Quebec released Information bulletin 2019-11 on December 16, 2019
Quebec has introduced changes to the notion of tax paid-up capital, to reflect the changes introduced by the Accounting Standards Board on the accounting treatment of retractable or mandatorily redeemable shares. The province has also restricted eligibility for the dividend tax credit. This information is among measures included in Information bulletin 2019-11, issued on December 16, 2019. The 20-page Information bulletin also indicates that Finance Quebec is continuing to study Canada's proposed amendments to the stock option regime and the province says it will announce whether it will harmonize at a later date.
Financial statement "paid-up capital"
Quebec is amending its tax legislation in light of changes made by the Accounting Standards Board (ASB) to the accounting treatment of "retractable or mandatorily redeemable shares".
Under Quebec legislation, tax paid-up capital is used to determine a corporation's eligibility for certain tax measures (such as the small business deduction). Generally, a corporation's tax paid-up capital is based on financial statements prepared in accordance with generally accepted accounting principles and includes certain equity and long-term liability amounts.
ASB's new standard
Under the ASB's new standard, redeemable shares recorded at their issued and paid-up or stated capital amount may be reclassified as a liability and recorded at their redemption amount. This may result in an unwanted increase in the amount of the corporation's tax paid-up capital since the redemption amount usually exceeds the issued and paid-up or stated capital of these redeemable shares. The offsetting adjustment for this increase is either a:
Currently, Quebec legislation does not allow an amount recorded in a separate component of a corporation's equity to be deducted in the calculation of tax paid-up capital, which would therefore not offset the increase in the tax paid-up capital resulting from the accounting change.
The Information Bulletin announces that any provision recorded in connection with the redemption of retractable or mandatory redeemable shares will be, regardless of the accounting approach used in the presentation of a corporation's financial statements, included in the calculation of tax paid-up capital, effective for fiscal years beginning as of January 1, 2020.
Quebec dividend tax credit
Quebec is restricting the eligibility for the dividend tax credit for dividends received or deemed received after December 31, 2019.
The Quebec tax legislation will be updated so that only an individual, including a trust, who is resident in Quebec on the last day of a taxation year can benefit from the dividend tax credit for that year. This will apply to dividends received or deemed received after December 31, 2019.
The Quebec tax legislation provides specific rules for calculating the Quebec tax payable of:
Under these specific rules, the tax payable by such an individual for a taxation year is equal to the portion of the tax otherwise determined represented by a proportion that takes into account the individual's income earned in Quebec and his or her income earned in Quebec and elsewhere or in Canada for that year.
Currently, these individuals may deduct from their tax otherwise payable for the year, in respect of the dividend tax credit, an amount that is determined by taking into account that proportion applicable to the individual for the year.
Quebec says that if it were to harmonize with the proposed Federal stock option regime changes, it would share an effective date with the Federal rules (i.e., it would affect stock options granted under an agreement entered into on or after January 1, 2020).
Quebec also says it will be harmonize with Federal measures to recognize eligible Canadian journalism organizations as qualified donees.
Changes to certain Quebec refundable tax credits
The information bulletin also introduces changes to certain refundable tax credits, specifically by:
The bulletin also clarifies the tax on lodging for persons operating a digital accommodation platform, which was announced in the provincial 2019 budget and will:
For more information, contact your KPMG adviser.
Information is current to December 17, 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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