Quebec Bill 112, which contains certain fiscal measures that were announced in Quebec's March 17, 2016 budget, as well as measures announced in various information bulletins published in 2014, 2015 and 2016, received first reading on November 15, 2016. The 300 page bill also includes the corporate income tax rate decrease (from 11.9% to 11.5%) that was announced in the 2015 Quebec budget. The bill is considered to be substantively enacted for purposes of IFRS and Accounting Standards for Private Enterprise as of November 15, 2016, the date it received first reading in the Quebec legislature (as Quebec has a majority government).
The bill enacts changes respecting corporate tax, personal tax, property tax, indirect tax, health contributions, various tax credits and harmonization with federal measures. Several of these changes are listed below.
- The corporate income tax is restructured:
- The income tax rate, which is currently 11.9%, will be reduced to 11.8% in 2017, 11.7% in 2018, 11.6% in 2019 and 11.5% in 2020
- Corporations in the primary and manufacturing sectors will be able to claim the small business deduction (SBD) if their employees work for at least 5,500 hours during the taxation year or if their employees and those of their associated corporations worked at least 5,500 hours during the previous taxation year. If the hours worked are between 5,000 and 5,500, the SBD will be reduced, falling to nil at 5,500 hours
- The surplus stripping rules applicable to certain transfers of family businesses will be relaxed and the following new sections in the Quebec Tax Act ("QTA") will be introduced:
- Section 517.5.3 of the QTA will define the following terms "eligible business transfer", eligible primary and manufacturing sectors share" and "primary and manufacturing sectors corporation"
- Sections 517.5.4 to 517.5.11 of the QTA will establish rules under which qualified transfers will benefit from corporate tax relief
- The Act respecting the sectoral parameters of certain fiscal measures is amended to, among other things, enhance the Quebec tax holiday (i.e. the deduction in computing taxable income of corporations and the employers' health services fund contribution exemption) for large investment projects in eligible regions
- Tax rates have been revised and credits have been extended for investments related to manufacturing and processing equipment.
Various tax credits
- Changes have been made to various tax credits, including:
- The refundable tax credit relating to information technology integration, which was enhanced
- The refundable tax credit for the production of multimedia titles and shows, which was enhanced
- A refundable tax credit for international financial centres, which was replaced in part by a non-refundable tax credit.
- A compulsory disclosure mechanism was introduced for certain transactions; for instance, a taxpayer who carries out a transaction involving the transfer of immovables must disclose certain information to Revenue Quebec.
- An enhanced tax credit of 25.75% for gifts in excess of $100,000, effective January 1, 2017. Additionally the 75% income limit on gifts will be eliminated as of January 1, 2017.
- A temporary refundable tax credit for eco-friendly renovations was introduced (RénoVert)
- A refundable tax credit granting a work premium to households without children was introduced
- A new tax credit to encourage individuals to join or remain in the workforce was introduced.
- The Act respecting the Quebec sales tax is amended to, among other things, broaden the lodging tax base and standardize its rate to 3.5% (information bulletin 2016-10, 2016-8, 2016-4, among others).
- The Act respecting duties on transfers of immovables is amended to ensure integrity and fairness [for example, tightening certain provisions granting an exemption from paying transfer duties (March 17, 2016 budget).
Harmonization with federal bills
The Tax Administration Act, the Taxation Act and the Act respecting the Québec sales tax are amended to harmonize with recent changes made to the Income Tax Act and the Excise Tax Act by federal bills enacted in 2013, 2014, 2015 and 2016. The bill mainly enacts harmonization measures that were announced in four Information Bulletins published in 2013, 2014 and 2015 and in the Budget Speech delivered on June 4, 2014, including those dealing with:
- Corporate and trust loss trading (information bulletin 2013-7)
- Income tax treatment of certain testamentary trusts (information bulletin 2016-9)
- Financial arrangements that include synthetic disposition transactions (information bulletin 2013-7)
- Leveraged life insurance schemes (information bulletin 2013-7)
- Administrative penalties in respect of electronic suppression of sales software, commonly known as "zapper" software, which allows businesses to hide their sales to evade payment of sales and income taxes (information bulletin 2013-7).
The Act respecting the Régie de l'assurance maladie du Québec is amended to, among other things,
- Speed up the plan to reduce the health contribution for 2016 and abolish it as of 2017 (see information bulletin 2016-11), and
- Reduce the employers' contribution rate to the Health Services Fund for all small and medium-sized businesses.
For more information, contact your KPMG adviser.
Information is current to November 22, 2016. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500