The Quebec government’s careful management of the public finances seems to have paid off, allowing them not only to realize the balanced budget that was planned in 2015-2016 but impressively realizing a $1.4 billion surplus. This surplus was allocated to the Generations Fund, with the purpose of reducing the debt burden.
The 2016-2017 Budget reflects the government’s continued optimism with the Quebec economy; a 3.2% increase in revenues totaling $102 billion along with a 2.7% increase in expenditures resulting in an expected $2 billion surplus. The low Canadian dollar along with the growth in the U.S. economy were the two main contributors to a healthy Quebec and these factors are expected to continue to drive growth in 2016-2017.
The increases to government expenditures will be directed to three main areas (i) investment in infrastructure and public services, (ii) reduction of the tax burden on individuals, supporting families and encouraging labour market participation; and (iii) fostering private investment. These initiatives include $1.2 billion in additional investments in education infrastructure, the immediate reduction in the Health Services Fund contribution for Quebec SMBs, tax reductions for innovative companies, easing the burden of existing daycare fees and the introduction of a new tax credit of 20% for eco-friendly home renovations.
Quebec Corporate Tax Rates
There are no changes to corporate tax rates which remain as follows:
Deduction for Innovative Manufacturing Corporations
A new deduction is being introduced for qualifying Quebec manufacturing corporations that have been granted a patent as a result of research and development work carried on in Quebec. For taxation years beginning after December 31, 2016, qualifying corporations may be able to deduct a specified percentage of a portion of the net income earned from the sale or rental of qualified property in the year.
Refundable Tax Credit for the Integration of Information Technologies
For taxation years ending after March 17, 2016, the tax credit, historically available to manufacturing corporations, will be accessible to corporations operating in the wholesale and retail sectors. As well, the restriction on the paid-up capital amount, above which the tax credit rate is reduced to zero, will be increased to $50 million.
Introduction of a Temporary Refundable Tax Credit for Major Digital Transformation Projects
A temporary refundable tax credit will be introduced to support the implementation and maintenance of major digital transformation projects in Quebec for certain contracts entered into after March 17, 2016 and before January 1, 2019.
Refundable Tax Credit for Québec Film and Television Production
Amendments to the Act respecting the sectoral parameters of certain fiscal measures, are made to facilitate access to the refundable tax credit for Québec film and television production. These amendments apply with respect to productions intended for minors, programming schedules, film dubbing and film production services and will be effective after March 17, 2016.
Change to the Tax Treatment of Contributions made for Political Purposes
Contributions made for political purposes after March 17, 2016, illegal or otherwise, will not be deductible in calculating income from a business or property.
Gradual Reduction of the Health Services Fund Contribution Rate for SMBs in Various Sectors
The rate of contribution to the Health Services Fund for employers in various sectors will gradually decrease over a five year period beginning in 2017. Broadly, these changes will be implemented as follows:
For SMBs in the resource and manufacturing sectors:
For SMBs in sectors other than the resource and manufacturing sectors:
Adjustment to the Refocusing of the SBD
For taxation years beginning after December 31, 2016, the criteria for a corporation that is not in the resource or manufacturing sector to qualify for the small business deduction will be based on a minimum number of hours worked instead of a minimum number of employees.
There are no changes to personal tax rates. The changes announced by the Federal Liberal government in December 2015, are reflected in the top marginal combined rates below:
The current maximum contribution of $1,000 will decrease to $800 in 2017 and nil in 2018.
New RénoVert Tax Credit
A new credit is introduced for eco-friendly renovation work undertaken to improve a personal residence. The credit is equal to 20% of the cost of qualified renovations over $2,500, with a maximum credit of $10,000. The actual work must be done prior to October 1, 2017 under agreements entered into prior to April 1, 2017.
Refundable Work Premium Tax Credit
The rate used to calculate the maximum refundable work premium tax credit will be increased for households without children.
Greater Access to the Tax Shield
In 2016, the maximum increase in eligible work income relative to the previous tax year will be raised from $2,500 to $3,000 for each household member.
Improved Tax Treatment of Donations
Beginning in 2016, the income-related limits used in the calculation of the charitable donation tax credit will be eliminated. Beginning in 2017, the maximum amount that can be claimed as a donation tax credit by an individual who is subject to the top marginal rate will be increased to match the top marginal rate.
Conditions for Easing of the Tax Provisions Applicable to the Transfer of Family Business
The 2016 Budget introduces seven criteria that will allow taxpayers to take advantage of this measure announced in the 2015 Budget.
Duties on Transfers of Real Estate
- There are a number of exemptions from paying duties on the transfer of real estate that apply if certain conditions are met. In the corporate context, these conditions are based on the relationship between the transferor and the transferee, generally measured by the ownership of 90% of votes or value.
- The exemption based on 90% of votes will be clarified that it is the number of votes attached to shares that will determine if the 90% threshold is met. In addition, for this exemption to apply, this threshold will have to be met for a minimum period of 24 months following the transfer and, in the case of a transfer from a corporation to an individual, for a period of 24 months immediately preceding and immediately following the transfer.
- The exemption based on 90% of value will be revoked given the difficulty of its application.
- Currently, transfer duties are only payable on the registration of the deed of transfer and thus can be deferred indefinitely where an exemption is otherwise not available. The Budget proposes to amend this long-standing position such that transfer duties will become payable on the transfer of the real estate, regardless of registration.
- A disclosure mechanism and special duties of 150% of the ordinary duties will be provided where an exemption ceases to be met or where transfers are not registered in the land register. A voluntary disclosure mechanism will be available for a partial waiver of these special duties.
- A transfer of real estate between former de facto spouses will be exempted from transfer duties if the transfer occurs within 12 months following the breakdown of their union.
These measures will take effect for transfers made after March 17, 2016.
Simplification of the Registration Procedure for Charities
Beginning in 2016, to align with the other provincial tax systems, a charitable organization, a public foundation or a private foundation that possesses a valid registration under federal tax legislation will be deemed to also be registered with the Minister of Revenue.