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MEASURES CONCERNING INDIVIDUALS

Increase from $500 to $1,000 in the deduction for workers

The maximum amount of the newly introduced deduction for workers will be doubled, from $500 to $1,000, as of the 2007 taxation year.

Increase in the refundable tax credit for home support services for seniors

The list below gives an overview of the principal changes that will be made, as of the 2007 taxation year, to the refundable tax credit for home support services for seniors.

Basic parameters

• Increase in the tax credit rate from 23% to 25%
• Increase in the eligible expenses limit from $12,000 to $15,000
• Introduction of a $300 deductible

Payment of the tax credit

• Claiming the tax credit on the income tax return
• Payment through Desjardins/SEP to cease
• Advance payment of the tax credit by Revenu Québec

Recognized home support services

• Eligibility of nursing services as recognized home support services

Amount of eligible expenses

• New rules for determining eligible expenses included in charges resulting from co-ownership
  
  

Introduction of tax relief for employee transit passes

Currently, employers may deduct 100% of the costs incurred to supply their employees with transit passes. The 2006-2007 Budget raises this tax deduction to 200%.

The additional deduction of 100% related to employee transit passes will apply to reimbursements, after March 23, 2006, of the cost of subscription-type transit passes, paratransit passes or transit passes supplied by employers, valid for a period after March 31, 2006, up to the portion of the reimbursements that is attributable to that period.


In addition, the tax legislation will be amended to provide that the value of a benefit relating to transit passes that was received because of an office or employment will not be a taxable benefit to the individual.

Improvement in the tax treatment of donations

The tax legislation will be amended, as of the 2006 taxation year, to reduce the threshold above which the tax credit applies at a rate of 24%. The threshold of $2,000 will be lowered to $200.

Thus, the first $200 taken into consideration in the calculation of the tax credit for donations made by an individual will give entitlement to a tax credit calculated at a rate of 20%, while a rate of 24% will apply to the remainder.


The tax legislation will also be amended to stipulate that no capital gain will result from the gift of a musical instrument, where this gift is made to a recognized educational institution; and the limit, generally set at 75% of the donor’s income, on the total of the eligible amounts of the gifts used to calculate the tax credit or the deduction (for corporations) for donations will not apply. These measures will apply to gifts made to a recognized educational institution after March 23, 2006.

Child-care expenses – spring break

Currently, parents of school-age children cannot benefit from a reduced contribution for the care of their children during the spring break.

The budget proposes to make available, beginning in the 2006-2007 school year, the option of paying, during the spring break, a contribution of $14 per day for the care of school-age children (kindergarten and elementary school) who use school child-care services during that period.

This new reduced contribution, unlike the contribution of $7 per day, will give entitlement to the refundable tax credit for child-care expenses.


Refundable tax credit for adoption expenses

The tax legislation will be amended to include, in the list of the expenses that are eligible for the refundable tax credit for adoption expenses, expenses that arise due to a requirement imposed by a government authority during the adoption of a child. This amendment will apply as of the 2006 taxation year.

MEASURES CONCERNING BUSINESS

Lower tax rate for small businesses

The small tax rate applicable to the business ceiling of corporations will be reduced from 8.5% to 8% as of March 24, 2006.

Improvement to the refundable tax credit for on-the-job training periods

The refundable tax credit for on-the-job training periods, which was due to expire for training periods beginning after December 31, 2006, has been extended indefinitely.

The weekly caps on eligible expenditures that are currently $625 or $500, as the case may be, will be raised to $750 and $600 respectively. The maximum hourly rate will be raised from $15 to $18. These changes will apply regarding an eligible expenditure incurred after December 31, 2006, regarding an eligible training period beginning after that date.


Adjustments to the refundable tax credit for design

For purposes of the refundable tax credit for design in the fashion sector, a corporation’s minimum percentage of production in Québec is currently 20% of its total production. Concerning the industrial sector, a corporation’s minimum percentage of production in Québec is 50%.

The minimum percentages of production in Québec will no longer apply solely to goods that the corporation produces, but also to the goods produced under subcontract to the corporation. This adjustment will apply both in the fashion sector and the industrial sector. These changes will apply to an eligibility certificate issued after April 21, 2005.

Increase in the deduction for renovations or alterations to improve access to a building

The tax legislation will be amended to enable a taxpayer to deduct, in calculating his income from a business or property, the portion of the amount he paid during the year for renovations or alterations made to a building he uses mainly to earn such income, and regarding which he holds an eligibility certificate issued by the Régie du bâtiment, according to which such renovations or alterations incorporate the obstacle-free design standards set out in the Building Code. These changes will apply regarding renovation or alteration expenditures incurred after March 23, 2006.

Carry-forward period for donations made by corporations

The tax legislation will be amended to extend the carry-forward period for donations made by corporations from five to twenty years. This amendment will apply to donations made by a corporation during a taxation year ending after March 23, 2006.

