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Quebec Announces Tax Harmonization Measures with 2019 Federal Budget

Quebec Announces Tax Harmonization Measures

Quebec agrees to parallel some recent federal tax measures

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Quebec announced new harmonization measures in Information Bulletin 2019-7. The tax measures in this nine-page bulletin will align several Quebec tax measures with recently proposed federal government tax legislation, most notably measures that were announced in the 2019 federal budget.

When implementing measures relating to the federal budget, the bulletin states that the changes to the Quebec tax system will only be adopted following assent to any federal statute (or adoption of any federal regulation) implementing the proposed federal measure being harmonized. Further, the bulletin states that these changes will apply on the same dates as the federal measures being harmonized.

Measures harmonizing with the 2019 federal budget

Corporate income tax measures

  • Quebec will harmonize with various corporate tax measures proposed in the 2019 federal budget, including measures related to:
  • Enhanced first-year CCA of 100% for zero-emission vehicles (new Classes 54 and 55)
  • Calculation of "specified corporate income" for fishing and farming corporations
  • Character conversion transactions
  • Transfer pricing rules (ordering of rules and reassessment period)
  • Foreign affiliate dumping amendments
  • Modification of the allocation to redeemers methodology for mutual funds.

Personal income tax measures
Quebec will harmonize with various personal tax measures proposed in the 2019 federal budget, including measures to:

  • Increase the Home Buyer's Plan withdrawal limit to $35,000 (from $25,000) and other changes
  • Clarify that the portion of the tuition fees refunded through the Canada Training Credit will not qualify as eligible expenses under the tuition tax credit
  • Remove the requirement that property must be of "national importance" to qualify for enhanced tax incentives for donations of cultural property
  • Add cannabis as an eligible expense for the medical expense tax credit
  • Modify the change in use rules for multi-unit residential properties
  • Modify the TFSA rules to extend the joint and several liability for tax owing on income from carrying on a business in a TFSA to the unit holder
  • Remove the time limitation on the period that a registered disability savings plan (RDSP) may remain open after a beneficiary becomes ineligible for the disability tax credit
  • Allow new types of annuities under certain registered plans
  • Clarify certain rules relating to the financial assistance payments received by care providers under a kinship care program
  • Modify the rules for specified multi-employer pension plans
  • Modify the rules applicable to pensionable service under an individual pension plan
  • Modify electronic delivery of requirements for information.

QST harmonization measures
Quebec will harmonize with various federal GST/HST measures proposed in draft legislation released on May 17, 2019. These changes to the QST system will:

  • Expand the definition of a "freight transportation service"
  • Extend the application of drop-shipment rules
  • Treat virtual currency as a financial instrument.

Quebec says it is studying the federal measure to extend the GST/HST holding corporation rules to holding partnerships and trusts, and will announce any harmonization decisions on this measure at a later date.

For more information on the federal draft legislation, see TaxNewsFlash-Canada 2019-24 "Holding Companies - Prepare for GST/HST Rules".

Other harmonization measures
Quebec will also amend its legislation regarding the rate used to calculate the taxable benefit relating to standby charges in connection with the personal use of an employer-provided automobile. Currently, the standby charge is computed as 2% of the cost of the vehicle each month. If the individual is employed principally in selling or leasing vehicles, then a reduced rate of 1.5% is available. Beginning in the 2020 taxation year, the reduced rate of 1.5% will not be available to individuals who are also shareholders of the corporation.

Federal measures not adopted by Quebec
Quebec will not harmonize with certain 2019 budget measures, including measures related to:

  • The Canada training credit
  • Certain new tax measures and tax credits that support Canadian journalism
  • The repeal of the use of a CCPC's taxable income as a factor when determining its annual eligible expenditure limit under the enhanced SR&ED tax credit
  • Cross-border share lending arrangements.

Finally, Quebec says it will announce on a later date whether it intends to harmonize with federal 2019 budget measures to:

  • Clarify that "kinship providers" are eligible for the Canada Workers Benefit amount, provided other eligibility requirements are met
  • Recognize eligible Canadian journalism organizations as qualified donees.

For more information, contact your KPMG adviser.

Information is current to June 25, 2019. 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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