2010 Quebec budget highlights

Highlights of the budget include the following:
• a progressive rise in the Quebec sales tax, from 8.5% in 2011 to 9.5% in 2012;
• the introduction of a new health contribution; and
• the temporary rise of the compensatory tax on financial institutions.

QST
The Quebec Sales Tax will increase from 7.5% to 8.5% on Jan. 1, 2011, and will rise again as of Jan. 1, 2012, to attain 9.5%. Towers Watson explains that for benefits related to the cost of operating an automobile, the amount of tax to be included in the calculation of the registrant’s net tax will correspond to 5.4% of the value of such a benefit for the 2011 taxation year, rising to 6% in 2012.

Healthcare system contributions
The minister proposes a budget with the introduction of a health contribution as of July 1, 2010. The contribution will be collected annually from individuals age 18 who exceed the low-income threshold and will be paid into a fund that will provide financing to health and social service institutions.

This contribution will be phased in as follows:
• 2010: $25 per adult (50% of an annual amount of $50);
• 2011: $100 per adult; and
• 2012: $200 per adult.

Employers are not required to contribute to provincial healthcare plans for their existing and retired employees, though certain employers could be contractually bound to do so.

Tax on financial institutions
Towers Watson explains that the budget includes a temporary rise in rates applicable to two of the three elements of the compensatory tax on financial institutions, which will remain in effect until March 31, 2014. This means:
• rates for insurance premiums and amounts dedicated to an insurance fund will rise from 0.2% to 0.55%, and
• rates for salaries will increase anywhere from 0.5% to 1.9%, depending on the type of financial institution.

This increase will raise the fees charged by insurers for group insurance programs offered to Quebec employees. It applies to both insured plans and self-insured plans and will take effect when any financial agreement with an insurer calls for the insurer to directly re-bill plan sponsors for the taxes to be paid by insurers.

Towers Watson notes that the tax hike could result in increased charges for pension funds for the services offered by financial institutions.

Federal harmonization
The Quebec government will automatically adopt certain recommendations of the 2010 federal budget, including measures:
• regarding the transfer of an amount in a registered savings plan to a registered disability savings plan, and
• affecting stock option plans in order to abolish the deferral of income—up to $100,000—arising from exercising of stock options, based on certain criteria until share disposal; and
• limit the advantages tied to tandem stock option plans, by allowing employees to continue to benefit from the deduction, provided that the employer relinquishes its deduction for cash payments.

The Quebec government is also committed to harmonizing its tax system with the federal system once the following modifications have been adopted by the federal government:
• the creation the Employee Life and Health Trust;
• the increase of the maximum surplus threshold for defined benefit pension plans to 25%; and
• the tightening of the anti-avoidance rules related to tax-free savings accounts.

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