Tax memo: 2013 Quebec budget tax highlights

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Highlights

Memo No. 2012-47

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On November 20, 2012, Nicolas Marceau, Quebec Minister of Finance, delivered the 2013/2014 Budget of the Government of Quebec. Below are the highlights of the most important tax measures included in the budget.

Measures concerning businesses | Measures concerning individuals | Other measures

Measures concerning businesses

  • No changes to tax rates for businesses.
  • Implementation of a tax holiday for large investment projects – the THI
  1. A corporation or a partnership that, after the day of the Budget Speech, enters into a large investment project in Quebec may, under certain conditions, benefit from a tax holiday regarding tax on the income from its eligible activities relating to such project and from a holiday from employer contributions to the HSF regarding the portion of wages paid to its employees that is attributable to the time they spend on such activities.
  2. This tax holiday will last for ten years and may not exceed 15% of the total eligible investment expenditures relating to such project.
  3. To qualify as a large investment project, an investment project must, in particular, concern activities in the manufacturing, data processing and storage, wholesale trade or warehousing sectors.
  4. In addition, the investment project must satisfy a requirement that a minimum investment threshold of $300 million be achieved and maintained.
  5. A corporation will have to obtain an initial certificate as well as annual certificates issued by the Minister of Finance and the Economy.
  • Elimination of the tax holiday for a major investment project will be effective the day of the Budget Speech.
  • Improvement to the tax credit for investments relating to manufacturing and processing equipment
  1. Extension until 2017 of the tax credit for investments relating to manufacturing and processing equipment
  2. The tax credit rate allowed for qualified property for use mainly in the eastern part of the Bas-Saint-Laurent administrative region or in an intermediate zone will be increased by five percentage points in certain circumstances.
  3. This further increase in the tax credit rate for investments will apply for eligible expenses incurred regarding qualified property acquired after the day of the Budget Speech.
  • Temporary increase from 17.5% to 27.5% in the rate of the refundable tax credit for R&D salary relating to biopharmaceutical activities for expenditures incurred and work carried out before January 1, 2018.

Measures concerning individuals

  • Increase of health contribution
  1. As of 2013, the health contribution payable for a particular year by an adult, other than an exempt adult, resident in Quebec at the end of the year will be equal to:
    • where the adult’s income for the year is not over $40,000, the lower of $100 and 5% of the amount by which his or her income exceeds $18,000;
    • where the adult’s income for the year is over $40,000 without exceeding $130,000, the lower of $200 and the aggregate of $100 and 5% of the amount by which his or her income exceeds $40,000;
    • where the adult’s income for the year is over $130,000, the lower of $1,000 and the aggregate of $200 and 4% of the amount by which his or her income exceeds $130,000. As of 2013, the health contribution will be subject to a source deduction.
  • Additional income tax for high-income individuals
  1. As of the 2013 taxation year, a fourth level will be added to the personal income tax table. A rate of 25.75% will apply to this level, which will be comprised of the taxable income bracket over $100,000.
  • Increase in the rate applicable to the calculation of the income tax payable by an inter vivos trust
  1. The rate for determining the income tax payable by an inter vivos trust (including a mutual fund trust and a specified investment flow-through trust) will be raised from 24% to 25.75% as of the 2013 taxation year.
  2. To reflect the fact that the applicable tax rate for inter vivos trusts will be increased by 1.75 percentage points as of the 2013 taxation year, the tax rate to which inter vivos trusts not resident in Canada will be subject on their property income derived from the rental of an immovable property located in Quebec used primarily for the purposes of earning or producing gross revenue that constitutes rent will be raised from 5.3% to 7.05% as of the 2013 taxation year.
  • Additional information
  1. Various amendments must be made to the tax legislation to reflect the fact that the personal income tax table will include a fourth level of taxation as of the 2013 taxation year.
    • Tax rate respecting split income of children
    • Special tax rate relating to an income-averaging annuity payment derived from artistic activities
    • Tax rate on excess profit sharing plan amounts
    • Capital gains inclusion rate for the purposes of calculating the alternative minimum tax
    • Applicable rate for the purposes of the calculation of the refundable tax credit for child care expenses of an individual resident in Canada outside Quebec
    • Mechanisms applicable to the disposition of taxable Quebec property by non-residents
  • A refundable tax credit for the activities (Fitness and Arts) of children from families whose income does not exceed $130,000 will be gradually implemented as of the 2013 taxation year. The tax credit of 20% can reach in 2017 $100 per child when fully implemented. The limit on eligible expenses for the refundable tax credit will be set at $100 for the 2013 taxation year and, subsequently, will be gradually increased by $100 a year until $500 per child is reached as of the 2017 taxation year.

