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Quebec Budget 2009

Quebec Budget 2009

  
Quebec Budget 2009

The budget tabled March 19, 2009 today by Quebec Finance Minister Monique Jérôme-Forget pushes Quebec into a budgetary deficit, but it provides a plan to return to a balanced budget by 2013-2014.


Measures concerning individuals

As of the 2009 taxation year, the limit on child care expenses paid for a child under age 7 will be raised from $7,000 to $9,000.

The family income brackets used to determine the refundable tax credit for child care expenses will be modified. As of 2009, the minimum credit rate of 26% will be applicable to family income above $140,450 (previously $102,925).

As of the 2009 taxation year, an individual’s child care expenses will include the expenses incurred for child care services throughout the period during which the individual or the individual’s eligible spouse received benefits under the Quebec Parental Insurance Plan or similar plans.

 

Measures concerning businesses

A ten-year tax holiday has been introduced for new corporations dedicated to the commercialization of intellectual property developed in Quebec universities and Quebec public research centres.   To be eligible, a corporation must be incorporated after March 19, 2009 and before April 1, 2014, and not be the result of a merger of existing companies. All or almost all of its income must be earned from an “eligible commercialization business”.

An “eligible commercialization business” means a business for which the ministère du Développement économique, de l’Innovation et de l’Exportation (MDEIE) issues a certificate stipulating that, in its view, the only purpose of the business is to produce and sell goods with more than 50% of their value stemming from eligible intellectual property, to produce and sell goods of which an essential component is an eligible intellectual property, and to license computer programs that are eligible intellectual properties. Eligible intellectual property will include patents issued under the Patent Act (Canada) and the copyright on a computer program that the MDEIE believes constitutes a significant technological advancement.

The Refundable Tax Credit for manpower training in the manufacturing sector will be expanded to include the forestry and mining sectors, as of March 20, 2009.  Activities that will be deemed to relate to the forestry or mining sector are activities identified in the North American Industry Classification System (NAICS) codes applicable to forestry and logging, oil and gas extraction, and mining and quarrying. This credit is equal to 30% of eligible training expenditures incurred by an employer with regard to an eligible employee. Eligible training expenditures will be limited to the cost paid for external training and to the salary paid to eligible employees.

Numerous amendments will apply to various refundable tax credits available in the cultural sector. The more common ones include:

  • The refundable tax credit for the production of shows and the refundable tax credit for the production of sound recordings will be increased from 29.1667% to 35% and the limit on production costs will increase from 45% to 50%. These changes will be effective for productions that begin after March 19, 2009.

 

  • The Societé de développement des enterprises culturelles certification procedure to obtain these refundable tax credits will be eased.  Changes will be made to the criteria used to determine whether a corporation is eligible for the refundable tax credit for the development of e-business in information technologies. These changes will be made retroactively to March 13, 2008. The definition of activities for purposes of information technology will be broadened to include other NAICS codes. However, an additional condition must be satisfied: at least 50% of the corporation’s gross income must be earned from activities included under NAICS codes for software publishers – 511210, or computer assisted design and related services - 541510, or a combination of these activities.

 

  • The refundable tax credit for design will be modified regarding design work for goods made after March 31, 2009. The definition of eligible design will be changed so that it will no longer refer to the industrial sector or to the fashion sector, but rather to the design of goods made on an industrial basis.

 

  • Quebec has historically supported and contributed to the Fondaction by granting a non-refundable tax credit to individuals who acquire its shares. To further promote the capitalization of this labour fund, which the government views as inadequate in light of current economic conditions, the credit rate will be increased from 15% to 25% of the cost of shares issued by the Fondaction after May 31, 2009. This credit will be reduced to 15% in the first fiscal year during which the fund attains capitalization of $1.25 billion. The maximum cost of shares that may be purchased remains at $5,000 and any unclaimed portion of the credit may be carried forward to subsequent years. As well, limits will be imposed on the amount of capital that the fund may raise annually, to $150 million.

 

Two new funds have been introduced in the budget: the emergency fund for the recovery of businesses (EFRB) and the fund to finance sectoral venture capital funds (FFSVC). These two funds will be investments in which the Fonds de solidarité des travailleurs du Québec (FTQ) may become a stakeholder. The EFRB, with capitalization of $500 million, is intended to provide financing to medium and large private and public companies currently experiencing liquidity problems. The FFSVC is to provide adequate financing to Quebec’s venture capital industry. With initial capitalization of $700 million from the government through its mandatary Investissement Québec, the FTQ and the Caisse de dépột et placement du Québec, this new fund will invest in 15 to 20 venture capital funds.

