2006 Quebec Budget Report
March 23, 2006
Highlights
- Lower tax rate for small businesses from 8,5% to 8%
- Tax relief for employee transit passes
- Adjustments to the tax rates applicable to dividends received from small and large corporations
- Restrictive measures for the restaurant sector
- Increase of $500 in the deduction for workers
Introduction
Finance Minister Michel Audet tabled the Quebec government's 2006-2007 Budget before the National Assembly on March 23, 2006.
"I am tabling today a responsible budget, a budget with a vision, built on four main objectives:
- Ongoing improvement of our health and social services system and our education system;
- Wealth creation in a sustainable development context;
- Infrastructure development and repair;
- Debt burden reduction to ensure greater inter-generational equity."
The following is a summary of the most important measures he announced.
Measures Concerning Businesses
Lower tax rate for small businesses
The small tax rate applicable to the business ceiling of corporations will again be reduced, from 8.5% to 8%, as of March 24, 2006.
Improvement to the refundable tax credit respecting the reporting of tips
The tax legislation will be amended to stipulate that expenses eligible for the tax credit will include the portion of the indemnities for statutory general holidays and for days of leave for family or parental matters that is attributable to tips and that was paid in the taxation year or the fiscal year.
These amendments will apply to indemnities for statutory general holidays or for all absences recognized for family or parental matters paid after March 23, 2006.
Measures to counter tax evasion in the restaurant sector
Obligation to remit invoices
The tax legislation will be amended to require restaurant operators to remit to all customers to whom they supply goods and services an invoice showing the transaction.
Restaurant operators who fail to remit an invoice to a customer will incur a penalty of $100 as a result of this omission and will commit an offence for which they will be liable to a fine of no less than $300 and no more than $5,000. For a second offence committed within five years, the fine will be no less than $1,000 and no more than $10,000, and for any subsequent offence within that period, no less than $5,000 and no more than $50,000.
Restaurant operators will have to keep a copy of the invoice as a supporting document for the information contained in the registers they are required to keep under the tax legislation.
This measure will apply to sales of goods and services made by restaurant operators as of the effective date of any regulation adopted under the implementing bill.
Obligation to use cash registers equipped with a microcomputer approved by Revenu Québec
No later than January 1, 2011, all restaurant operators who are required to remit invoices to their customers will have to use a cash register equipped with a microcomputer housed in a secure casing to prepare such invoices and keep a register of their sales.
The purpose of such microcomputers, which will be approved by Revenu Québec, will be to enter and store all information pertaining to sales of goods and services made by restaurant operators to their customers, which information will be the same as that which will have to appear on the invoices to be remitted.
Restaurant operators who are registered for the Quebec sales tax will also have to provide, along with the tax return that is to be filed under Quebec's sales tax system for each of their reporting periods, a report on the sales recorded by the microcomputer in each of those periods.
Adjustments to refundable tax credits for R&D
Changes to the tax credit for R&D salary
For a taxpayer who, previously, would have benefited from the component that involves the development of practical applications for research findings of the tax credit for university R&D, or the tax credit for pre-competitive R&D, as the case may be, to benefit from the tax credit for R&D salary, such tax credit will be changed to allow participation by a public partner.
Moreover, the general contributions rule will be maintained. These changes will apply to R&D expenditures incurred after March 23, 2006, regarding R&D work done after that day, under a contract concluded after that day, if applicable.
Correction of various technical problems
Twelve-month period for filing documents
According to existing tax legislation, even though a taxpayer has filed, for a taxation year, the prescribed form containing the information relating to eligible expenditures for the purposes of a tax credit for R&D, no later than 12 months after the filing due date applicable to him for the year, he may not claim a different tax credit for R&D for the same year if the form especially prescribed for the latter tax credit is filed after such twelve-month period.
Accordingly, the legislation will be amended to stipulate that the fact that a taxpayer has already filed, for a taxation year, the prescribed form, will be sufficient to authorize a claim for a different tax credit for R&D for the same taxation year.
Ineligibility of certain expenditures
The tax legislation will be amended so that the R&D expenditures that are ineligible for the purposes of the university R&D, pre-competitive R&D and R&D consortium tax credits are also ineligible for the purposes of the R&D salary tax credit, such as legal or accounting fees.
