2018-2019 Québec Budget Summary
Crowe BGK
The Economic Plan tabled on March 27, 2018 by Minister Carlos J. Leitão presents a balanced budget for the fourth consecutive year.
With this budget, the government is also beginning to repay the debt.
Here are the highlights of the tax measures contained in the 2018-2019 budget.
MEASURES PERTAINING TO COMMODITY TAXES
Measures relating to the Québec sales tax and e-commerce
Mandatory registration
The QST system will be changed to require suppliers with no physical or significant presence in Québec (hereinafter, "non-resident suppliers") to register with Revenu Québec, under a new specified registration system, for the purpose of collecting and remitting the QST applicable to their taxable supplies of incorporeal movable property and services made in Québec to specified Québec consumers.
Moreover, in the case of non-resident suppliers located in Canada, this registration requirement will also apply to the collection and remittance of the QST applicable to their taxable supplies of corporeal movable property made in Québec to specified Québec consumers.
For this mandatory registration measure to apply to a non-resident supplier, the value of the considerations for all taxable supplies made by the supplier in Québec to persons that may reasonably be considered consumers, as defined under the existing QST system, must exceed a threshold of $30,000.
For the purposes of the specified registration system, "specified Québec consumer" will mean a person who is not registered for the QST and whose usual place of residence is located in Québec.
Digital property and services distribution platforms
The requirement to register under the new specified registration system will also apply to digital property and services distribution platforms (hereinafter, "digital platforms") with respect to taxable supplies of incorporeal movable property or services received by specified Québec consumers, where these digital platforms control the key elements of transactions with specified Québec consumers, such as billing, transaction terms and conditions, and delivery terms.
Specified registration system
The sole purpose of the specified registration system is to ensure that non-resident suppliers collect and remit the QST applicable to their taxable supplies made in Québec to specified Québec consumers.
Thus, non-resident suppliers registered under the new specified registration system will not be registrants within the meaning of the other provisions of the QST system.
For example, non-resident suppliers that register under the specified registration system will not be able to claim an ITR (input tax refund) in respect of property and services acquired in the course of their commercial activities.
Similarly, recipients registered under the general registration system who pay QST to a non-resident supplier registered under the specified registration system may not recover, by means of an ITR mechanism, the tax thus paid.
A non-resident supplier subject to the new mandatory registration system will remain entitled to elect instead to register under the general QST registration system, assuming they meet the current optional QST registration requirements.
The measures stemming from the implementation of the new specified registration system will apply as of:
January 1, 2019, in the case of non-resident suppliers outside Canada, and in the case of digital platforms enabling such suppliers to make taxable supplies of incorporeal movable property or services in Québec to specified Québec consumers;
September 1, 2019, in the case of non-resident suppliers located in Canada, and in the case of digital platforms enabling such suppliers to make taxable supplies of incorporeal movable property or services in Québec to specified Québec consumers.
Subjecting food trucks and trailers to mandatory billing via sales recording modules
Food trucks and trailers will be subject to mandatory billing via a sales recording module (SRM).
As such, food trucks and trailers will have to:
give customers a bill;
produce this bill using an SRM.
The proposed implementation of this measure is for the 2019 summer season.
MEASURES PERTAINING TO BUSINESSES
Modification to the tax rates for small and medium-sized businesses (SMBs)
The small business deduction (SBD) rate will be gradually raised so that the tax rate applicable to the portion of a corporation's income qualifying for the SBD is lowered to 4% in 2021. Consequently, the rate of the additional deduction for primary and manufacturing sectors SMBs will be gradually reduced and the additional deduction will be eliminated in 2021.
The announced changes to the SBD rates and to the rate of the additional deduction for SMBs in the primary and manufacturing sectors will apply to taxation years of a corporation that end after March 27, 2018. A corporation's instalment payments may be adjusted, as applicable, as of the first instalment that follows March 27, 2018.
Gradual reduction of the Health Services Fund (HSF) contribution rate for all small and medium-sized businesses
First, the $5-million threshold applicable to an employer's total payroll for the purpose of determining whether the employer is eligible for the rate reduction available to SMBs will be gradually raised over four years as of 2019, reaching $7 million in 2022. This threshold will be automatically adjusted each year as of 2023.
Second, the minimum applicable rate for calculating the HSF contribution of SMBs in the primary and manufacturing sectors will decrease gradually from 1.5% as of now, reaching 1.25% in 2022. For SMBs in other sectors, this minimum rate will go from 2.3% to 1.65% based on the same timeline.
