Measures concerning individuals

Introduction of a health contribution as of July 1, 2010

The budget 2010 provides that adults who will be resident in Québec at the end of a year will be required to pay a health contribution as of July 1, 2010 ($ 25 for 2010, $ 100 for 2011 and $ 200 for 2010 per adult). However, adults whose family income is equal to or lower than the exemption threshold applicable to them will be exempt to pay the health contribution. This exemption threshold will correspond to the amount granted to them for the year for deduction purpose in the calculation of the premium for the public prescription drug insurance plan, or that would be granted to them for the year if they were required to pay such a premium.

The health contribution will be payable to the Minister of Revenue (“MR”) no later than the date on which individuals are required to pay income tax, in general April 30 of the year following a given year.

Introduction of a solidarity tax credit

The current tax system provides for various measures to help low- and middle-income households, including the refundable tax credit for the QST, the property tax refund and the refundable tax credit for individuals living in a northern village.

To better meet the needs of low- and middle-income households, the budget 2010 proposes to group these three various measures into a single refundable tax credit – the solidarity tax credit.

The new tax credit will provide more assistance to households to reduce QST and housing-related costs, while acknowledging that inhabitants of northern villages must bear a higher cost of living than their counterparts elsewhere.

The tax credit will be paid monthly as of July 2011 to eligible individuals who claim the tax credit on the income tax return in all cases where the individual was living in Quebec on December 31 of the year preceding the year for which the tax credit in claimed or using the form prescribed in all other cases.

To be eligible for a given month, the individual would have to be at least 18 years of age (subject to certain exceptions), be a resident of Québec, hold a recognized status (Canadian citizen, permanent resident, refugee) and not be confined to prison. He must also agree to have the payments made by direct deposit into an account held by him in a financial institution located in Québec.

If an eligible individual ordinarily lives with another eligible individual who is his or her spouse from whom he or she is not living apart, only one of them may claim the tax credit, unless the MR is convinced that it is in a household’s interest to pay it to both of them.

The tax credit will be determined by the addition of the amounts granted under each of its components – the QST component, the housing component and the individuals living in a northern village component and by the application of the reduction on the basis of family income of the eligible individual.

Reduction in the frequency requirement for certain home support services offered by residences for the elderly

Since 2000, a refundable tax credit aimed at compensating elderly persons age 70 or over for part of the expenses they pay for certain home support services has been available under the tax system.

Since 2008, a method for determining the eligible expenses included in rent for people living in a residence for elderly or an apartment building have been introduced. More specifically, persons who pay rent to live in a residence for the elderly must determine the amount of eligible expenses included in their rent using tables for determining such expenses.

Housekeeping services

Currently, when an elderly person receives a housekeeping service, a value equal to the higher of $50 or 5% of the person’s total monthly rent, up to $100, is assigned to the service, if the service must be provided at least once a week. The prescribed frequency for housekeeping services will be reduced by the budget 2010 from a frequency of at least once a week to at least once every two weeks.

Nursing services

Currently, when an elderly person receives a nursing service, a value equal to the higher of $100 or 10% of the person’s total monthly rent, up to $200, is assigned to the service, where the presence of a nurse is assured for a period of at least seven hours a day. The prescribed frequency for nursing services will be reduced from a period of at least seven hours’ presence a day to a period of at least three hours’ presence a day.

These reductions will apply as of the 2010 taxation year.

Increase in the frequency of advance payments of the tax credit for child-care expenses and work premium

Under the current tax system, families who pay child-care expenses may claim a refundable tax credit compensating them for part of the expenses.

Moreover, to value work effort, and encourage people to give up last resort financial assistance to enter the labour market, the tax system grants a refundable tax credit to low- and middle-income households. The tax credit is composed of a work premium and a supplement for long-term recipients giving up last resort financial assistance or the Youth Alternative Program.

Currently, at the request of a household, the MR may pay in advance part of the tax credit for child-care expenses and the work premium by making four payments a year. With respect to the supplement for long-term recipients giving up last resort financial assistance of Youth Alternative Program, the advance payments are on a monthly basis. The budget 2010 provided that the advance payments of the tax credit for child-care expense and the work premium will all be made, as of 2011, on a monthly rather than a quarterly basis.

