Ryan Tax Alert - Quebec Budget 2008

On March 13, 2008, Minister of Finance Monique Jérôme-Forget tabled Quebec’s 2008-2009 budget. A prudent and disciplined proposal, the balanced budget revises forecasted economic growth in 2008 to just 1.5 per cent, and contains relatively modest spending initiatives designed to bolster health care, education, sustainable development, and support for families and seniors.

No new taxes or tax increases were announced in this year’s budget. However, in an effort to stimulate investment in Quebec, the government is proposing to eliminate the province’s tax on capital and introduce investment tax credits for eligible manufacturing and processing equipment and information technologies. A few interesting commodity tax changes were also announced.

Measures Related to the Federal Budget

The budget indicates that changes will be made to the QST system to parallel the GST/HST measures introduced in the federal budget on February 26, 2008 regarding health care services, long-term residential care facilities, and property leases for wind and solar power equipment.

In summary, the relevant GST/HST measures announced last month include:

• exempting training specifically designed to aid individuals in coping with the effects of a disorder or disability;
  
  
• exempting all nursing services provided to an individual, regardless of where these services are provided;
  
  
• expanding the exemption available for diagnostic services ordered by registered nurses;
  
  
• zero-rating all supplies of drugs sold to a final consumer when prescribed by an authorized health professional;
  
  
• adding four new categories of zero-rated medical and assistive devices and ensuring that the zero-rating provisions for such devices only apply to items which are intended to be used by humans;
  
  
• making certain that health care services provided by health professionals are treated as exempt whether provided directly by a health professional or administered by a corporation;
  
  
• ensuring that long-term residential care facilities remain eligible for certain rebates and exemptions afforded to residential leases and sales of used residential rental buildings; and
  
  
• extending the relief available for the supply of a right to explore for or exploit a mineral or peat deposit, or a forestry, water or fishery resource, to include the supply of a right of entry or use to generate, or evaluate the feasibility of generating, electricity from the sun or wind.

Note that the above measures, with some variation to reflect Quebec’s general principles, will only be adopted once the underlying federal provisions have received Royal Assent and, in most cases, will take effect on the same dates as for GST/HST purposes.

Further details on the federal budget proposals may be found on the Ryan web site at: http://www.ryanco.ca/prandth/0208/02article2.html.

Initiatives to Improve Enforcement and Compliance

The budget announced several new initiatives designed to curb tax evasion and avoidance, including a few measures specifically designed to address commodity tax concerns.

Proposed changes to the Act respecting the ministère du Revenue (“AMR”) will extend the Minister’s powers to suspend, revoke or refuse to issue or renew a registration certificate where, during the five preceding years, a director or senior officer of an organization has been convicted under any fiscal law, been assessed a penalty as a result of fraudulent activity, or failed to pay an amount assessed under the AMR.

Further amendments will provide auditors and inspectors with the ability to use an organization’s computer hardware, including the CPU and printer, while conducting an audit of the organization, and the power to seize goods under the AMR will be extended to allow any object used for the purpose of committing an offence to be confiscated. Additional changes related to selling, returning or destroying seized goods will also be made, providing for the authority under the AMR to be substantially the same as that under the Tobacco Tax Act and the Fuel Tax Act.

In an effort to exert better control over contraband tobacco and reduce smuggling activities, the budget has introduced changes to:

• prevent the holder of a manufacturer’s permit for the purpose of producing, mixing, preparing or packaging tobacco from providing these services to persons who do not hold such a permit;
  
  
• change the definition of raw tobacco to include any form of tobacco;
  
  
• prohibit the purchase or receipt of raw tobacco in Quebec from persons who do not hold a valid permit; and
  
  
• subject importers of tobacco products to the same accounting and reporting requirements as those imposed on wholesalers and shippers.

The budget also noted that sales recording modules would be installed in certain restaurants under a pilot project announced last January – an idea targeting tax evasion in the restaurant industry that was first introduced by the government in 2006.

Additional information on the 2008-2009 Quebec budget is available on the province’s web site at: http://www.budget.finances.gouv.qc.ca/budget/2008-2009/index_en.asp.

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