There will be an improvement to the Renfort program announced on November 4, 2008 to provide businesses with additional financing before the end of 2010. The program consists of a direct loan or a guarantee of a loan contracted with a financial institution. The government is announcing a $200 million increase in available financing, and that forest sector and tourism infrastructure projects will be eligible.

In view of the current economic situation, the Accro PME regime (SME Growth Stock Plan), which was originally due to be terminated on December 31, 2009, will be extended until December 31, 2014.  The Accro PME will be renamed the Stock Savings Plan II and will be enhanced in the following manner:

  • Until January 1, 2011, the tax deduction for investments under the plan will be enhanced by increasing the adjusted cost base of a qualifying investment from 100% to 150% of the cost of such investment.
  • To encourage more corporations and investors to make use of this plan, the asset limit of qualified issuing corporations will be increased from $100 million to $200 million.
  • The minimum holding period of qualifying shares and qualifying securities by investors will be shortened from three years to two years.
  • The procedure relating to the eligibility and the registration of a valid share on the list of the Autorité des marchés financiers will be simplified.

A refundable tax credit will be granted where a new “green vehicle” is purchased or leased by an individual or a corporation between January 1, 2009 and December 31, 2015. The value of this tax credit will depend on the vehicle’s environmental performance and will range from $2,000 to $8,000.

 

Measures concerning QST

Increase in the rate of the Quebec sales tax as of January 1, 2011.

The government intends to eliminate the budget deficit caused by the current global financial and economic crisis and to restore the structural balance of public finances by fiscal year 2013-2014. Accordingly, the government announced revenue recovery measures including an increase of one percentage point in the rate of the Quebec sales tax (QST). As of January 1, 2011, the rate of the QST will increase from 7.5% to 8.5%.

To reflect the 1% increase of the QST, the 4.7% rate used to calculate the automobile operating benefit will be increased to 5.4% as of taxation year 2011.

The rates of tax applicable on tobacco products will be increased in 2011 as well to reflect the 1% increase in the QST.

 

Other measures

Harmonization with federal legislation and regulations from the January 27, 2009 federal budget.

Quebec's tax legislation and regulations will be amended to incorporate, with adaptations based on their general principles, the measures relating to:

  • the deduction for loss in the value of investments in an RRSP or a RRIF following the death of the beneficiary;
  • the increase in the small business limit, subject to the clarifications below;
  • the time at which the acquisition of control of a corporation takes place to determine whether it is a small business corporation or a Canadian-controlled private corporation;
  • the amendments pertaining to capital cost allowance applicable to certain assets;
  • the repeal of the restrictions applicable to the deductibility of interest paid on debt used to finance foreign affiliates (i.e., double-dip structures).
  • The increase in the small business limit from $400,000 to $500,000 will apply as of March 20, 2009. However, where the taxation year of a corporation includes March 19, 2009, the increase in the business limit will be prorated to the number of days that follow March 19, 2009. Note that in the federal budget, the increase in the small business limit was effective as of January 1, 2009. While the increase will be the same for Quebec tax purposes, it will not be retroactive to January 1, 2009.

Other measures have not been retained because Quebec’s tax system is viewed as being satisfactory in these areas:

  • the increase in the basic personal amount, the amount for a spouse or de facto partner and the amount for an eligible dependant;
  • the increase in the upper limit of the first two personal income tax brackets;
  • the increase in the age tax credit;
  • the introduction of the home renovation tax credit.

Announcement at a later date - The Quebec Finance Minister will, in the near future, announce the government’s position regarding mandatory electronic filing of corporate returns and the penalties for not filing a corporate tax return in the correct format, as well as penalties for the late filing of information returns or not filing such returns in the correct format.

Measures relating to the Excise Tax Act - Changes will be made to the Quebec sales tax system to incorporate, with adaptations on the basis of its general principles and subject to the specific Quebec features, the federal measures concerning the simplification of the GST/HST for the direct selling industry.

Quebec’s tax legislation and regulations will be amended to incorporate, with adaptations on the basis of their general principles, the federal rules relating to the conversion of existing specified investment flow-through trusts into taxable Canadian corporations from the federal Notice of Ways and Means Motion of November 28, 2008.

On November 10, 2008, the federal Minister of Finance released legislative proposals to implement changes to the rules concerning the reporting of income in a functional currency. Quebec’s tax legislation and regulations will be amended to incorporate these measures.



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