Replacement of the additional capital cost allowance of 35% by an additional capital cost allowance of 60%
An additional allowance will replace the additional capital cost allowance of 35% introduced in March 2017. Accordingly, like the additional capital cost allowance of 35%, the additional capital cost allowance of 60% will be available for a two-year period and will apply to manufacturing or processing equipment (Class 53) and general-purpose electronic data processing equipment (Class 50). The property in question must be new at the time of acquisition and be acquired after March 27, 2018 and before April 1, 2020.
Enhancement of the refundable tax credit for on-the-job training periods
The rate of the refundable tax credit for on-the-job training periods will be raised in respect of Aboriginal trainees.
In addition, the weekly qualified expenditure limit and the maximum hourly rate of the refundable tax credit for on-the-job training will be increased for all existing categories of eligible trainees.
Introduction of a refundable tax credit to encourage qualifying training for workers employed in SMBs
A refundable tax credit will be introduced to encourage training for workers employed in SMBs. This credit will enable qualified corporations to receive tax assistance of up to $5,460 a year for each eligible employee who participates in eligible training. This credit will be intended for a qualified corporation or a corporation that is a member of a partnership, as applicable, that carries on an SMB whose payroll is less than $7 million. The tax credit will correspond to 30% of the eligible training expenditures (i.e. the employees' wages attributable to the time spent on eligible training through a recognized educational institution). This 30% rate will be reduced linearly, where the total payroll exceeds $5 million, reaching zero if the total payroll reaches $7 million or more. This measure applies to expenditures incurred after March 27, 2018 and before January 1, 2023.
Adjustment to the compensation tax for financial institutions
The compensation tax rates applicable to wages will be adjusted as of April 1st, 2018.
Moreover, the legislation will be modified to introduce a maximum amount of wages on which a financial institution is taxed:
in the case of a bank, a loan corporation, a trust corporation or a corporation trading in securities: $1.1 billion;
in the case of a savings and credit union: $550 million;
in the case of any other person: $275 million.
Various changes were announced regarding the following refundable tax credits:
Tax credit for film dubbing;
Tax credit for Québec film or television production;
Film production services credit;
Tax credit for the production of multimedia events or environments presented outside Québec;
Tax credit for the production of ethanol in Québec;
Tax credit for cellulosic ethanol production in Québec;
Tax credit for the production of biodiesel fuel in Québec.
A temporary refundable tax credit for pyrolysis oil production in Québec was also introduced.
MEASURES PERTAINING TO INDIVIDUALS
Change to the rates of the dividend tax credit
The dividend tax credit rates will be reduced to maintain the tax integration. The rate for eligible dividends will be reduced from 11.9% of the dividend gross-up amount to 11.86% from March 28, 2018 to December 31, 2018, to 11.78% in 2019 and to 11.7% in 2020 and after. The rate for non-eligible dividends will be reduced from 7.05% of the dividend gross-up amount to 6.28% from March 28, 2018 to December 31, 2018, to 5.55% in 2019, to 4.77% in 2020 and to 4.01% in 2021 and after.
Introduction of a first-time home buyers' tax credit
As of 2018, a new non-refundable first-time home buyers' tax credit will be introduced.
An individual, who is a Quebec resident on December 31st of the taxation year, may deduct, in the calculation of the individual's Quebec tax , where a qualifying home in respect of the individual is acquired in the year, the product obtained by multiplying $5,000 by the rate of 15% (lowest tax bracket). Thus, the maximum value of the tax credit will be $750 for 2018.
A qualifying home is a housing unit intended to be used as the principal place of residence by the individual sometime in the following year, where this home is the individual's first housing unit owned.
This credit will also be available to individuals acquiring a housing unit better suited for the needs of a specified disabled person who is the individual or is related to the individual.
An individual's unused portion of the first-time home buyers' tax credit will not be transferable to the individual's spouse under the mechanism for transferring the unused portion of certain non-refundable tax credits to the spouse.
New extension of the eligibility period for the RénoVert tax credit
To spur more households to adopt eco-friendly behaviour in their home renovation projects, and to encourage households whose qualified expenditures have not yet reached $52,500 to undertake other eco-friendly renovation work, the period during which a renovation agreement may be entered into with a qualified contractor for the purposes of the RénoVert tax credit will again be extended by one year, to March 31, 2019.
Greater access to the tax shield
As of 2018, for the purposes of the tax shield, the maximum increase in eligible work income relative to the previous year will be increased from $3,000 to $4,000, for each member of a household.
Enhancement of the tax credit for experienced workers
As of 2018, the age of eligibility for the tax credit will be lowered from 62 to 61 years of age and the maximum amount of eligible work income will be increased by $1,000.
