The Minister of Finance, Raymond Bachand, presented his third Budget on March 20^th, 2012.

The Budget does not change tax rates for corporations or individuals (with the exception of some trusts).

Measures to help seniors remain in their home

Two refundable tax credits and two new tax credits will be established by the Budget.

First of all, the limits to the refundable tax credit to keep an elderly person at home will be increased beginning January 1^st, 2013 and will include, among other changes, a gradual increase to the rate from 30% to 35% over the next five years. Additionally, the allowable expense limit will be increased by $3,900.00 and the reduction of the credit as a result of family income will be abolished for elderly people considered not to be autonomous.

The refundable tax credit available to an informal caregiver of an elderly spouse unable to live alone will be increased from $700 to $1,000. over the next five years. Thereafter, the credit will be subject to annual indexation.

A refundable tax credit will be made available beginning in 2012 with respect to costs incurred by seniors for a stay in a functional rehabilitation transition unit. This credit will effectively be made available to someone over 69 years old and corresponds to 20% of the costs of the stay.

Finally, an individual over 69 years of age will be entitled to a new refundable tax credit of 20% of all amounts paid in order to rent or purchase equipment permitting the individual to continue to live alone.

Increase of refundable tax credit for new graduates working in remote resource regions

In order to encourage new graduates to begin their careers in a remote resource region, the existing tax credit is increased from  $8,000 to $10,000.

Change to the tax payable by an inter vivos trust

In some circumstances non-testamentary trusts  (including mutual fund trusts and specified investment trusts) currently pay  tax at a rate of 20%. This will be increased to 24% in order to correspond to the highest marginal tax rate applicable to an individual. This change will apply to taxation years of a non-testamentary trust ending after March 19^th, 2012.

Changes to the taxation of non-resident trusts

An inter-vivos  trust which did not reside in Canada at any moment during a year and is not exempt from tax will be required to pay income tax at the rate of 5.3% on rental income derived from immovable property located in Québec. This new tax will apply to taxation years ending after March 19^th, 2012.

After March 20^th, 2012, a non-resident inter vivos trust which begins to reside in Canada will be deemed to have disposed of (and to have reacquired) all of its immovable property located in Québec for their fair market values immediately before the trust established residency. As a result, the trust will be subject to Québec tax on the taxable capital gain as well as recaptured depreciation arising from the deemed disposition, unless it is exempt from tax.

Measures relating to pooled retirement savings

First of all, Québec will harmonize its rules with the new federal rules concerning pooled registered pension plans.

In addition, employers will be encouraged to contribute for the benefit of labour funds in order to benefit from reductions in the assessments of their employer’s contributions calculated on the salary. More specifically, the value of a benefit arising from the purchase by an employer of a share issued by a labour fund will be excluded from the definition of salary for the purpose of calculating the employer’s contributions.

Reduction of the Health Services Fund assessment

Employers can expect to see their contributions to the health services fund reduced with respect to workers aged 65 or over. Each employee will give rise to a reduction of $400.00 in the year 2013 and the reduction could reach $1,000.00 by 2016.

Tax relief for public transportation

The tax legislation will be amended so that inter-municipal public transportation services organized by employers for a large number of their employees is subject to tax treatment similar to the treatment for employers who set-up a program promoting the regular use of public transit.

Renewal of the refundable tax credit for labour training in manufacturing forestry and mining

This refundable tax credit which was to end at the end of 2011 has now been extended to December 31, 2015.

Changes to the refundable tax credits for multimedia productions and corporations specialized in the production of multimedia titles

These tax credits will be amended in order to simplify their application. Changes to the tax legislation and to the sectoral parameters will be made so that the categorization of multimedia titles and certification of specialized corporations, as well as the rules applicable to sub-contractors and eligible productions, will be simplified.

Improvements to the tax credit for investments relating to manufacturing and processing equipment

The legislation will be amended so that property used principally in the course of ore smelting, refining or hydrometallurgy of minerals, other than gold or silver, can be qualified property for the purposes of the investment tax credit.

Tax measures to encourage the creation of new financial services corporations

Briefly, an eligible corporation may benefit from a refundable tax credit equal to 30% of qualified salaries that it pays to qualified employees during a taxation year in the first five years of admissibility. In addition, an eligible corporation can benefit from a refundable tax credit equal to 40% of eligible expenses which it pays in the course of a taxation year during the said five years.

The budget also establishes a tax holiday for a foreign specialist employed by an eligible financial services corporation. This tax holiday applies for five years on a declining basis to employment contracts concluded after Budget day.

New refundable tax credit pertaining to the diversification of markets for Québec manufacturing corporations

In order to support manufacturing businesses in Québec that wish to export their products outside of Québec, a new tax credit has been established on a temporary basis. This refundable credit will be equal to 30% of the eligible certification costs incurred with respect to eligible goods up to a ceiling of $45,000 per eligible property or goods, as the case may be.

Changes to the refundable tax credit for resources

The Budget proposes a 10 percentage point reduction of the existing refundable tax credit related to resources which is available to corporations that do not develop mineral resources, oil or natural gas in connection with certain exploration expenses. Other corporations, for which the credits are available, will see the credit reduced by 5 percentage points.  Rates applicable to renewable resources will not be reduced.

On the other hand, an increased tax credit will be available by granting an option to the Québec government to acquire an equity stake in the development.

Recognition of eligible public research centers

The Budget provides that the Institut national de santé publique du Québec will be recognized as an eligible public research center for the purposes of the refundable tax credit for scientific research and experimental development.

Establishment of a refundable tax credit pertaining to the cost of issuing shares as part of an initial public offering under the Stock Savings Plan II

To facilitate a corporation’s access to the capital markets, a refundable tax credit equal to 30% of eligible issuing costs that a corporation incurs on an initial public offering of shares in the context of an offering under the Stock Savings Plan II will be available.

A temporary refundable tax credit up to a limit of $175,000.00 per taxation year is established for corporations which own hotel establishments, tourist homes, resorts, bed and breakfast establishments or youth hostels located outside the greater Montréal and greater Québec City regions. This tax credit will be equal to 25% of the portion of the eligible expenditures of that exceed $50,000. The work may be a renovation, reorganization improvement, conversion or expansion related to one or more of the major components of the accommodation establishment.

In addition, the Budget will allow regional tourist associations a third option concerning the lodging tax. As a result, the associations will be entitled to an acquired tax of a fixed amount of $2 or $3 overnight or a 3% ad valorem tax.

The Budget also foresees certain changes to existing rules in the cultural sector:

• tax relief that is available to foreign workers will be broadened to include additional positions;
• French language film and television productions will benefit from an enhanced tax credit so that animated films will be entitled to the credit regardless of their target audience;
• the ceiling for tax credits available for the performances of musical comedies will be increased from $750,000.00 to $1,250,000.00.

In addition, a new tax credit is established for the production of multimedia environments or events staged outside of Québec. This credit will be equal to 35% of eligible manpower expenses incurred in the production up to a limit of $350,000.