Quebec Budget 2009

Highlights

Monique Jérome-Forget, Quebec Minister of Finance, delivered today, March 19, 2009, the 2009/2010 Budget of the Government of Quebec. Below are the highlights of the most important tax measures included in the Budget.

Measures concerning individuals

Improvements to the refundable tax credit for child care expenses

• New rate table for calculating the tax credit
  • As of the 2009 taxation year, the new rate table for calculating the refundable tax credit for child care expenses will be modified as described below:
    • The first change will be to incorporate into the 16th bracket of the table, which was to apply to family income of over $47,860 but not over $84,040, the 17th and 18th brackets that had been provided for, thereby raising to $86,370 the cap of the 16th bracket, for which a tax credit of 60% is granted.
    • The first change will be to incorporate into the 16th bracket of the table, which was to apply to family income of over $47,860 but not over $84,040, the 17th and 18th brackets that had been provided for, thereby raising to $86,370 the cap of the 16th bracket, for which a tax credit of 60% is granted.
    • The second change will be to group in a single family income bracket, to which a rate of 57% will apply, the 14 brackets, to which a sliding rate of 54% to 28% applied, that were to follow the 18th bracket of the table, as well as the portion of family income over $102,925 but not over $124,000 that was to be included in the last bracket of the table, to which a rate of 26% applied.
    • Lastly, the portion of family income over $124,000 will be broken down into 15 family income brackets. The bottom of each of these brackets will be separated by a difference of $1,175. A rate ranging from 54% to 26%.
  • The limit on child care expenses paid for a child who is under 7 at the end of a given year, or who would have been had the child then been living, will be raised from $7,000 to 9,000 as of the 2009 taxation year.
  • As of the 2009 taxation year, an individual's child care expenses will include the expenses incurred for child care services throughout the period during which the individual or the individual's eligible spouse for the year received benefits under the Quebec Parental Insurance Plan or birth- or adoption-related benefits under the federal Employment Insurance plan or a plan established by another province.

Streamlining of the Quebec education savings incentive (QESI)

• For children of households with a family income of $38,385 or less, the rate of financial assistance under the QESI is doubled, from 10% to 20%, for the first $500 paid annually into an RESP. The basic QESI may therefore be increased by up to $50 a year. Accordingly, the maximum allowable assistance for a child of a low-income household is raised from $250 to $300 a year. For children of households with a family income of over $38,385 but not over $76,770, the basic QESI may be increased by up to $25 a year, the rate applicable to the first $500 in annual contributions paid into an RESP rising from 10% to 15%. The maximum allowable assistance for a child in a middle-income household is therefore raised from $250 to $275 a year.
• Simplification of the rules concerning RESP beneficiaries 16 or 17 years of age and facilitate the alienation of the Quebec incentive further to the transfer of all property from one RESP to another RESP.

Measures concerning corporations

Income tax holiday for a new corporation dedicated to the commercialization of intellectual property

• A ten-year income tax holiday is being introduced for new corporations incorporated in Canada after March 19, 2009 dedicated to the commercialization of intellectual property developed in Quebec universities and Quebec public research centres.

Royalty holiday for new natural gas wells

• A five-year royalty holiday of up to $800,000 per new gas well will be granted for any well put into production after March 19, 2009 and before January 1, 2011.

Extension to the forest and mining sectors of the refundable tax credit for manpower training in the manufacturing sector

• The tax credit for manpower training in the manufacturing sector will be extended to companies in the forest and mining sectors.
• Accordingly, an eligible employer can claim a refundable tax credit, for a taxation year, equal, for each eligible employee, to 30% of eligible training expenditures incurred regarding such eligible employee during such taxation year.
• These amendments will apply regarding an eligible training expenditure incurred after March 19, 2009 and before January 1, 2012.

Changes to the refundable tax credit for the development of e-business

• The notion of activities in the information technology sector will be broadened to include the activities encompassed by an additional six NAICS codes (334110, 334220, 417310, 443120, 511210, 51821 and 54510).
• The notion of activities in the information technology sector will be broadened, exclusively for the purposes of the criterion relating to the proportion of activities in the information technology sector, to include the activities encompassed by the additional six NAICS codes. Consequently, for the purposes of the criterion relating to services supplied, only the activities included under NAICS code 541510 (Computer Systems Design and Related Services) will continue to be considered.

Changes to the refundable tax credit for design

• The definition of an eligible design activity, for the purposes of the refundable tax credit for design, will be changed so that it no longer refers to the industrial sector or to the fashion sector, but rather to the design of goods made on an industrial basis.
• In this regard, the design of goods made on an industrial basis means a creative activity that stems from a systematic and documented approach that seeks to determine the formal, functional and symbolic properties of goods made on an industrial basis.
• The criterion regarding production of goods in Quebec will be withdrawn.
• These changes will apply regarding design work for goods made on an industrial basis carried out after March 31, 2009.

Application to the Mining Duties Act of the rules relating to a return in a functional currency

• The Mining Duties Act will be amended to introduce rules to allow the reporting of profit or loss in a functional currency.
• This possibility of filing a profit and loss return in a functional currency will apply to fiscal years for which the filing deadline is after March 19, 2009.