Measures concerning businesses

Revision of the mining duties regime

Under the current mining duties regime, an operator must pay mining duties on its annual profit at a rate of 12%. When the operator incurs a loss, he may, subject to certain specific rules, benefit from a refundable credit on duties, also at a rate of 12%, provided the loss is attributable to exploration, mineral deposit evaluation and mine development expenses. Several amendments are made by the budget to the Mining Duties Act, which are briefly described below.

  1. The tax rate will be raised gradually from 12% to 16%. The new tax rates will come into effect respectively on March 31st, 2010 (14%), January 1st, 2011 (15%) and January 1st, 2012 (16%).
  2. Changes are made to three (3) of the allowances that an operator may claim:
  • the rate of the depreciation allowance is reduced from 100% to 30% for assets acquired after March 30th, 2010;
  • the parameters used to compute the processing allowance are reviewed;
  • the additional allowance for a northern mine will be replaced by an additional allowance for a mine located in Northern Québec, to offer an allowance with a greater territorial reach.
  1. Major changes are made to the treatment applicable to the exploration, mineral deposit evaluation and mine development expenses that an operator may incur, in particular by creating three (3) different cumulative accounts covering such expenses. These three (3) new cumulative accounts will give rise to three (3) separate allowances.
  2. The credit on duties refundable for losses is limited.
  3. The calculation method of an operator’s annual profit is changed by providing for a “mine by mine” approach.
  4. Special rules are put in place to facilitate the determination of the gross value of annual output attributable to precious stones.

Replacement of the International Financial Centers regime with a refundable tax credit

Under the existing rules, an International Financial Center (“IFC”) is entitled to a partial exemption equal to 75% of the income tax, tax on capital and employer contribution to the Health Services Fund. In addition, the IFC regime also provides for tax benefits for IFC employees.

Under the new measures, the partial exemption applicable to an IFC is replaced by a refundable tax credit, calculated on the eligible salary paid to eligible employees of an IFC. This new refundable tax credit will be equal to 30% of the eligible salary incurred for a year in respect of an eligible employee, up to $20,000 per eligible employee on an annual basis. The operators of IFC currently operating may continue to benefit from the existing regime until December 31st, 2012 in the case of a corporation, or until December 31st, 2013 in the case of a partnership, but will be entitled, at any time after March 30th, 2010, to renounce to the existing regime and start benefiting from the new tax credit.

An IFC employee (other than a foreign specialist) who currently benefits from a deduction from income may continue to benefit from this deduction, which shall, however, be reduced progressively until December 31st, 2013. No new qualification certificates for an IFC employee for purposes of the IFC regime will be issued after March 30th, 2010.

Concerning foreign specialists working for an IFC, their tax benefits remain unchanged.

Adjustments to the refundable tax credits for the production of multimedia titles to allow for convergence with digital animation films

The refundable tax credit for multimedia titles (general component) and the tax credit applying specifically to corporations whose activities consist essentially in producing such titles (tax credit for specialized corporations) will be modified in order to add a new type of eligible title. On a general basis, this new measure will permit a corporation to benefit from these tax credits with respect to digital animation films not part of a multimedia title.

Improvements to the refundable tax credit for film dubbing

  • Increase in the refundable tax credit as well as in increase in the limit on the consideration paid.

The rate of the tax credit for film dubbing will rise from 30% to 35% and the cap on the consideration paid for the execution, which is currently at 40.5% will be raised to 45%. As a result tax assistance may reach 15.75% of the consideration paid.

  • Broadening of eligible dubbing services

Three dubbing services will be eligible for the purposes of calculating the expenditure for film dubbing on the condition that such services are provided in Québec.

  • The audition, i.e. the test session intended to establish the dubbing cast;
  • The preparation of texts, i.e. the work relating to computer-assisted detection including the preparation and formatting of the original text according to the standards of the detection software used, preparation of markers, verification and correction of adapted texts.
  • Finally, a new dubbing service will be eligible, for eligible productions other than feature films intended for movie theatres. This service is the production of video titles for a version in a language other than the original, i.e. the marking and adaptation of the text for sub-titles, preparation of the electronic title files, their computer graphic production and their incorporation in the video montage.

These changes will apply to a production for which a final certification application is filed with the Société de développement des enterprises culturelles (SODEC) after the day of the Budget Speech.

New excluded amounts of assistance for the purposes of the refundable tax credit for Québec film and television production

The legislation will be amended so that an amount of financial assistance provided by the Fonds francophone d’aide au développement cinématographique and an amount of financial assistance provided under the Mesure régionale d’aide au démarrage de productions cinématographiques et télévisuelles constitute excluded amounts of assistance for the purposes of the tax credit for Québec film and television production.

