Tax Alerts - Québec and Federal Government Agree to Further Harmonize the GST and QST
On September 30, 2011, the governments of Québec and Canada agreed in principle to a new coordination agreement on harmonized sales taxes. Since 1992, the Québec Sales Tax (QST) has been operated as a value-added tax that has been similar to the federal Goods and Services Tax (GST). On September 30th, the two governments agreed to further harmonize these taxes. Under this agreement, Québec will obtain financial compensation of $2.2 billion from the federal government, $733 million payable in January 2013, when the measures under the agreement are implemented and $1.467 billion one year later.
We’ve summarized some of the highlights from the agreement below.
- As of January 1, 2013, the QST will apply on the selling price excluding GST. This change will not impact the amount of QST paid by consumers, as the QST rate will be adjusted from 9.5% to 9.975% (which is the effective rate of the tax when the QST rate is increased on January 1, 2012 from 8.5% to 9.5%).
- All of the current QST exemptions will be maintained (for example, the QST exemption on books and diapers for infants).
- For financial institutions, the input tax refund (ITR) for QST paid and the compensatory tax will both be eliminated as of January 1, 2013. The QST will continue to not apply on financial services.
- For large businesses with taxable sales over $10 million, the current ITR restrictions will be phased out. In particular, ITRs on restricted purchases will be allowed gradually over three years, starting in 2018. As a result of the changes, the QST system will be the same as the system applied in Ontario for input tax credits under the HST since that province harmonized its provincial sales tax.
- Although the tax base for GST and QST will be harmonized to a greater extent, there will still be two distinct taxes and Québec will continue to administer both taxes.
Both governments have agreed to enter into a detailed agreement by April 1, 2012. We will provide more information as it becomes available.
If you have any questions on how this change will affect you, please contact your BDO advisor.