MEASURES CONCERNING CONSUMPTION TAXES

Refund of Québec sales tax paid on a hybrid vehicle

A person who purchases or takes out a long-term lease on a new hybrid vehicle, prescribed by the Minister of Revenue, may claim a refund of the QST paid in respect of the sale or leasing of that vehicle, up to a maximum of $1,000. However, this refund may not be claimed by a person who is a registrant under the QST system, or by a person who is entitled to a refund of the QST paid in respect of this sale or leasing under other provisions of this system.

To claim this QST refund, the buyer or lessor of a hybrid vehicle must apply to Revenu Québec using the prescribed form accompanied by the prescribed supporting documents, and must satisfy the prescribed terms and conditions.

This measure will apply to a new hybrid vehicle that has been purchased or for which a long-term lease has been taken out after March 23, 2006 and before January 1, 2009.

Fuel tax refund in respect of biodiesel fuel

To encourage more widespread use of biodiesel fuel the government will allow all consumers to claim a refund of fuel tax paid in respect of biodiesel fuel acquired after the day of the Budget.

OTHER MEASURES

Tax treatment applicable to taxable dividends

Harmonization of the Québec legislation

The Québec legislation will be amended to harmonize with the Federal announcement of November 23, 2005; specifically, to increase the gross-up of dividend income from 25% to 45% for dividend income consisting of eligible dividends. The gross-up of all taxable dividend income other than eligible dividend income will remain at 25%.

However, these measures will not be adopted until after the approval of any federal law or the adoption of any federal regulation arising from the announcement made on November 23, 2005, taking into account technical amendments that might be made prior to the approval of the law or the adoption of the regulation.

Adjustment of the 10.83% dividend tax credit

The Québec dividend tax credit will be increased for dividend income consisting of eligible dividends to equal 11.9% of the grossed-up dividend.

The Québec dividend tax credit applicable to other dividend income will be reduced to 8% of the grossed-up dividend.

Consequently, the maximum combined federal/Québec tax rate applicable to dividends will decrease from 32.82% to 29.65% for an eligible dividend and increase to 36.36% for other dividends.

These changes will apply to dividends that are paid or are deemed to have been paid after March 23, 2006.

Refundable tax credit respecting the reporting of tips

The tax legislation will be amended to stipulate that expenses eligible for the tax credit will include the portion of the indemnities for statutory general holidays and for days of leave for family or parental matters that is attributable to tips and that was paid in the taxation year or the fiscal year. These amendments will apply to such indemnities paid after March 23, 2006.

Measures to counter tax evasion in the restaurant sector

Obligation to remit invoices

The tax legislation will be amended to require restaurant operators to remit to all customers to whom they supply goods and services an invoice showing the transaction.

Restaurant operators who fail to remit an invoice to a customer will incur a penalty of $100 as a result of this omission and will commit an offence for which they will be liable to a fine of no less than $300 and no more than $5,000. For a second offence committed within five years, the fine will be no less than $1,000 and no more than $10,000, and for any subsequent offence within that period, no less than $5,000 and no more than $50,000. Restaurant operators will have to keep a copy of the invoice as a supporting document for the information contained in the registers they are required to keep under the tax legislation. This measure will apply to sales of goods and services made by restaurant operators as of the effective date of any regulation adopted under the implementing bill.

Obligation to use cash registers equipped with a microcomputer approved by Revenu Québec

No later than January 1, 2011, all restaurant operators who are required to remit invoices to their customers will have to use a cash register equipped with a microcomputer housed in a secure casing to prepare such invoices and keep a register of their sales.

Restaurant operators who are registered for the Québec sales tax will also have to provide, along with the tax return that is to be filed under Québec’s sales tax system for each of their reporting periods, a report on the sales recorded by the microcomputer in each of those periods.

FEDERAL LEGISLATION AND REGULATIONS

The ministère des Finances specified that, generally speaking, Quebec’s tax legislation and regulations will be amended to incorporate, with adaptations based on their general principles, the various federal legislative amendments announced on December 20, 2002. This will also be the case of the legislative proposals announced on July 18, 2005, and of those set out in the News release 2005-080 of November 17, 2005. However, these measures will be adopted only after the approval of any federal law or the adoption of any federal regulation arising from it, taking into account amendments that might be made prior to the approval of the law or the adoption of the regulation, and will generally apply on the same dates as for federal income tax purposes.

Included in the above is a measure designed to deny R&D claims and the associated Investment Tax Credits when claims are filed after the 12-month filing deadline. Québec will adopt this measure and will also extend it to all other refundable tax credits for businesses.

OTHER RECENT PROVINCIAL BUDGETS

ALBERTA – March 22, 2006

The general corporate income tax rate will decline from 11.5% to 10% on April 1, 2006. The tax rate for individuals remains at 10%. The province has not yet decided whether to mirror the November 23, 2005 federal proposals concerning the taxation of dividend income.

ONTARIO – March 23, 2006

The rate of capital tax will be reduced by 5% effective January 1, 2007. Ontario will seek to conclude as soon as possible an agreement to allow for the collection and administration of Ontario corporate taxes by the federal government, and is also contemplating the early integration of federal and Ontario tax audits. Ontario will review and respond to the federal proposals on the taxation of dividend income when federal legislation is introduced.

DATES TO REMEMBER