These changes will apply to R&D expenditures incurred after March 23, 2006.
Increase in the deduction for renovations or alterations to improve access to a building
The tax legislation will be amended to stipulate that a taxpayer may deduct, in calculating his income from a business or property, the portion of the amount he paid during the year for renovations or alterations made to a building he uses mainly to earn such income, and regarding which he holds an eligibility certificate issued by the Régie du bâtiment, according to which such renovations or alterations incorporate the obstacle-free design standards set out in the Building Code.
These changes will apply regarding renovation or alteration expenditures incurred after March 23, 2006.
Refund of the first $1,000 of Quebec sales tax paid on a hybrid vehicle
A person who purchases or takes out a long-term lease on a new hybrid vehicle, prescribed by the Minister of Revenue, may claim a refund of the QST paid in respect of the sale or leasing of that vehicle, up to a maximum of $1,000. However, this refund may not be claimed by a person who is a registrant under the QST system, or by a person who is entitled to a refund of the QST paid in respect of this sale or leasing under other provisions of this system.
To claim this QST refund, the buyer or lessor of a hybrid vehicle must apply to Revenu Québec using the prescribed form accompanied by the prescribed supporting documents, and must satisfy the prescribed terms and conditions.
This measure will apply to a new hybrid vehicle that has been purchased or for which a long-term lease has been taken out after March 23, 2006 and before January 1, 2009.
Adjustment of the refundable tax credit for book publishing
The regulations relating to the tax credit for book publishing will be amended to remove the possibility for a corporation of publishing a book under the trademark of a third party.
Renewal of and improvement to the refundable tax credit for on-the-job training periods
It had been announced that the refundable tax credit for on-the-job training periods was stipulated to end regarding training periods beginning after December 31, 2006. This measure is permanent.
The weekly caps on eligible expenditure that are currently $625 or $500, as the case may be, will be raised to $750 and $600 respectively.
The maximum hourly rate will be raised from $15 to $18.
These changes will apply regarding an eligible expenditure incurred after December 31, 2006, regarding an eligible training period beginning after that date.
Standard application of the tax credit in all regions
The weekly eligible expenditure caps for the purposes of the tax credit in an eligible region, which are respectively $1,250 and $1,000, and the maximum hourly rate of wages and salaries which is $25, will be abolished. Consequently, the new weekly caps and the new maximum hourly rate will apply to such training periods.
This change will apply regarding an eligible expenditure incurred after December 31, 2006, regarding an eligible training period beginning after that date.
Extension of the carry-forward period for donations or gifts made by corporations
The tax legislation will be amended to extend the carry-forward period for donations made by corporations from five to 20 years.
This amendment will apply to donations made by a corporation during a taxation year ending after March 23, 2006.
Introduction of a tax credit for the hiring of employees specializing in financial derivatives
This non-refundable tax credit will allow an eligible corporation that employs, during a taxation year, an eligible specialized employee, to claim a tax credit equal to 20% of the eligible salary paid to such employee ($1,500 maximum), for such year, for any week or part thereof within the period covered by an eligibility certificate issued by the Ministère des Finances du Québec regarding such eligible specialized employee.
This measure will apply regarding the eligible salary paid by an eligible corporation after March 23, 2006.
MEASURES CONCERNING INDIVIDUALS
Increase from $500 to $1,000 in the deduction for workers
The maximum amount of the deduction for workers will be doubled, from $500 to $1,000, as of the 2007 taxation year.
Calculation of earned income for the purposes of the measures intended exclusively for workers
The tax legislation will be amended to stipulate that an individual whose income from an office or employment for a given year is comprised solely of the value of benefits received by reason of a previous office or employment may not take that income into account for the purposes of these measures.
In addition, the tax legislation will be amended to provide that business income or losses that may be taken into account for the purposes of the application of the refundable tax credit attributing a work premium must be from a business the individual carries on alone or as a partner actively engaged in the business.
These changes will apply as of the 2006 taxation year.
Introduction of tax relief for employee transit passes
Currently, employers may deduct 100% of the costs incurred to supply their employees with transit passes. The 2006-2007 Budget raises this tax deduction to 200%.
The additional deduction of 100% related to employee transit passes will apply to reimbursements, after March 23, 2006, of the cost of subscription-type transit passes, paratransit passes or transit passes supplied by employers, valid for a period after March 31, 2006, up to the portion of the reimbursements that is attributable to that period,.
