Carlos Leitão, the Minister of Finance of Québec, tabled his government's 2018-2019 budget this afternoon. The budget contains many tax measures intended primarily to ease the tax burden of corporations.
Increase in the Small Business Deduction (SBD) rate
The budget proposes to gradually increase the SBD rate in order to progressively reduce the small tax rate from 8% to 4%, starting in 2021. This means that for 2018, the small rate will be lowered to 7% as of March 28, 2018.
What's more, the rate of the additional deduction for SMBs in the primary and manufacturing sectors will gradually be reduced until it is repealed, effective January 1, 2021, in order to keep the reduced tax rate at 4%. The change will apply to tax years ending after March 27, 2018, and the instalments may be adjusted accordingly.
For a fiscal year straddling the dates of the rate changes, the rate will be prorated according to the number of days of the fiscal year that fall in each period.
Replacement of the 35% additional capital cost allowance by an additional capital cost allowance of 60%
The budget proposes to increase to 60% the 35% additional capital cost allowance introduced in the 2017 budget for manufacturing or processing equipment and general-purpose electronic data processing equipment. The asset has to be new, and acquired after March 27, 2018, and before April 1, 2020.
Gradual reduction of the Health Services Fund (HSF) contribution rate for all small and medium businesses (SMBs)
The budget proposes several modifications to the calculation of the employer contribution to the HSF:
- the $5 M threshold applicable to the total payroll of an employer to determine whether it is eligible for the rate reduction offered to SMBs will, in general, be raised progressively over 4 years, starting in 2019, to reach $7 M in 2022. This threshold will be indexed annually starting in 2023;
- for SMBs in sectors other than the primary or manufacturing sectors, i.e. services and construction, the HSF contribution rate for employers with a total payroll not exceeding $1 M will gradually go from 2.3% to 1.65%, over a period of five years; the HSF contribution rate for employers in these sectors with a total payroll higher than $1 M but not exceeding $5 M in 2018, or not exceeding the corresponding threshold for subsequent years, will also be entitled to a gradual reduction over five years of the rate applicable for the calculation of their contribution;
- SMBs in the primary and manufacturing sectors with a total payroll not exceeding $5 M in 2018, or not exceeding the threshold relative to the total payroll applicable for a year prior to 2018, will also benefit from a gradual reduction of the HSF contribution rate.
Introduction of a refundable tax credit to foster qualifying training for workers employed by SMBs
The budget proposes the introduction of a refundable tax credit that will allow a company with a total payroll lower than $7 M to benefit from fiscal assistance of up to $5,460 annually for every full-time employee who attends an eligible training program in a recognized institution after March 27, 2018, and before January 1, 2023.
Enhancement of the refundable tax credit for on-the-job training periods
The budget proposes to increase the refundable tax credit for on-the-job training periods regarding Aboriginal trainees and eligible training periods served in establishments located in resource regions. In addition, the weekly ceiling of the eligible expense and the maximum hourly rate of this refundable credit will be raised for all categories of eligible trainees. These modifications will apply to eligible training periods which start after March 27, 2018.
Québec Sales Tax (QST) on e-commerce
The budget proposes that a new mandatory registration system be created, in which a non-resident supplier that does not have a physical or significant presence in Québec will be required to collect and remit QST for certain supplies provided directly or via a digital platform, to a specified Québec consumer.
These measures will apply beginning on January 1, 2019, for suppliers located outside Canada and on September 1, 2019, for suppliers located within Canada.
The budget proposes, in particular, other measures for companies as follows:
- expanding the sectors of activity eligible for the tax holiday for large-scale investment projects;
- introducing a refundable tax credit to support the digital transformation of print media companies;
- amendments to the following refundable tax credits:
- for the production of events or multimedia environments staged outside Québec;
- for film production services;
- for Québec film and television production;
- for film dubbing;
- for the production of biodiesel fuel in Québec;
- for the production of cellulosic ethanol in Québec;
- for the production of ethanol in Québec;
- introducing a temporary refundable tax credit for pyrolosis oil production in Québec;
- creating an environmental study allowance for a mining operator for a fiscal year ending after March 27, 2018;
- amending the compensation tax for financial institutions;
- harmonizing certain measures announced in the recent federal budget, in particular:
- expanding the scope of the rules for artificial tax losses using equity-based financial arrangements and securities lending arrangements;
- mending the stop-loss rules on share repurchase transactions applicable to shares held as mark-to-market property;
- adding transparency measures to counteract cross-border surplus stripping through partnerships and trusts;
- lightening rules on foreign affiliates.
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The purpose of this document is to provide general information, which is not to be construed as tax advice. While reasonable steps have been taken to ensure the accuracy of this information, Desjardins offers no guarantee whatsoever as to this.