Quebec Introduces Tax Bill 146 | KPMG | CA
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Quebec Introduces Tax Bill 146

Quebec Introduces Tax Bill 146

Quebec Bill 146 received first reading November 9, 2017.

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It contains measures previously announced in Quebec's 2017 budget and in various information bulletins published in 2016 and 2017. The 176-page bill also includes a measure extending existing legislation that permits certain non-arm's length share transfers without triggering the Quebec anti-surplus stripping rules. Previously, this legislation did not apply to all sectors; the measure was initially announced in the Quebec Information bulletin 2017-03. Bill 146 is considered substantively enacted for the purposes of IFRS and Accounting Standards for Private Enterprise as of November 9, 2017, the date it received first reading in the Quebec legislature (as Quebec has a majority government).

This bill also enacts other measures related to corporate, personal and indirect tax, and various tax credits. It harmonizes various Quebec tax measures with federal tax measures. Key measures from the bill are listed below.

Corporate tax
The calculation of the small business deduction (SBD) has been amended. Specifically, the "minimum number of hours worked" qualification criteria is replaced with "minimum hours paid". Also, controlling shareholders working for the corporation without receiving a salary (because they receive another type of remuneration) will now be able to include their hours-worked in their total number of hours-paid based on a conversion factor of 1.1. These rules will apply to taxation years beginning after December 31, 2016).

Bill 146 also:

  • Increases the additional deduction rate to 10% (from 7%) for transportation costs for some small and medium-sized manufacturing businesses carrying out activities in specified remote areas for taxation years beginning after March 28, 2017 
  • Introduces an additional deduction for transportation costs, equal to 10% of gross income for certain qualifying non-manufacturing small and medium-sized enterprises (March 28, 2017 budget)
  • Extends the compensation tax for financial institutions to March 31, 2024
  • Temporarily introduces a seven-year income-averaging mechanism for certified forest producers 
  • Introduces a deduction for innovative manufacturing corporations effective for taxation years beginning after December 31, 2016.

Personal tax
Bill 146 includes the following tax measures affecting individuals:

  • A decrease to the general rate for calculating most personal tax credits to 16% (from 20%) for the 2017 taxation year, which some exceptions 
  • Narrower eligibility criteria for the Quebec renovation tax credit, RénoVert, with the eligibility period extended to March 31, 2018
  • A new, temporary, refundable tax credit for upgrading residential waste water treatment systems.

Various tax credits
The bill introduces, enhances, expands, or modifies several tax credits, including:

  • A temporary refundable tax credit for the production of biodiesel fuel
  • A temporary refundable tax credit for major digital transformation projects 
  • A tax credit for experienced workers 
  • Maintain the minimum age of eligibility at 65 for Quebec's "non-refundable tax credit with respect to age", retroactive to the 2016 taxation year
  • A donation credit for cultural gifts.

Indirect tax
Among other things, Bill 146 introduces a residency requirement with respect to public service bodies' partial rebates.

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 2014, 2015 and 2016. Bill 146 mainly enacts harmonization measures that were announced in Information Bulletins published in 2015 and 2016 and in the Budget Speeches delivered on June 4, 2014, and March 26, 2015, including those that:

  • Extend the availability for the intergenerational rollover and the lifetime capital gains exemption (LCGE) to property of an individual used principally in a combination of farming and fishing
  • Eliminate the ability to double up on the SBD by deeming a CCPC to be a member of the partnership and claiming its income as the partnership's active income (see TNF 16-12, "2016 Federal Budget Highlights" 
  • Allow greater flexibility in the income tax rules for recognizing charitable donations made by an individual's estate while it was a graduated rate estate, or by certain trusts following the death of their beneficiary 
  • Add rules for back-to-back arrangements involving shareholder loans and multiple-intermediary structures to the shareholder loan rules
  • Zero-rated status for certain health-related supplies and taxation of purely cosmetic procedures supplied by charities.

Outstanding measures
Based on an initial reading of the Bill 146, it appears that this bill does not contain several measures from the province's 2017 budget, including the following:

  • Deferral of tax on deemed disposition of qualified public corporations 
  • Harmonization with federal legislation of stock options taxation
  • Additional capital cost allowance of 35% on manufacturing or processing equipment (property of class 53) and computer equipment (property of class 50).

For more information, contact your KPMG adviser.

Information is current to November 21, 2017. 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

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