As such, for 2018, the maximum amount of eligible work income on which the tax credit will be calculated will be $3,000 for workers of age 61 and will be increased by $2,000 for every year of age over 61 the worker, up to a maximum of $11,000 for workers 65 or older.
Changes to the refundable tax credit for informal caregivers of persons of full age
The refundable tax credit for informal caregivers of persons of full age actually breaks down into three components based on whether an individual houses or co-resides with a relative, or is the relative's spouse.
As of 2018, a fourth component will be added to the tax credit for informal caregivers who, without housing or co-residing with a relative, regularly and continuously help the relative by providing unremunerated assistance to the relative in carrying out a basic activity of daily living, for a period of at least 365 consecutive days commencing in the year or in the preceding year, of which at least 183 are in the particular year.
The new component of the tax credit will consist of $533 and will be reducible at a rate of 16% for each dollar of the eligible relative's income that exceeds a threshold of $23,700.
Enhancement of the refundable tax credit for volunteer respite provided to informal caregivers
As of 2018, changes will be made to the refundable tax credit for volunteer respite provided to informal caregivers.
Where previously 400 volunteer hours had to be worked to be eligible to the full $500 tax credit, from 2018 onward the tax credit will progress by steps: 200 volunteer work hours will make the volunteer eligible for a $250 tax credit, 300 hours for $500 and 400 hours for $750.
In addition, the annual envelope at a person's disposal, for recognition purposes, in relation to each care recipient of whom the person is an informal caregiver for the year will be raised from $1,000 to $1,500.
Enhancement of the refundable tax credit for the acquisition or rental of property intended to help seniors live independently longer
As of 2018, this credit will be equal to 20% of the amount by which $250 (previously $500) is exceeded by the aggregate of all amounts paid in the year by an individual or by the person who is the individual's spouse at the time of payment, for the acquisition or rental, including installation costs, of qualified property intended for use in the individual's principal place of residence.
The definition of qualified property is broadened to also include alert systems for persons with hearing impairments, hearing aids and mobility aids.
Broadening of the tax credit for persons living alone, in order to encourage intergenerational cohabitation
For 2018 and after, this tax credit will be available to a grand-parent who houses an eligible student.
Enhancement of the refundable tax credit for childcare expenses
As of 2018, the limit applicable to childcare expenses paid in respect of a child with a severe and prolonged impairment in mental or physical functions and the limit applicable to childcare expenses paid in respect of a child who does not have such an impairment and who is under seven years of age at the end of a year will be increased to $13,000 and $9,500, respectively. The previous limits were $11,000 and $9,000.
The annual limits on childcare expenses eligible for the purposes of the refundable tax credit for childcare expenses will be indexed each year as of the 2019 taxation year.
Extension of the tax credit for a first major cultural gift
The non-refundable tax credit for a first major cultural gift will be extended five years, i.e. until January 1, 2023.
Changes to various parameters of Capital régional et coopératif Desjardins
Introduction of a non-refundable tax credit in respect of the conversion of shares
To encourage shareholders who have held shares for at least seven years to convert them into new shares that will also be redeemable after a new mandatory retention period, a non-refundable tax credit of up to $1,500 will be granted to them in respect of the conversion of shares in any of the conversion periods that begin on March 1, 2018, 2019 and 2020 and that end on the last day of February of the year following each of these years.
Reduction of the non-refundable tax credit
The existing non-refundable tax credit rate for the acquisition of shares of the existing class of capital stock of Capital régional et coopératif Desjardins will be reduced from 40% to 35% in respect of all shares acquired after February 28, 2018.
Temporary maintenance of the increased rate of the tax credit in respect of the acquisition of shares in Fondaction
The rate of the tax credit will be maintained at 20% for eligible shares acquired between June 1, 2018 and May 31, 2021.
HARMONIZATION WITH RECENT FEDERAL CHANGES
The Quebec tax legislation will be modified to harmonize with the legislative proposals released on December 13, 2017 by the Department of Finance Canada aimed at broadening the application of Tax On Split Income (TOSI), introducing a reporting requirement with respect to a trust tax account number and bringing in requirements for tax slips applicable to partnerships and trusts.
Amongst the various measures announced in the recent 2018 federal budget, the Quebec tax legislation will be harmonized with most measures pertaining to international taxation and with the measures on artificial losses using equity-based financial arrangements and on the stop-loss rule on share repurchase transactions. The Quebec tax legislation could also be amended to reflect other measures from the 2018 federal budget. Further announcements from the Ministère des Finances du Québec will be made in this respect.