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Quebec To Cut Back Tax Breaks To Balance Budget

by Mike Godfrey, Tax-News.com, Washington

05 December 2014


The Québec Government has announced plans to eliminate CAD600m (USD528m) worth of tax expenditures as part of a drive to balance its budget in 2015-16.

The changes were announced as part of Finance Minister Carlos Leitão's update on the Canadian province's economic and financial situation. His aim is to limit the deficit to CAD2.35bn in 2014-15 and eliminate it by 2015-16.

The Government intends to introduce minimum eligible expenditure thresholds for research and development (R&D) tax credits and for the tax credit for investments relating to manufacturing and processing equipment. It proposes standardizing the rates of the base tax credit for R&D and the tax credit rates applicable to private partnerships, research consortiums, and university research. It also plans to eliminate the lower rate of the tax on capital for insurance corporations and to increase the tax applicable to financial institutions.

The Government pledged that, beyond the introduction of these measures, it will not reduce the overall support granted to businesses through tax assistance and the tax system as a whole.

Individuals will also be affected by the cuts. The update provides for a reduction in the rate of the tax credit for union and professional dues and the harmonization of the eligibility criteria for the work premium with those for the federal working income tax benefit. In addition, it will scrap the lower rate of the tax on automobile insurance premiums and will hike the registration fee for vehicles with a large engine displacement.

Leitão said: "Returning to a balanced budget and putting public finances in order are crucial to Québec's economic and social development, and, in keeping with the measures announced in the Budget, we are doing what it takes to get there."

In spite of these cuts, Leitão did unveil a number of initiatives designed to support economic growth. These include a reduction in small business Health Services Fund Contribution rates and a temporary increase to the refundable tax credit for Québec film and television production. A new tax credit for farmers and an increase in the capital gains exemption for the sale of a farming or fishing business are intended to encourage a new generation of farmers. The Government will also continue with its plans to reduce the tax rate for small manufacturing firms from eight percent to four percent.

Leitão's update revealed that, for the first time in three years, tax revenue is rising faster than Government spending. A 2.9 percent increase in revenue is forecast for 2014-15, with a 4 percent rise projected for 2015-16. Spending growth hit 4.7 percent in 2013-14, but will fall to 2.4 percent in 2014-15, and to 0.8 percent in 2015-16.

TAGS: Finance | tax | investment | small business | business | insurance | budget | tax credits | ministry of finance | manufacturing | tax rates | Canada | tax reform | research and development

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