Non-taxation of benefits granted to employees
The tax legislation will be amended to provide that individuals are not required to include, in the calculation of their income from an office or employment, the value of a benefit relating to transit passes that was received because of, or in the course of, the office or employment.
Tax treatment applicable to taxable dividends
Harmonization of the Quebec legislation
The Quebec legislation will be amended to increase the gross-up of dividend income from 25% to 45% for dividend income consisting of eligible dividends.
The gross-up of all taxable dividend income other than eligible dividend income will stay the same, at 25%.
However, these measures will not be adopted until after the approval of any federal law or the adoption of any federal regulation arising from the announcement made on November 23, 2005, taking into account technical amendments that might be made prior to the approval of the law or the adoption of the regulation.
Adjustment of the dividend tax credit
The Quebec dividend tax credit will be increased for dividend income consisting of eligible dividends to equal 11.9% of the grossed-up dividend.
The Quebec dividend tax credit applicable to such dividend income will be reduced to equal 8% of the grossed-up dividend.
Consequently, the maximum combined federal/Quebec tax rate applicable to dividends will decrease from 32.82% to 29.65% for an eligible dividend and increase to 36.36% for other dividends.
These changes will apply to dividends that are paid or are deemed to have been paid after March 23, 2006.
Increase in the refundable tax credit for home support for elderly persons
The list below gives an overview of the principal changes that will be made, as of the 2007 taxation year, to the parameters of the refundable tax credit for home support for elderly persons.
OVERVIEW OF THE PRINCIPAL CHANGES TO BE MADE TO THE TAX CREDIT
Basic parameters
- Increase in the tax credit rate from 23% to 25%
- Increase in the eligible expenses limit from $12,000 to $15,000
- Introduction of a $300 deductible
Payment of the tax credit
- Claiming the tax credit on the income tax return
- Advance payment of the tax credit by Revenu Québec
Recognized home support services
- Eligibility of nursing services as recognized home support services
Amount of eligible expenses
- New rules for determining eligible expenses included in charges resulting from co-ownership
Clarifications concerning certain home support services
Clothing care service
The tax legislation will be amended to extend clothing care services to household linens and to stipulate that a service for the care of clothing and household linens provided for the benefit of an ", by a person or partnership whose principal business consists in providing dry cleaning, laundering, pressing and related services, will be eligible only if it is provided at the residence for "s where the " concerned lives.
Maintenance service consisting of minor maintenance work performed outside of a dwelling
The tax legislation will be amended to provide that minor maintenance work performed outside of a dwelling includes work that generally recurs each year on a more or less set date in keeping with the change in seasons, such as the installation and removal of seasonal shelters.
Maintenance service consisting of minor maintenance work performed inside an immovable
The tax legislation will be amended to provide that a maintenance service consisting of minor maintenance work performed inside an immovable is considered a maintenance or supply service, where the work is related to a facility, such as a pool, which, by reason of its nature or intended use, could have been located outside the immovable.
Determination of eligible expenses included in charges resulting from co-ownership
The tax legislation will be amended to provide that the eligible expenses of an " for a given taxation year with regard to charges resulting from co-ownership correspond to the amount obtained by applying the elderly person's share of the charges resulting from co-ownership to the total amount paid during the year by the syndicate of co-owners for recognized home support services in respect of common portions.
Moreover, the tax regulations will be amended to provide that, upon request, syndicates of co-owners must file an information return on a prescribed form, where the request is made no later than the end of the calendar year for which the return is to be filed.
Improvement in the tax treatment of donations and gifts
Improvement of the tax credit for donations and gifts
The tax legislation will be amended, as of the 2006 taxation year, to reduce the threshold above which the tax credit applies to a rate of 24%. More specifically, the threshold of $2,000 will be lowered to $200.
Thus, the first $200 taken into consideration in the calculation of the tax assistance for donations made by an individual will give entitlement to a tax credit calculated at a rate of 20%, while a rate of 24% will apply to the remainder.
Gifts of musical instruments to institutions offering musical training
Capital gains exemption
The tax legislation will be amended to stipulate that no capital gain will result from the gift of a musical instrument, where this gift is made to a recognized educational institution.
