December 22, 2004 - Ministère des Finances
Transcription
December 22, 2004 - Ministère des Finances
2004-11 December 22, 2004 Modifications to increase the integrity and the consistency of the tax system This information bulletin describes, in detail, numerous changes, most of them technical, that seek to increase the integrity of the tax system and to improve consistency. Among others, new graduates who began to hold an eligible job in a remote resource region between June 12, 2003 and March 31, 2004 will be entitled to claim the refundable tax credit for new graduates of up to $8 000. It also states the position of the ministère des Finances concerning a number of announcements by the Department of Finance Canada. For information regarding the matters dealt with in this information bulletin, contact the Secteur du droit fiscal et de la fiscalité at (418) 691-2236. The French and English versions of this bulletin are available on the ministère des Finances website at : www.finances.gouv.qc.ca Paper copies are also available, on request, from the Direction des communications, at (418) 528-9323. 2004-11 December 22, 2004 Modifications to increase the integrity and the consistency of the tax system 1. MEASURES CONCERNING INDIVIDUALS ............................................................... 3 1.1 Adjustment of the refundable tax credit for new graduates working in a remote resource region ................................................................................................ 3 1.2 Measures relating to Cooperative Investment Plan...................................................... 3 1.3 Measure to prevent a twofold reduction of taxable income .......................................... 7 1.4 Changes to averaging mechanisms ............................................................................. 8 2. MEASURES CONCERNING BUSINESSES ............................................................. 17 2.1 Streamlining of the acquisition of control rules concerning the elimination of fiscal measures relating to the carrying out of eligible activities in a designated site ........................................................................................................... 17 2.2 Adjustments concerning international financial centres ............................................. 24 2.3 Clarification of the scope of the limit on the deductibility of investment expenses.................................................................................................................... 30 2.4 Changes to study certification applications relating to the Zone de commerce international de Montréal à Mirabel .......................................................... 30 3. OTHERS MEASURES ............................................................................................... 32 3.1 Measures relating to tax-advantaged funds ............................................................... 32 3.2 Exemption from the obligation to file an information return regarding certain contractual payments made by credit card................................................................. 34 3.3 Harmonization to news release of Decembre 17, 2004 issued by the federal Department of Finance regarding limits and rates governing the use of an automobile......................................................................................................... 36 3.4 Non-Harmonization to the measures of the Federal Budget Speech of March 23, 2004 regarding mutual funds .................................................................... 37 3.5 Non-Harmonization to the measures of the news release of December 20, 2002 regarding assessments issued to third parties .................................................. 37 2 2004-11 December 22, 2004 1. MEASURES CONCERNING INDIVIDUALS 1.1 Adjustment of the refundable tax credit for new graduates working in a remote resource region The March 11, 2003 Budget Speech contained an announcement that new graduates who, after March 11, 2003, began to hold an eligible job in a remote resource region could claim, subject to certain conditions, tax relief consisting of a refundable tax credit of up to $8 000. However, in the June 12, 2003 Budget Speech, which among other things focused on tightening tax expenditures, it was announced that this measure would be discontinued, except for individuals who began to hold an eligible job, after March 11, 2003, for which they were hired no later than June 12, 2003. After studying the demographic issues affecting the regions, it was decided to reinstate this measure in the March 30, 2004 Budget Speech regarding individuals who began holding an eligible job after March 30, 2004. The successive introduction, abolition and reinstatement of this tax credit over a very short period resulted in excluding from the application of this measure individuals who began to hold an eligible job prior to March 31, 2004 and for which they were hired after June 12, 2003. To afford fair treatment to all individuals who began to hold an eligible job since the introduction of the measure, the tax legislation will be amended to extend the application of this measure to new graduates who began to hold an eligible job prior to March 31, 2004 and for which they were hired after June 12, 2003. 