Small Business Deduction
The Budget proposes a change to the qualifying criteria for the small business deduction (SBD) for corporations that do not operate in the resource or manufacturing sectors. For taxation years commencing after 2016, the hours “worked” criteria will be replaced by an hours “paid” test with special treatment given to controlling shareholders who do not receive a salary.
Tax Holiday for Large Investment Projects
The 2013-14 Budget proposed a 15-year tax holiday for certain large investment projects. The Budget proposes to extend the deadline to apply for an initial qualification certificate to December 31, 2020. The Budget also proposes that large investment projects be in phases in order to simplify the administration of the tax holiday provisions.
Additional Capital Cost Allowance of 35%
Machinery and equipment used in manufacturing and processing and electronic data processing equipment and related systems software acquired after March 28, 2017 and before April 1, 2019 will be entitled to an additional capital cost allowance of 35%.
This additional deduction will only be available for the year the property is acquired and the immediate subsequent taxation year and applies strictly to property used mainly in Quebec.
Quebec Film or Television Production
The enhanced credit for special effects and computer animation will increase from 8% to 10%.
The enhanced credit for regional activities will increase from 8% to 10% and from 16% to 20%, depending on the nature of the production.
The enhanced credit for productions with no other public financial assistance will increase from 8% to 16%.
Film Production Services
Eligibility for the film production services tax credit will be expanded by abolishing the eligible small-budget productions category. To further facilitate access to the credit, the entry level threshold of production costs will be reduced to $250,000 from $1 million.
These measures will apply to productions for which an application for an approval certificate is filed with the SODEC after March 28, 2017.
Compensation Tax for Financial Institutions
The application period of the compensation tax for financial institutions is extended for an additional five years, to March 31, 2024.
The current compensation tax rates will be maintained for an additional period of five years and will continue to apply until March 31, 2022.
New Financial Services Corporations
Expenses eligible for the tax credit relating to a new financial services corporation will be expanded. In addition, the tax credit representing 24% of an eligible salary paid to an eligible employee and the tax credit representing 32% of other eligible expenses will be extended by five years, until the end of 2022.
The health contribution will be eliminated retroactively to 2016 for low and middle income earners and slightly amended for individuals with income over $134,095. Revenu Québec will automatically reassess 2016 returns that have already been assessed and adjust returns not yet filed.
Personal Tax Credits
The basic personal tax credit will be increased by $55 to $2,382 as of the 2017 taxation year and will be indexed automatically annually thereafter. This will increase the zero-tax income threshold to $14,890 in 2017.
As of 2017, the rate used to calculate personal tax credits will be lowered however, the amounts eligible for the various credits will be increased such that there will be no actual change in the tax credits themselves. The rates used to compute tax credits for medical expenses, interest on student loans and donations will not be affected.
RénoVert Tax Credit
The RénoVert Tax Credit was introduced in the 2016 Budget as a temporary measure to encourage eco-friendly home renovations, such as improvements to insulation, windows, doors and heating and ventilation systems. The 20% refundable tax credit is capped at $10,000 per eligible dwelling and applies to qualified expenditures in excess of $2,500. The credit has now been extended by one year to include agreements for eligible renovations entered into by March 31, 2018.
Waste Water Treatment Tax Credit
To financially assist home owners who must undertake work to upgrade septic systems, a new temporary refundable tax credit for the upgrading of residential waste water treatment systems is being introduced. The 20% tax credit will be capped at $5,500 per eligible dwelling and will apply to qualified expenditures in excess of $2,500 with respect to the owner’s principal residence or cottage. The credit will apply to recognized work carried out by a qualified contractor under service agreements entered into after March 31, 2017 and before April 1, 2022.
No changes in the QST legislation were announced.
Concerted Action Committees
The Budget proposes to increase funding of committees focused on certain high-risk sectors, including the construction industry, the illicit trade of tobacco and alcohol, organized networks of unreported work, as well as economic and financial crime.
Passenger Transportation Services
In order to increase tax compliance in the passenger transportation sector, sales recording modules will be implemented in all vehicles offering this type of service starting in 2019, whether they are conventional taxis or ride-sharing service providers, such as Uber.
Tourist Accommodation Sector
Revenu Québec’s inspection powers will be enhanced to ensure tax compliance of taxpayers offering tourist accommodations through sharing economy platforms, such as AirBnB.
Access to Justice
Small Claims Division
To unburden the courts, the Budget proposes legislative changes:
- to enable small businesses with ten employees or less to contest a tax decision rendered following an objection before the Small Claims Division of the Court of Quebec. This option was previously accessible only to individuals.
- to increase the eligibility threshold in tax cases before the Small Claims Division to assessments of less than $15,000.
February 21, 2017 Measures
Three measures that affected Quebec businesses were announced on February 21, 2017 are outlined below.
Generational Transfer of Businesses
The 2016 Budget introduced measures that allowed entrepreneurs selling a business in certain non-arm’s length transactions to benefit from capital gains treatment. These measures, which were limited to businesses operating in the resource and manufacturing sectors, will now apply to all business sectors in Quebec retroactively to transfers that occurred after March 17, 2016.
Deemed Disposition of Listed Shares of a Corporation
The government proposed to allow the deferred payment of tax resulting from the deemed disposition of shares listed on a stock exchange for a maximum period of 20 years. This deferral applies only to individuals or trusts owning more than one-third of the voting rights of the corporation or part of a certain group that meets such threshold. The deemed dispositions targeted are those resulting from the following situations:
- death of the owner of the shares;
- application of the 21-year rule to a trust that owns the shares.
Moreover, this 20-year deferral includes additional payment flexibility in case the value of the shares decreases between the time of initial tax deferment and the time payment is required.
To benefit shareholders of public corporations, the government proposed to increase the stock option deduction rate of public corporations, with a payroll in Quebec of $10 million or more, from 25% to 50% in order to match the rate applicable in other Canadian provinces.