Tax memo: QST harmonization — Draft legislation has important implications for financial services and others

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Memo No. 2012-49

On November 14, 2012, Quebec’s Minister of Finance and the Economy, Nicolas Marceau, tabled Bill 5. The bill amends the Act respecting the Québec sales tax (Act) to harmonize the Quebec Sales Tax (QST) system with the Goods and Services Tax (GST) system (to occur on January 1, 2013, and other dates as noted).

Bill 5 includes only rules that are to be harmonized with federal provisions that have been enacted or promulgated. Other rules, such as those pertaining to Selected Listed Financial Institutions (SLFIs), still in draft form, will not be introduced until after their enactment or adoption at the federal level.

Technical amendments had already been announced in the May 31, 2012, Information Bulletin 2012-4.

The general principles of QST harmonization are as follows:

• Unlike the Harmonized Sales Tax (HST), the QST remains a separate tax levied under legislation other than the Excise Tax Act (ETA).
• The main change is that supplies of financial services will become exempt starting in 2013.
• The QST rate will increase from 9.5% to 9.975% but will apply on the consideration excluding GST. Therefore, the effective rate remains the same.
• The Quebec and federal governments will lose their entitlement to an exemption on their purchases (except as noted below), starting April 1, 2013.
• Registration and reporting rules will be harmonized.
• In general, Revenu Québec will continue to administer the GST for Quebec businesses or branches and the QST for all registrants. For SLFIs, however, the Canada Revenue Agency (CRA) will administer both taxes.