Quebec Minister of Finance, Monique Jérôme-Forget presented the 2009-2010 Quebec Budget in the National Assembly on March 19, 2009. The following is a summary of the more significant tax measures introduced.

MEASURES AFFECTING SALES TAX

Increase in the rate of the Quebec sales tax as of January 1, 2011

As of January 1, 2011, the rate of the QST will rise from 7.5% to 8.5%.

Concordance adjustment pursuant to QST rate change

With the QST rate rising to 8.5%, the mathematical factors to take into account the QST applied on the GST are currently rounded off to 7.87% and 12.87%. The factors will be replaced by 8.92% and 13.92% respectively as of January 1st, 2011.

In the case of a taxable benefit related to the cost of operating an automobile, the rate of the QST, currently at 4.7% will be raised to 5.4% as of taxation year 2011.

In the case of the simplified method for calculating rebates regarding an employee or partner expense accounts, for which the mathematical factor currently applicable is 4.1%, Revenu Quebec will specify the change of rate at a later date.

Corresponding increases in the Tobacco Tax have also been announced.

Adjustment to the QST Quick Accounting methods

Quick method for small businesses

In the case of the quick accounting method for small businesses, the prescribed rate will be raised to 3% for vendors of movable properties and to 6% for other businesses (currently at 2.7% and 5.3% respectively).

Quick method for certain public service bodies

In the case of the quick accounting method for public service bodies, the prescribed rate for municipalities will rise to 5.2% (from 4.6%) and the prescribed rate will rise to 6.6% (from 5.9%) for other bodies.

Refundable tax credit for the QST

A refundable tax credit for the QST is granted to low income families. Due to the increase of the QST rate, the upward adjustment of the credit may reach $150 in the case of a couple, $125 in the case of a person living alone and $75 in other cases. As before, the credit is reduced where family income exceeds $30,345. Beginning in 2012, the QST credit will be automatically indexed.

MEASURES AFFECTING BUSINESSES

Introduction of a ten-year income tax holiday for a new corporation dedicated to the commercialization of intellectual property

A ten-year income tax holiday is being introduced, applicable to new corporations dedicated to the commercialization of intellectual property developed in Quebec universities and Quebec public research centres.

Subject to the issuance of a certificate of eligibility from the the ministère du Développement économique, de l’Innovation et de l’Exportation (MDEIE), a corporation deriving all or almost all of its income from the making or the sale of goods incorporating intellectual property will be entitled to benefit from a tax holiday on the income deriving from this business.

Introduction of a five-year royalty holiday for new natural gas wells

A five-year royalty holiday of up to $800,000 per well will be granted for any well put into production after March 19, 2009 and before January 1, 2011.

Changes to the refundable tax credit for the development of e-business

This tax credit, introduced in the Budget Speech of March 13, 2008 whose rate is 30% of eligible salaries paid is restricted to eligible corporations having at least 75% of all activities in the information technology sector. The notion of activities in the information technology sector will be broadened to incorporate additional activities related to the technology industry.

Changes to the refundable tax credit for design

The definition of an eligible design activity, for purposes of the refundable tax credit for design, will be changed so that it no longer refers to the industrial sector or to the fashion sector, but rather to the design of goods made on an industrial basis.

The criterion regarding production of goods in Quebec will be withdrawn.

These changes will apply regarding design work for goods made on an industrial basis carried out after March 31, 2009.

MEASURES AFFECTING INDIVIDUALS

Change to the rate table of the refundable tax credit for child care expenses

As of the 2009 taxation year, the new rate table for calculating the refundable tax credit for child care expenses will be comprised of 32 family income brackets instead of 33. The credit rate decreases gradually from 75% to 26% as before but, for families earning income between $84,040 and $140,450, the graduated rate will be increased up to 30% compared with the rates of 2008.

A new table for determining advance payments must also be used. The new table will apply to 2009 and subsequent years.

