring of employees specializing in financial derivatives regarding eligible salary paid by an eligible corporation after March 23, 2006.

• Technical changes concerning international financial centres, some of them retroactive to transactions carried out after December 31, 2000.

• The moratorium concerning the issuance of Capital régional et coopératif Desjardins shares will be lifted on March 24, 2006.

• Certain aspects of the new Cooperative Investment Plan will be made more flexible.

• Refund of the fuel tax paid on acquisition of biodiesel fuel is allowed to all consumers.

• Introduction of a refund of the QST paid in respect of the sale or leasing of new fuel-efficient hybrid vehicles, up to a maximum of $1,000. However, this refund may not be claimed by a person who is a registrant under the QST system, or by a person who is entitled to a refund of the QST paid in respect of this sale or leasing under other provisions of this system. This measure will apply after March 23, 2006 and before January 1, 2009.

• Adjustments are made to the public utilities tax. These changes relate to the sale of assets that are part of a network and to the rate table for telecommunications networks.

• The tax legislation will be amended to stipulate that, in the calculation of the penalty for false statements or omissions, an amount deducted to amortize the capital cost of a property or an amount deducted in regard to the eligible portion on intangible assets will not be taken into account.