Other tax measures

  • Increase in the specific tax on tobacco products
    1. effective midnight the day of the Budget Speech:
      • the rate of the specific tax of 10.9 cents per cigarette will be raised to 12.9 cents per cigarette;
      • the rate of the specific tax of 10.9 cents per gram of loose tobacco or leaf tobacco will be raised to 12.9 cents per gram;
      • the rate of the specific tax of 16.77 cents per gram of any tobacco other than cigarettes, loose tobacco, leaf tobacco and cigars will be raised to 19.85 cents per gram; the minimum rate applicable to a tobacco stick will be raised from 10.9 to 12.9 cents per stick.
    2. Persons not under an agreement with Revenu Québec who sell tobacco products in respect of which the specific tax has been collected in advance or should have been will have to take an inventory of all these products they have in stock at midnight November 20, 2012 and remit, before December 22, 2012, an amount equal to the difference between the tax applicable at the new rates and the tax applicable at the rates in effect prior to midnight, November 20, 2012. This also applies for collection officers under agreement with Revenu Québec. The form will be provided by Revenu Québec.
  • Increase in the specific tax on alcoholic beverages
  1. At 3 a.m. the day following the Budget Speech, the new rates of the specific tax applicable to alcoholic beverages sold for consumption in an establishment will be $0.82 per litre for beer and $2.47 per litre for all other beverages, while those applicable to alcoholic beverages sold for consumption other than in an establishment will be $0.50 per litre for beer and $1.12 per litre for other beverages. This variation of the new rates will also apply to alcoholic beverages sold by microbrewers and small-scale producers. The form will be provided by Revenu Québec.
  • Increase in the contribution by financial institutions
  1. For the period from January 1, 2013 to March 31, 2019, the rates of the temporary contribution will be:
    • for amounts paid as wages:
      • ­ in the case of a bank, a loan corporation, a trust corporation or a corporation trading in securities, 2.8%,
      • ­ in the case of a savings and credit union, 2.2%,
      • ­ in the case of any other person, 0.9%;
    • for insurance premiums and amounts established regarding insurance funds, 0.3%.
  • Changes relating to the obligation on certain trusts to file a return
  1. The tax legislation will be amended to add three situations where a trust liable for Quebec tax is required to file a tax return and to require a trust that resides in Canada outside Quebec and that owns a rental immovable property in Quebec to file an information return. These amendments to the tax legislation will apply to a trust for its taxation years starting after the day of the Budget.
  • Standardization of taxation of refundable tax credits
  1. The following refundable tax credits will henceforth have to be included in calculating the income of a taxpayer who receives them, after the day of the Budget: for SR&ED, for university research and for research carried on by a public research centre or a research consortium; for fees and dues paid to a research consortium; for private partnership pre-competitive research; for on-the-job training periods; for design; for the construction or conversion of vessels.
  • Some measures applicable in 2013 regarding experienced workers will be deferred to a later date.

Other measures

  • The government will consult the industry and the stakeholders concerned about natural resources development before making changes to the regimes that establish the framework for developing these non-renewable resources.
  • Fight against tax evasion: the government is therefore asking Revenu Québec to recover an additional $80 million in 2013-2014 and another $90 million in 2014-2015.
  • The government is cancelling the gradual increase of 1¢/kWh of the cost of the heritage pool over the period from 2014 to 2018 and will instead index the cost of heritage pool electricity.