Increase to $9,000 in the limit on child care expenses for a child under 7 years of age

The limit on child care expenses paid for a child who is under 7 at the end of a given year (other than a child with a severe and prolonged impairment in mental or physical functions) will be raised from $7,000 to $9,000 as of the 2009 taxation year.

The maximum allowable amount of $175 a week applicable to amounts paid for a child who attends a boarding school or camp will remain unchanged.

Improvement of the tax treatment of child care expenses paid during parental leave

The tax legislation will be amended to provide that, as of the 2009 taxation year, an individual’s child care expenses will include the expenses incurred for childcare services throughout the period during which the individual or the individual’s eligible spouse for the year received benefits under the Quebec Parental Insurance Plan or birth- or adoption-related benefits under the federal Employment Insurance plan or a plan established by another province.

Changes to the Quebec Education Savings Incentive (QESI)

For contributions paid to a QESI after December 31, 2008, the Budget proposes to simplify the QESI entitlement rules by removing the minimum contribution requirements regarding children 16 or 17 years of age at the end of a given year, and to replace it by a requirement that a Canada Education Savings Grant be paid for the year.

OTHER MEASURES

Changes to the SME Growth Stock Plan, which becomes the Stock Savings Plan II (SSP II)

The name "SME Stock Growth Plan" will be replaced by "Stock Savings Plan II" as of March 20, 2009.

The plan will be extended for five years, i.e. until December 31, 2014.

The tax legislation will be amended so that the adjusted cost of a qualifying share or a valid share, for an individual or an investment fund, is raised from 100% to 150% of the cost of such share.

The tax legislation will be amended to raise the asset limit of a qualified issuing corporation from $100 million to $200 million.

This change will apply regarding a public offering of shares for which the receipt for the final prospectus, or the filing exemption, as the case may be, is granted after March 19, 2009.

Finally, in order to reduce the minimum holding period by one year, the tax legislation will be amended so that an investor satisfies the minimum holding period requirement where he holds in his plan, on December 31 of the year of acquisition as well as on December 31 of the two subsequent years, qualifying shares, valid shares or qualifying securities for which the total adjusted cost is at least equivalent to the amount of deductions claimed under the plan over the preceding two taxation years.

Temporary increase in the tax credit for the acquisition of shares issued by Fondaction

The rate of the tax credit for the acquisition of shares issued by Fondaction will be temporarily raised to 25% (from 15%), for any share or fraction of a share acquired after May 31, 2009, and no later than the ending date of the fiscal year at the end of which Fondaction first reaches a capitalization of at least $1.25 billion.

Introduction of a refundable tax credit for the acquisition or lease of a new green vehicle

A refundable tax credit will be granted to a person or enterprise who acquires or leases, between the Budget date and December 31, 2015, a recognized green vehicle. This tax credit will be adjusted depending on the vehicle’s environmental performance. The amount of tax credit will span from $750 and $8,000.

Recovery of certain administrative costs by Revenu Quebec

The tax legislation will be amended so that a fee of $93 will be charged to a debtor who has not settled his tax debt within the allowable limits and whose file is initially acted on by a tax collection official.

Measures relating to the January 27, 2009 Federal Budget

Quebec's tax legislation and regulations will be amended to incorporate notably the measures relating to:

1. the deduction for loss of value of investments in a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF) after death;

2. the increase in the small business limit, subject to the clarifications made below:

   The increase in the small business limit from $400,000 to $500,000 will apply as of March 20, 2009. However, where the taxation year of a corporation includes March 19, 2009, the increase in the business limit applies in proportion to the number of days of such taxation year that follow that day;

3. the amendments pertaining to the capital cost allowance (CCA) applicable to certain assets. For greater clarity, the assets covered by the change relating to machines and to manufacturing and processing equipment can constitute eligible assets for purposes of the investment tax credit. The same is true of eligible computers and system software (i.e. those used in manufacturing and processing) covered by the improvement;