This amendment will apply as of January 1, 2009

Tax relief for non-residents occupying key positions in a foreign production filmed in Québec

The legislation will be amended to allow individuals who sojourn in Québec and occupy a decision-making position on a foreign production, or a key position in the postproduction stage of such a production, to take advantage, as of the 2010 taxation year, of tax relief identical to that which is currently granted to foreign producers regarding payments received for services supplied in Québec. Moreover, no income tax will have to be deducted or withheld at source regarding payment for services supplied in Québec that is made after the day of the budget speech to a foreign production, where the worker holds a valid qualification certificate issued by SODEC with respect to the production.

Changes to the refundable tax credit for R&D salaries

Participation of a research subject in a clinical trial

The tax legislation will be amended so that a research subject who participates in a clinical trial is deemed to carry out work, for the purposes of the refundable tax credit for R&D salaries. This measure will apply with respect to expenditures for which the MR can as of March 30, 2010 determine the refundable tax credit which can be reimbursed for R&D salaries.

Standardization of the tax treatment of the indemnity paid to a research subject for the purposes of the refundable tax credit for R&D salaries

The tax legislation will be amended to standardize the tax treatment of the indemnity paid to a research subject for the purposes of the refundable tax credit for R&D salaries. Therefore, where a taxpayer is at arm’s length with the person to whom it awards the carrying out of a clinical trial or where a taxpayer is not at arm’s length with the person to whom it awards the carrying out of such a clinical trial but is at arms length with a second subcontractor to which such person awards the carrying out of all or part of the clinical trial, the tax legislation will be amended so that the portion of the consideration paid to the first or the second subcontractor, as the case may be, that is reasonably attributable to R&D work, is not reduced by the amount of the indemnity paid to research subject who participates in the clinical trial and is not an employee of the first or the second subcontractor.

This amendment will apply regarding an expenditure incurred by a taxpayer for a taxation year for which the MR may, the day of the Budget Speech, determine or determine once again the refundable tax credit for the R&D salaries.

Non-taxation of the indemnity paid to a research subject

The tax legislation will be amended so that the income, for a taxation year, from the indemnities paid to a research subject who participates in clinical trials carried out by another person is not taxable up to a limit of $1 500 for such year. This amendment will apply as of taxation year 2010.

Arm’s length subcontracting Where there is subcontracting, the tax legislation will be amended so that, for a taxation year, the refundable tax credit for R&D salaries also applies to the half of the portion of the consideration that is, first paid by a taxpayer to a corporation or a partnership with which it is at arms length, or that is paid by a first-level subcontractor- that entered into a subcontract with the taxpayer and that is not at arm’s length with him- to a corporation or a partnership that is at arm’s length with the taxpayer, and that is, second, reasonably attributable to R&D work or work relating to an R&D project carried out in such year on behalf of the taxpayer, in Québec.

This amendment will apply regarding an expenditure incurred by a taxpayer for a taxation year for which the MR may, the day of the Budget Speech, determine or determine once again the refundable tax credit for the R&D salaries.

Clarification in relation to the tax credit for technology adaptation services and the tax credits for R&D

The tax legislation will be clarified so that an expenditure incurred by a taxpayer for a taxation year is not eligible for the purposes of the refundable tax credit for technology adaptation services for such year, if it is otherwise eligible for the purposes of one of the refundable tax credits for R&D. The clarification will apply in regard to an expenditure incurred after the day of the Budget Speech.

Increase in the capital cost allowance rate applicable to trucks and tractors designed for hauling freight and introduction of an additional deduction

Québec’s tax regulations will be amended so that a capital cost allowance rate of 60%, according to the diminishing balance method, is applicable to property consisting of a truck or a tractor designed for hauling freight, and that is primarily so used by the taxpayer, or a person with whom he does not deal at arm’s length in a business that includes hauling freight, where the gross vehicle weight rating exceeds 11 788 kilograms. The regulations will also be amended to enable a taxpayer to claim an additional deduction of 85% of the amount deducted in calculating its income for the year on account of capital cost allowance in respect of a truck or tractor designed for hauling freight and covered by the 60% capital cost allowance if the vehicle was acquired after March 30, 2010 and before January 1, 2016. Such additional deduction, however, will not be recaptured following the alienation of the property.

Adjustment to the limit relating to the deductibility of investment expenses

Québec’s tax legislation will be amended so that the notion of investment expenses, for the purposes of the limit of the deductibility of investment expenses, no longer includes an amount of bad debt deducted by an individual in calculating his property income for the year. This change will apply regarding an amount of bad debt deducted in the calculation of an individual’s income for taxation year 2009 and subsequent years.

Measures relating to consumption taxes

Additional increase in the rate of the Québec sales tax as of January 1, 2012

In the 2009-2010 Budget, the government announced an increase of one percentage point in the rate of the Québec sales tax (QST) as of January 1, 2011. In the 2010-2011 Budget, the government has decided to raise the QST rate by a further percentage point as of January 1, 2012, bringing it to 9.5%. The increase in the QST rate to 9.5% will be applied regarding taxable supplies in relation to which this tax will become payable as of January 1, 2012. In general, the QST is payable by the recipient on the date of the day when the consideration for the supply is paid or of the day when such consideration becomes due, whichever occurs first. The Quebec Sales Tax Act contains numerous provisions to determine the time when the tax becomes payable by the recipient of the taxable supply of a property or service.

Improvement to the QST rebate regarding a new residential unit

The QST system includes a mechanism for the rebate equal to 36% of the QST paid in respect of a new residential unit single unit that costs less than $225 000. In the 2010-2011 Budget, the rate of the rebate will rise from 36% to 50% and the threshold value of a new residential unit at which no rebate is granted will be raised from $225 000 to $300 000.

Application of the QST to the passenger transportation service beginning at Gatineau airport and ending in Canada

The QST system stipulates that the supply of a passenger transportation service that is part of a continuous journey that begins in the province and whose final destination is in Canada is generally taxable. However, the Québec tax system includes a specific zero-rating measure regarding the supply of such a service, if the continuous journey begins at the Gatineau airport by an air transportation service. The 2010-2011 Budget eliminates this specific zero-rating measure regarding the supply of such a passenger transportation service made after June 30, 2010.

Gradual rise in the fuel tax

The regular rates of the fuel tax of 15.2 cents per litre of gasoline and 16.2 cents per litre of diesel fuel will be raised by 1 cent per litre per year until fiscal year 2013-2014. More specifically, these rises will apply on April 1, of each year, from 2010 to 2013.

Taking of inventory

Persons who sell products regarding which the fuel tax was collected in advance or should have been, must take an inventory of all such products they have in stock on March 31 of each year, from 2010 to 2013 and remit for each of these years, before the end of the following month of April, an amount corresponding to the difference between the tax applicable at the new rates and that applicable at the rates in effect before midnight March 31 of each of these years.

Other measures

Recognition of certain large investments made in partnership with Capital régional et cooperatif Desjardins

Capital régional et coopératif Desjardins (CRCD) is an investment corporation whose mission is to marshal venture capital for the resource regions of Québec and cooperatives. The Québec government has supported its mission by granting a tax benefit to individuals who acquire its shares. This tax benefit consists in a non-refundable tax credit equal to 50% of the issue price of the shares.

Investments in a development capital fund

In January 2010, CRCD and the Caisse de dépôt et placement du Québec announced that they had agreed to set up a development capital fund (Capital Croissance PME) to support the growth and development of businesses throughout Québec with financial needs of less than $3 million.

Currently, eligible investments include investments in Québec, investments in major projects with a structuring effect on Québec's economy, strategic investments made in accordance with an investment policy approved by the Minister of Finance as well as investments made in certain local venture capital funds created and managed in Québec.

In the 2010-2011 Budget, the investments this corporation will make in the fund will be considered eligible investments for the purposes of calculating the investment requirement applicable to it.

Longer prison sentence for tax evasion

Currently, a person found guilty of tax evasion is liable for a fine of up to double the tax evaded, or both the fine herein described and imprisonment for a term not exceeding two years. In the 2010-2011 Budget, the Québec government announced that amendments will be made to the Act respecting the ministère du Revenu regarding such major tax offences to raise the maximum prison sentence a court may impose for such offences to five years less one day. This measure will come into force on the date the bill giving effect thereto is assented to.

Québec government has introduced new measures to counter unreported work and tax evasion, in order to recover lost government revenues. Accordingly, additional funding will be granted to Revenu Québec to bolster tax recovery efforts, and to government departments and agencies involved in the fight against tax evasion in at-risk sectors.