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On March 27, 2018, the Quebec government presented its latest budget. Good news: it contains many tax relief measures for both corporations and individuals.

Following the recent information sessions tour and webinars organized by the Financial on the tax reforms concerning private corporations, we analyzed this budget to determine whether it could have an additional impact on the reforms. We also took into account the concerns of our professional clients and we detail for you the measures which, in our view, could have repercussions on your financial situation.

In the following pages, we present the main tax measures affecting private corporations and those affecting individuals.

Private corporations

Reduction in the tax rate on business income eligible for the small business deduction (SBD)

Corporations whose employees work more than 5,500 hours in a year will see their tax rate gradually reduced by 4% between 2018 and 2021 on the first $500,000 of business income (or less according to the business limit).

  • The tax rate in Quebec, which was 8% on income not exceeding the business limit, falls to 7% as of the budget date.
  • This rate will be reduced by 1% per year until 2021, when it will reach 4%.

Note that an average tax rate will have to be calculated when a corporation’s fiscal year covers periods when different tax rates apply.

The table below illustrates the effect of the new tax cuts (federal and provincial) on business income earned by a corporation in Quebec.

Type of income 2017 2018 2019 2020 2021
Income below the $500,000 threshold (employees worked 5,500 hours or more) 18.50% 18% until March 27
17% after March 27
15% 14% 13%
Income below the $500,000 threshold (employees worked fewer than 5,000 hours) 22.30% 21.70% 20.60% 20.60% 20.60%
Income above the $500,000 threshold 26.8% 26.7% 26.6% 26.5% 26.5%

Gradual reduction of the Health Services Fund (HSF) contribution rate

To reduce the tax burden of small and medium-sized businesses, the Health Services Fund (HSF) contribution rate will be gradually reduced to 1.65% in 2022. Effective March 28, 2018, the applicable rate will be 1.95% instead of 2.30%, the rate previously in force.

Note that this contribution must be paid on declared wages. The reduction in the HSF contribution rate could therefore be advantageous for those who prefer compensation in the form of salary.

HSF rate 2018 2019 2020 2021 2022
Total payroll of $1 million or less 2.30% until March 27

1.95% after March 27

1.80% 1.75% 1.70% 1.65%

As always, we’re keeping an eye on any news that could impact your wealth. Should you have any questions concerning the repercussions that these budget announcements could have on your corporate or personal finances, don’t hesitate to contact your advisor. Together, we can find answers to all your questions and offer you the best advice.

Benoit Chaurette, M. Fisc., F. Pl.
Tax Specialist and Financial Planner

Shan-Shan Chua, CPA, CGA, DESS Fisc.
Tax specialist

 

The information contained herein has been obtained from sources deemed reliable, but we do not guarantee the accuracy of this information, and it may be incomplete. The opinions expressed are based upon our analysis and interpretation of this information and are not to be construed as a recommendation. The tax strategies mentioned in this article may not apply in all cases. Please consult your Advisor.

Individuals

First-time home buyers’ tax credit

A tax credit (maximum of $750) for the purchase of a first home will now be available at the provincial level. The basic rules that apply are similar to those for the existing federal tax credit.

  • The buyer (or his or her spouse) must intend to inhabit the home not later than one year after the purchase.
  • To qualify as a first home, the buyer, or his or her spouse, must not have owned a home in the four years preceding the purchase.

Extension of the RénoVert credit

The eligibility period for the RénoVert tax credit has been extended once again. Homeowners who sign a renovation contract before March 31, 2019 can apply for the RénoVert credit.

  • The credit conditions remain unchanged.
  • The maximum credit is $10,000 per eligible dwelling and is equal to 20% of eligible expenses paid in excess of $2,500.

Gradual reduction of the dividend tax credit

In connection with the decrease in the general tax rate and the increase in the small business deduction (SBD), a gradual reduction of the tax credit for all dividends received after March 27,  2018 will come into effect.

The table below shows how these changes will affect the maximum tax rate on dividends received in Quebec (combined federal and provincial tax rate):

Type of dividend 2018 2019 2020 2021
Eligible dividends 39.83% until March 27
39.89% after March 27
40.00% 40.11% 40.11%
Regular dividends 43.94% until March 27
44.83% after March 27
46.25% 47.14% 48.02%

 

As always, we’re keeping an eye on any news that could impact your wealth. Should you have any questions concerning the repercussions that these budget announcements could have on your corporate or personal finances, don’t hesitate to contact your advisor. Together, we can find answers to all your questions and offer you the best advice.

 

The information contained herein has been obtained from sources deemed reliable, but we do not guarantee the accuracy of this information, and it may be incomplete. The opinions expressed are based upon our analysis and interpretation of this information and are not to be construed as a recommendation. The tax strategies mentioned in this article may not apply in all

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get in touch with one of our advisors