Measures concerning culture

The rate of refundable tax credits and the percentage of eligible expenditures in the cultural field will be raised after March 19, 2009:

Simplification of SODEC's certification procedure for obtaining a refundable tax credit for film production services.

Increase in the rate of the Quebec sales tax ("QST")

• The increase in the QST rate to 8.5% will be applied regarding taxable supplies in relation to which this tax will become payable as of January 1, 2011.
  • The taxable supply of movable property or a service will be subject to the QST at a rate of 8.5% if all of its consideration becomes due after December 31, 2010 and is not paid before January 1, 2011.
  • The taxable supply of an immovable by way of sale will be subject to the QST at the 8.5% rate if it is made pursuant to a written agreement concluded after December 31, 2010. The same rule is applicable in respect of the construction, renovation, alteration or repair of an immovable.

Concordant adjustments taking effect after December 31, 2010

• The effective rate of the QST is currently 7.875%, while the combined effective rate of the GST and the QST is 12.875%. With the QST rate rising to 8.5% as of January 1, 2011, these three-decimal mathematical factors will be 8.925% and 13.925%, with the result that the mathematical factors rounded off to 7.87% and 12.87% will be replaced by factors rounded off to 8.92% and 13.92% respectively as of that date.
• Small businesses whose revenues from taxable supplies do not exceed $215,000 can use a quick method to determine the net tax payable for a reporting period. To reflect the setting of the QST rate at 8.5%, the prescribed rate used for this quick accounting method will be raised to 3% for vendors of corporeal movable properties (instead of 2.7%) and to 6% for other businesses (instead of 5.3%). There is a similar measure for public service bodies.
• The rise in the QST rate will lead to changes in the mathematical factors used for the simplified method for calculating rebates regarding an expense account. Revenu Québec will specify those changes at a later date.

Increase in the refundable tax credit for the QST

• For taxation year 2009, this tax credit is worth a maximum of $356 in the case of a couple, $299 in the case of a person living alone and $178 in other cases. For taxation year 2011, the increase in the refundable tax credit for the QST may thus reach $150 in the case of a couple, $125 in the case of a person living alone and $75 in other cases.

Other measures

Major improvements to the SME Growth Stock Plan

The SME Growth Stock Plan (Accro PME) is a plan to support the capitalization of corporations that was introduced in the April 21, 2005 Budget Speech. Briefly, an individual who resides in Quebec on December 31 of a year can deduct, in calculating his taxable income, for the year, his adjusted cost of a qualifying share or a qualifying security he acquired in the course of the year and included it in his Accro PME plan no later than January 31 of the following year. However, the deduction on this account may not exceed 10% of the individual's total income for the year.

The following changes are made to Accro PME:

• Accro PME becomes "stock savings plan II" (SSP II)
• Extension of the plan for five years, i.e. until December 31, 2014.
• The tax benefit is increased. The tax legislation will be amended so that the adjusted cost of a qualifying share or a valid share, for an individual or an investment fund is raised from 100% to 150% of the cost of such share. This increase will be temporary. It will apply regarding qualifying shares and valid shares acquired after March 19, 2009 and before January 1, 2011 and included in the plan no later than January 31 following the year of their acquisition.
• Asset limit for an issuing corporation increased to $200 million instead of $100 million.
• Minimum holding period reduced by one year.
• Simplification of the procedure for registering a valid share on the AMF list.

Temporary increase in the tax credit for the acquisition of shares issued by Fondaction.

• The credit of 15% becomes a 25% credit.

Introduction of a refundable tax credit for the acquisition or lease of a new green vehicle.

• Briefly, this tax credit will be granted for a new green vehicle that, by December 31, 2015, is acquired or leased by an individual or a corporation. The value of this tax credit will be determined depending on the vehicle's environmental performance.

Quebec's tax legislation and regulations will be amended to incorporate the following measures announced in the January 27, 2009 Federal Budget:

• the deduction for loss of value of investments in a registered retirement savings plan or a registered retirement income fund after death;
• the increase in the small business limit, from $400,000 to $500,000 will apply as of the day following the day of the Budget Speech;
• the time at which the acquisition of control of a corporation takes place to determine whether it is a small business corporation or a Canadian-controlled private corporation (CCPC);
• the amendments pertaining to capital cost allowance applicable to certain assets;
• the withdrawal of the restrictions applicable to the deductibility of certain interest;
• measures relating to the Excise Tax Act: Changes will be made to the Quebec sales tax system to incorporate the federal measures concerning the simplification of the GST/HST for the direct selling industry.

Released November 28, 2008, certain measures were added to the list of measures retained in the March 13, 2008 Budget Speech. The analysis of the "other measures" referred to at that time has been completed. Accordingly, Quebec's tax legislation and regulations will be amended to incorporate the federal rules relating to the conversion of existing specified investment flow-through trusts into taxable Canadian corporations.

On November 10, 2008, the Minister of Finance of Canada released legislative proposals to implement changes to the rules of the Income Tax Act concerning reporting of income in a functional currency; Quebec's tax legislation and regulations will be amended to incorporate these measures.

PricewaterhouseCoopers contacts

For further information, call or e-mail your PricewaterhouseCoopers adviser or either of the following:

Montréal: Pierre Lessard
Québec City: Jean-François Drouin