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Quebec — ITR restrictions eliminated for 2021

Quebec — ITR restrictions eliminated for 2021

Quebec fully phased out its ITR restrictions as of January 1, 2021

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Large businesses must adjust their systems now that Quebec has fully phased out its input tax refund (ITR) restrictions as of January 1, 2021. As a result of this change, certain large businesses may now claim 100% of the Quebec sales tax (QST) that becomes payable on goods and services that were previously subject to the ITR restrictions as of January 1, 2021 (up from 75%).

Affected businesses may need to adjust certain accounts in their systems and calculations that are related to the property and services that were subject to the ITR restrictions. These adjustments may include accounts related to purchases and leases of certain vehicles, common area maintenance charges and employee expense accounts. In addition, large businesses that qualify to claim ITRs will have to carefully review when the tax became payable (i.e., before or after January 1, 2021) in order to determine whether they can claim an ITR of 100% or 75% of the QST payable. These businesses should also review whether all the required changes were made for the previous three phase-out periods, and determine if they have missed any related ITRs over the last three years.

Background

In the previous phase-out period, a "large business" that qualified to claim ITRs and that incurred QST on a property or a service subject to the ITR restrictions could claim only 75% of related ITRs for such QST. In general, a large business is defined as a business with more than $10 million in annual revenues, including revenues from associated entities, as well as most financial institutions. Special rules apply for reorganization transactions and new businesses.

Property and services subject to the ITR restrictions include:

  • Electricity, gas, combustible or steam, unless used in production of goods intended for sale
  • Telecommunications, except for internet access services and toll-free numbers (e.g., "1-800" and "1-888" numbers)
  • Meals and entertainment expenses subject to the 50% deductibility restrictions for income tax purposes
  • Road vehicles under 3,000 kilograms that must be registered to travel on public roads
  • Fuel used in such road vehicles, other than diesel fuel.

Quebec's phase-out of its ITR restrictions follows similar tax changes in Ontario and Prince Edward Island. Ontario completed the phase-out of its recaptured input tax credit (RITC) rules on July 1, 2018, while Prince Edward Island will complete the phase-out period of its RITC rules on April 1, 2021.

Other affected transactions

Large businesses should also consider other types of transactions that may also be affected by the elimination of ITR restrictions, such as trade-ins of used vehicles and QST remittances related to employee taxable benefits. Quebec previously released guidance on how the phase out of the ITR restrictions may affect various transactions involving goods and services subject to the ITR restrictions, including transactions related to the acquisitions, sales, leases, trade-ins of road vehicles and road vehicles used by automobile dealers.

For more information, contact your KPMG advisor.

Information is current to January 5, 2021. 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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