1.2 Measures relating to Cooperative Investment Plan The March 30, 2004 Budget Speech announced the introduction of a new Cooperative Investment Plan (CIP) intended for the capitalization of Québec cooperatives and federations of cooperatives that genuinely need it. To achieve this objective, it was announced in particular that: — criteria regarding the territoriality of activities carried out by cooperatives and federations of cooperatives, the location of their assets, their equity as at April 23, 1985 and, for some, their capitalization rate would be introduced to direct capitalization assistance towards entities that need it and with a substantial presence in Québec; — measures to ensure the integrity of the plan would be introduced, in particular a special tax for cooperatives and federations of cooperatives that issue securities eligible for the new CIP without complying with some of the conditions giving rise to the issue of their eligibility certificate. 3 2004-11 December 22, 2004 To comply more completely with the objective of the new CIP, various changes will be made to this plan. R New legal compliance eligibility criterion Currently, the criteria on which the Minister of Economic and Regional Development and Research must rely to issue, to a cooperative or federation of cooperatives, an eligibility certificate authorizing it to issue securities eligible for the new CIP do not give him the assurance that the cooperative or federation of cooperatives complies with the provisions of the law governing it. Accordingly, the rules of the new plan will be changed to stipulate that the Minister of Economic and Regional Development and Research may refuse to issue such a certificate if he concludes, following an examination of the annual report of a cooperative or federation of cooperatives, that the latter has failed to comply with the requirements of the Cooperatives Act. Moreover, the Minister of Economic and Regional Development and Research may revoke an eligibility certificate authorizing a cooperative or a federation of cooperatives to issue securities eligible for the new CIP, if the cooperative or federation of cooperatives, as the case may be, is requested to file a cooperative compliance program or has failed to produce such program or to implement it within the specified time limit. For greater clarity, a cooperative or federation of cooperatives whose certificate is revoked may not obtain a new eligibility certificate before the expiration of a period of 36 months following the date on which the revocation takes effect. These changes will apply as of the date of publication of this information bulletin. R Eligibility of shareholding workers cooperatives Shareholding workers cooperatives governed by the Cooperatives Act are included in the types of cooperatives that can be eligible for the CIP. Unlike other types of cooperatives that can be eligible for the CIP,1 shareholding workers cooperatives are not formed to actively carry on a business. Shareholding workers cooperatives consist exclusively of natural persons whose goal is to acquire and hold shares of the company that employs them and whose purpose is to provide work to their members2 through the business carried on by such company. This type of cooperative enables its members to be, through it, collectively shareholders of the company that employs them. 1 For example, labour cooperatives, producer cooperatives if they supply at least 90% of their goods or services to persons or to partnerships that obtain them for the purpose of earning business income or cooperatives of producers most of whose members, other than associate or auxiliary members, carry on an agricultural business registered with the ministère de l'Agriculture, des Pêcheries et de l'Alimentation du Québec. 2 Including their auxiliary members. 4 2004-11 December 22, 2004 To better reflect the specific nature of shareholding workers cooperatives, various changes will be made to the new plan. • Criterion relating to the territoriality of activities The Minister of Economic and Regional Development and Research may, upon application by a cooperative or a federation of cooperatives, issue an eligibility certificate to it for the new plan provided in particular that, at the end of the fiscal year ending in the calendar year preceding the authorization application, the cooperative or federation of cooperatives satisfies the criterion relating to the territoriality of its activities. According to this criterion, a cooperative or federation of cooperatives must exercise its general management in Québec and more than half of the wages paid to its employees must be paid to employees who, for the purposes of the regulations enacted under section 771 of the Taxation Act, are employees of an establishment located in Québec. As formulated, this criterion is not adapted to the reality of shareholding workers cooperatives, since the latter are not formed for the purpose of carrying on a business. To reflect the fact that the holding of shares by shareholding workers cooperatives in the company that employs their members contributes to the capitalization of such company, the criterion relating to the territoriality of activities must, when it applies to a shareholding workers cooperative, be formulated as follows: — the general management of the cooperative and of the company that employs its members must be exercised in Québec; — more than half of the wages paid to the employees of the company that employs the members of the cooperative and, as the case may be, to employees of legal persons with which the company is associated, is paid to employees who, for the purposes of the regulations enacted under section 771 of the Taxation Act, are employees of an establishment located in Québec. For greater clarity, any shareholding workers cooperative that applies for an eligibility certificate authorizing it to issue shares eligible for the new plan must send the Minister of Economic and Regional Development and Research an attestation signed by two directors of the cooperative certifying that the criterion relating to the