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Michel Audet, Québec Minister of Finance, delivered today, February 20, 2007, the 2007/2008 Budget of the Government of Québec. Below are the highlights of the most important tax measures included in the Budget.
Measures concerning individuals
Effective January 1, 2008, the tax brackets used to establish the tax payable by individuals will be raised. The rates and the brackets will be as follows:
16% on taxable income not exceeding $32,000 ($29,290 in 2007)
20% on taxable income between $32,000 and $64,000 ($29,290 to $58,595 in 2007)
24% on taxable income over $64,000 ($58,595 in 2007)
Introduction of a refundable tax credit which will be granted to a trust governed by a registered education savings plan (“RESP”). This credit will be equivalent to 10% of the first $2,000 of annual contributions to an RESP for children under age 18. The total cumulative credit allowable will be $3,600 per child. This measure is applicable for contributions to an RESP paid after February 20, 2007.
The tax credit for adult children who are students will be replaced, as of taxation year 2007, by a transfer mechanism for the recognized parental contribution. In other words, an eligible student, for a given taxation year, may transfer to a person who is his father or his mother, an amount relating to an unused portion of his basic tax credit for the year.
The portion of the tax credit for tuition fees and examination fees that a student does not use to reduce his tax payable may, as of taxation year 2007, be transferred to the parents or grandparents. The non-transferred portion will be carried over for future use by the student.
An individual’s maximum eligible retirement income used to determine the tax credit for retirement income will be raised from $1,000 to $1,500 as of the 2007 taxation year.
Various changes will be made to the tax credit for child care expenses so that a family’s child care expenses are no longer limited by the income of either spouse for the purpose of determining eligibility for the tax.
Measures concerning corporations
The capital tax credit will be raised from 5% to 10% regarding investments in manufacturing and processing equipment. The assets covered are new assets in class 43 acquired after February 20, 2007 and before January 1, 2013.
In the 2006 Budget Speech, the rate of the capital tax credit has been raised to 15% for specific investments made in the forestry sector. The application of that measure will be extended until January 1, 2013.
In order to achieve a better neutrality regarding taxation of investment income, the general income tax rate of 16.25% presently applicable to passive income (investment) will be reduced to the tax rate applicable to active income (business), that is, 9.9% for 2007, 11.4% for 2008 and 11.9% for 2009.
The new rates will become effective February 21, 2007, January 1, 2008 and January 1, 2009 respectively. The personal income tax rate applicable to dividends paid from investment income remains unchanged.
Generally speaking, a corporation whose activities consist in managing a manufacturing or processing business in one of the remote resource regions of Québec may claim, until December 31, 2010, a tax holiday in relation to such business regarding income tax, tax on capital and the employer’s contribution to the Health Services Fund.
The tax legislation will be amended to reduce this tax assistance. The 75% tax holiday will be reduced for calendar years 2008, 2009 and 2010, to 50%, 25% and 25% respectively.
Research and development (“R&D”)
In order to amend a change introduced in the 2005 Budget Speech, the tax legislation will be amended so that a taxpayer that manages a business in Canada and does or has done R&D work in Québec on its behalf may be eligible again for the refundable tax credit for R&D salary and other analogous tax credit. This change will apply to R&D expenditures incurred in relation to a business carried on in Canada for a fiscal year beginning after April 21, 2005.
Measures concerning culture
Technical adjustments to various refundable tax credits with regard to various cultural industries, including:
the refundable tax credit for Québec film and television production
the refundable tax credit for film production services
the refundable tax credit for dubbing
the refundable tax credit for the production of shows
the refundable tax credit for sound recording production
the refundable tax credit for book publishing
Consumption taxes
Increase from $1,000 to $2,000 of the refund of the QST paid in respect of the sale or leasing of new fuel-efficient hybrid vehicles introduced in 2006. This measure will apply after February 20, 2007 and before January 1, 2009.
For further information, call or e-mail your PricewaterhouseCoopers adviser or either of the following:
