On March 30, 2010 the Minister of Finance, Raymond Bachand, tabled the 2010- 2011 Budget of the Quebec Government.
This Budget, Raymond Bachand’s first and the Liberal Government’s ninth, contains efforts to “returning to balanced budgets by 2013-2014”. To achieve this goal, the Quebec government announced several measures that will generate more revenues to subsidize, inter alia, public services from sectors that were once considered “sacred”, such as free health care, frozen university tuitions and “low-cost” electricity. With the introduction of this Budget, the Minister of Finance is sending a clear message to Quebecers that there are no sacred cows in Quebec. It appears that the Quebec Government has chosen to generate more revenue by, inter alia, increasing the “user fees” related to these sacred sectors rather than increasing the income tax burden of Quebecers.
Creation of a solidarity tax credit for individuals. As of July 2011, Quebec will introduce the solidarity tax credit. It will regroup into a single refundable tax credit, the following existing credits: the tax credit for the Quebec Sales Tax (QST), the property tax refund and the tax credit for individuals in a northern village. This new tax credit will “protect the purchasing power of less affluent households”. This new refundable tax credit will be determined according to a set formula and will be paid on a monthly basis to eligible Quebecers. The credit will take into account various components such as the QST, housing and whether or not the taxpayer is living in a northern village. The amount of the refundable credit will be reduced based on a formula for family income exceeding approximately $30,490.
Increase in the Quebec Sales Tax (QST) Rate. In the 2009-2010 Budget, it was announced that the QST rate will increase from 7.5% to 8.5% effective January 1, 2011. In order to “maintain adequate public services”, the 2010-2011 Budget announced that the rate of the QST will increase yet again as of January 1, 2012 by another percentage point. This will elevate the QST rate at 9.5% effective January 1, 2012. Clearly, the Quebec Government is “cancelling” the tax break afforded by the federal Government when the Goods and Services Tax (GST) was reduced from 7% to 5%.
Introduction of a health contribution as of July 1, 2010. As of July 1, 2010, a health contribution will be introduced. Individuals aged 18 or older and residing in Quebec at the end of a given year will be required to pay a health contribution, for that year, equal to $25 for 2010, $100 for 2011, and $200 for 2012 and subsequent years. Certain low-income households will be exempt however from payment of the new health contribution. Moreover, to finance the health care system, Quebec will consider a “health deductible”, calculated on the basis of the number of medical visits during the year.
Adjustment to the limit of the deductibility of investment expenses. Following the 2004-2005 Budget, Quebec limited the deduction of investment expenses incurred by an individual to the income produced by such investments during the taxation year. Generally, the investment expenses included some items used in the calculation of the cumulative net investment loss (CNIL). As such, if a taxpayer who had a receivable, that he included in calculating his property income, and such receivable went bad during the taxation year he could deduct said receivable when calculating his property income. In order to ensure that the individual taxpayer can deduct the unrecoverable receivable without limiting it to his investment income, Quebec’s tax legislation will be amended so that the concept of investment expenses, for the purpose of the limit on the deductibility of investment expenses, no longer includes an amount of such unrecoverable receivables.
Other measures concerning Businesses. The 2010-2011 Budget announced several revisions and various changes to existing measures. Most notable are (i) the revision of the mining duties regime, (ii) replacement of the international financial centers regime with a refundable tax credit, (iii) adjustments and improvements to tax credits in the film sector; and (iv) relatively minor changes to certain rules dealing with R&D tax credits.
Improvement of the QST rebate regarding a new residential unit. Quebec’s sales tax legislation provides for a partial rebate of the QST paid (36%) in respect of a single unit residential complex or coownership unit that costs less than $225,000 to the extent that the said unit is occupied as a primary place of residence. Starting in 2011, the QST rebate regarding a new residential unit will be increased. The rate will rise from 36% to 50% of the QST paid on a new residential unit and the threshold value of a new residential unit at which no rebate is granted will be raised from $225,000 to $300,000. Accordingly, the maximum rebate that may be obtained will be $8,772.
Longer prison sentence for tax evasion. Quebec’s tax legislation will be amended to raise the maximum prison sentence that a court may impose for “major tax offences” to five years less one day. This measure will come into force on the date the bill giving effect thereto is enacted and is set to mirror the imprisonment terms for “major economic offences” under the Derivatives Act and the Securities Act both governed by the Autorité des marchés financiers.
Revenu Québec no more. In an effort to be “strict and fair” about collecting all revenues owed to the Government, more means and resources were afforded to Revenu Québec. To be more efficient, the Minister of Finance announced that the “Agence du revenu du Québec” will be created. The agency will take over from Revenu Québec starting April 1, 2011 and an additional $30 million will be made available to combat tax evasion in 2010-2011, targeting such sectors as the construction and restaurant industry and to fight against economic and financial crimes.
Measures retained from the March 4, 2010 Federal Budget. The 2010-2011 Budget announced that certain measure contained in the March 4, 2010 Federal Budget will be retained and incorporated in Quebec’s tax legislation. Some of these measures are as follows:
- The disbursement quota for registered charities:
Briefly, the March 4, 2010 Federal Budget proposed to ease the disbursement quota requirements by eliminating the charitable expenditure rule that requires charities to expend 80 percent of their previous-year’s receipted donations and certain other amounts. Therefore, the disbursement quota will be based only on the capital accumulation rule’s 3.5 percent of property owned by the charity that is not used directly in charitable activities or administration. The government also proposes to increase the disbursement quota exemption threshold for accumulated capital to $100,000 (from $25,000) for charitable organizations (but not for charitable foundations, which will retain the $25,000 exemption).
- The changes made to the definition of “taxable Canadian property” and the correlative adjustments:
The March 4, 2010 Federal Budget narrowed the definition of what constitutes taxable Canadian property by excluding shares of corporations and other interests that do not derive their value principally from real or immovable property situated in Canada, Canadian resource property or timer resource property (subject to the normal 60-month rule). In this respect, Quebec’s tax legislation will be amended to mirror the changes announced by the Federal Government. These changes eliminates a number of compliance obligations for purchasers and non-residents.
- Employee Stock Options:
The March 4, 2010 Federal Budget announced certain measures dealing with stock options. Quebec has retained some of these measures:
- the addition of a requirement to be entitled to the deduction for employee stock options;
- the withdrawal of the election to defer taxation of a benefit arising from the exercise of a stock option granted to an employee of a corporation, other than a Canadian-controlled private corporation (CCPC), or a mutual fund trust and the obligation to withhold tax at source.
Conclusion. Opposition leaders see this Budget as a means for the current Quebec Government to finance the losses Quebec incurred due to the Liberal Government’s mismanagement of public funds during the global economic crisis.
In short, this Budget epitomizes a famous quote from Ronald Reagan: “Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it”.