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QST/GST harmonization: Summary of changes

2011-10-25

On September 30, 2011, the Prime Minister of Canada and Quebec’s Premier announced the signing of a memorandum of agreement (MOA) to harmonize their tax systems. The federal government will therefore pay Quebec the $2.2 billion promised during the last federal election campaign that the Quebec government has been claiming for a long time. The payments will be made in two instalments, one of $733 million in January 2013, and another of $1.467 billion in January 2014. 

The key components of the MOA are very similar to the proposal made public by Minister Bachand in his last budget speech.

Accordingly, Quebec maintains its sales tax system but will make some changes, the most significant of which are set out below. Through the Agence du Revenu du Québec (ARQ), the Quebec government will continue to administer the GST/HST (and the QST) in its jurisdiction.

Most of the changes to the QST (referred to as the “Amended QST” for purposes of the MOA) will be implemented on January 1, 2013, and are summarized as follows:  

  • The QST rate will be adjusted to 9.975%. At the same time, however, the QST will no longer apply to GST inclusive supplies. Therefore, consumers will not be affected by the increase, since the total effective rate of 14.975% for both taxes remains unchanged in 2012 and 2013.
  • Financial services that are currently zero-rated will be exempt, which means that as of January 2013, financial institutions can no longer apply for a QST input tax refund. At the same time, the compensation tax imposed on financial institutions since July 1, 1992 will be abolished. However, the temporary compensation tax increase introduced as part of the Return to a balanced budget plan will be maintained until March 2014.    
  • As of April 1, 2013, the Quebec government and its agents will be subject to the GST/HST (harmonized sales tax), while the federal government will be subject to the QST system. The Quebec government will also be subject to its own QST.
  • As of January 1, 2018, ITR restrictions on certain input costs for large businesses ($10 million and over) will be phased out over a maximum of three years. As a result, the Quebec government will lose close to $1 billion annually.
    The parties have committed to set out the terms of the MOA in a detailed agreement that will be entered into by April 1, 2012.

Jean Lanoue, FCA
Member of the Committee for CAs in Taxation and Commodity Taxes

Jean-Marie Audet, CA

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