Almost nine months ago, Prime Minister Stephen Harper and Premier Jean Charest announced the conclusion of a memorandum of agreement ("MOA") relating to the harmonization of the QST with the federal GST. The MOA was intended to form the basis for a final agreement between the two levels of government on the harmonization of the two taxes. This past April 18th, the Quebec Minister of Finance, Raymond Bachand, announced that the agreement, called the Canada-Quebec Comprehensive Integrated Tax Coordination Agreement (the "Agreement") has now been concluded. The Agreement essentially addresses two elements: 1) harmonization of the tax base and rules and 2) the payment to Quebec of a total of $2.2 billion to compensate the province for implementing the harmonization measures. Although the $2.2 billion compensation amount envisaged by the MOA has remained unchanged in the Agreement, it could be reduced and might even have to be repaid if Quebec fails to fulfill or violates the terms of the Agreement.
The Agreement has now eliminated some of the inconsistencies between the Quebec and federal systems, which had "displeased" the federal government. We would note, however, that Quebec has retained its separate legislation and that it will not, therefore, become an HST "participating province" as is the case, in particular , for Ontario or British Columbia. With one exception, the Agreement contemplates that Quebec will also retain its administrative responsibility for both the GST/HST and the QST within the province. As a result, taxpayers (even those established outside Quebec) registered for the QST will still have to prepare separate QST returns and will still be subject to tax audits by officials of Revenu Québec. The Agreement has now also confirmed that Quebec will have until January 1, 2013 to implement the amended QST. A bill relating to the harmonization of the QST with the GST will, therefore, have to be made public in the coming months.
This latest step in the process of harmonizing the QST and the GST has in large measure confirmed and filled out the details of the measures that were envisaged by the MOA. However, some of the grey zones in the MOA have not been clarified, particularly those relating to rebates of the QST for public service organizations and consequences for pension plans. Publication of the bill amending the Act respecting the Québec sales tax will presumably provide further clarifications.
For the average consumer, the harmonization will change almost nothing from an economic point of view. On the other hand, the impact on businesses could be significant in certain circumstances, especially for financial institutions. Pension plans will also be adversely affected.
In our October 2011 "Tax Update" bulletin, we dealt with the harmonization measures that were contemplated in the MOA. Since the Agreement has now largely followed through on these same measures, we invite you to consult that bulletin by clicking here.