Tax credit or deduction for donations and gifts
The limit, generally set at 75% of the donor's income, on the total of the eligible amounts of the gifts used to calculate the tax credit or the deduction for donations and gifts, as the case may be, will not apply.
Moreover, the presumption intended to limit, for the purposes of calculating the eligible amount of a gift, the fair market value of the property donated to its cost or its adjusted cost base, as the case may be, will not apply for the purposes of calculating the eligible amount of a gift of a musical instrument made to a recognized educational institution.
These measures will apply to gifts made to a recognized educational institution after March 23, 2006.
Gifts to Quebec museums
Gifts of certain property made to Quebec's four major museums
In order to better support the acquisition of property by Quebec museums, the tax legislation will be amended to stipulate that a gift of property made after March 23, 2006 to a museum established under the National Museums Act or the Act respecting the Montreal Museum of Fine Arts shall be assimilated to a gift of cultural property that gives entitlement to the advantageous tax treatment associated with this type of gift.
Eligible expenses for the refundable tax credit for child-care expenses
Currently, parents of school-age children cannot benefit from a reduced contribution for the care of their children during the spring break.
In order to better reconcile work and family responsibilities, the government intends to offer parents, beginning in the 2006-2007 school year, the option of paying, during the spring break, a contribution of $14 per day for the care of school-age children (kindergarten and elementary school) who use school child-care services during that period.
This new reduced contribution, unlike the contribution of $7 per day, will give entitlement to the refundable tax credit for child-care expenses.
Opportunity for artists to defer taxation on a greater portion of their income
The excluded amount used for the purposes of determining the maximum amount that can be used to acquire an eligible income-averaging annuity will be reduced from $50,000 to $25,000 beginning in the 2006 taxation year.
Adjustments to the refundable tax credit for adoption expenses
The tax legislation will be amended to include, in the list of the expenses that are eligible for the refundable tax credit for adoption expenses, expenses that arise due to a requirement imposed by a government authority during the adoption of a child.
This amendment will apply as of the 2006 taxation year.
OTHER MEASURES
Measures relating to Aboriginal taxation
Participation of Indians exempt from income tax in the Quebec Pension Plan
Measures relating to municipal or public bodies that perform a function of government
Quebec's tax legislation will be amended to incorporate, with adaptations based on its general principles, the federal measures granting a tax exemption to entities of which not less than 90% of the capital is owned by a municipal or public body performing a function of government in Canada. Such bodies include, among others, an Indian band that, like a municipality, supervises the delivery of essential services and programs offered to all residents of a territory.
Persons of Indian ancestry
Quebec's tax legislation and regulations will be amended to restrict the application of the tax exemption principles solely to individuals who are Indians, within the meaning of the Indian Act.
In regard to income tax, these changes will be effective as of the 2007 taxation year. For the purposes of the QST and fuel tax systems, they will apply respectively to supplies and purchases made after March 23, 2006.
Adjustments to the refundable tax credit for design
A corporation's minimum percentage of production in Quebec is 20% of its total production, for the preceding fiscal year or, if the corporation is in its first fiscal year, at the end of such fiscal year in the fashion sector.
Concerning the industrial sector, a corporation's minimum percentage of production in Quebec is 50%, which percentage is applied in the same way as in the fashion sector.
The minimum percentages of production in Quebec will no longer apply solely to goods that the corporation makes itself, but also to the goods produced under subcontract to the corporation. This adjustment will apply both in the fashion sector and the industrial sector.
These changes will apply to an eligibility certificate issued after April 21, 2005.
Measures to curb tobacco smuggling
Increase in fines
The amounts of all the fines provided for under the tobacco tax system will be increased by 50%. Moreover, these amounts will increase considerably in the case of repeat offences within a five-year period. This measure will come into force on the date the bill giving effect thereto is assented to.
Other measures
- Full fuel tax refund to public carriers
- Fuel tax refund in respect of biodiesel fuel
- Further reduction of the specific tax applicable to alcoholic beverages sold by small-scale producers
Quebec Budget Report 2006 is a publication obtained by BDO Dunwoody LLP from the OCAQ. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. Additional information can be obtained from your nearest BDO Dunwoody LLP office or through our Internet World Wide Web home page at www.bdo.ca.