territoriality of activities, as newly formulated, is satisfied. These changes will apply regarding any application for authorization to issue shares eligible for the new plan submitted to the Minister of Economic and Regional Development and Research after March 30, 2004. • Measure to ensure the integrity of the plan To ensure that the tax assistance for the capitalization of shareholding workers cooperatives is directed to the primary goal of this type of cooperative, namely the acquisition and holding of shares in a company that employs their members, a measure will be implemented to ensure the integrity of the CIP. 5 2004-11 December 22, 2004 Briefly, when the total of the amounts paid regarding securities eligible for the CIP3 outstanding at the end of a given year exceeds 115% of the cost of the shares held in the company that employs the members of a shareholding workers cooperative, the cooperative must pay a special tax equal to 30% of such excess. This special tax may, however, be recovered if such excess declines during a subsequent year. However, no special tax will be payable regarding the portion of an excess that is attributable to a period prior to the date of issue of the first eligibility certificate authorizing a shareholding workers cooperative to issue securities eligible for the new plan. More specifically, when, during a given calendar year, a shareholding workers cooperative that holds an eligibility certificate for the new CIP issues securities eligible for such plan, redeems securities eligible for the former or the new CIP or acquires shares of the company that employs its members, a formula, hereunder called “adjustment formula”, must be applied to determine whether such cooperative must pay a special tax or may recover all or part of the special tax previously paid. If the result of the adjustment formula applied regarding a given calendar year is positive, the cooperative is required to pay, no later than March 31 of the year following the given calendar year, an amount equal to the positive result thus obtained. However, if the result is negative, the cooperative may claim a refundable tax credit, equal to the negative result thus obtained, for its taxation year in which the given calendar year ends or whose end coincides with such year. Adjustment formula 30% The excess of the total The excess of the total of of the amounts paid the amounts paid regarding securities regarding securities eligible for the CIP4 eligible for the CIP outstanding at the end outstanding immediately of the given calendar – prior to the issue of the first year over 115% of the eligibility certificate for the cost of acquisition5 of new CIP over the cost of 6 of all the all the shares that the acquisition shares the cooperative cooperative holds, at held, at that time, in the the end of such year, in company that employs its the company that members employs its members 7 + The total of all the The total of all the amounts that the amounts that the cooperative is cooperative was entitled to obtain required to pay as a refundable tax regarding a prior credit for a prior – calendar year further to the calendar year further to the application of this application of this formula formula This measure will apply regarding calendar year 2004 and subsequent calendar years. 3 Securities eligible for the CIP include both securities issued under the rules of the new plan and those issued under the rules of the former plan. 4 Ibid. 5 The cost of acquisition of a share must be determined without taking into account the costs of borrowing, brokerage, custody or other similar expenses associated therewith. 6 Ibid. 7 If the amount calculated using the formula within parentheses is less than zero, such amount will be deemed equal to zero. 6 2004-11 December 22, 2004 Example On December 23, 2004, immediately prior to obtaining its eligibility certificate for the new CIP, a shareholding workers cooperative has the following characteristics: — the total of the amounts paid regarding securities eligible for the CIP outstanding immediately before the issue of the eligibility certificate is $290 000; — the cost of acquisition of all the share it holds, at that time, in the company that employs its members is $230 000. In the event that this cooperative issues, before the end of 2004, securities eligible for the new CIP for a total amount of $30 000, without acquiring, before the end of that year, new shares of the company that employs its members, this cooperative will have no tax payable for 2004 further to the application of the adjustment formula. 30% [ ($320 000 – $264 500) – ($290 000 – $230 000) ] + 0 – 0 30% [ $55 500 – $60 000 ]8 = 0 If, during 2005, this cooperative issues new securities eligible for the CIP for a total amount of $100 000 and acquires, before the end of that year, $75 000 worth of shares of the company that employs its members, this cooperative will have to pay, further to the application of the adjustment formula, a special tax of $2 775 for 2005. 30% [ ($420 000 – $350 750) – ($290 000 – $230 000) ] + 0 – 0 30% [ $69 250 – $60 000 ] + 0 – 0 = $2 775 In 2006, if the cooperative does not issue securities eligible for the CIP and does not acquire shares of the company that employs its members, but proceeds to redeem securities eligible for the former CIP for $50 000, this cooperative may receive, further to the application of the adjustment formula, a refundable tax credit of $2 775. 30% [ ($370 000 – $350 750) – ($290 000 – $230 000) ] + 0 – $2 775 30% [ $19 250 – $60 000 ]9 + 0 – $2 775 30% [ 0 ] – $2 775 = ($2 775) 1.3 Measure to prevent a twofold reduction of taxable income Various transfer programs and many refundable and non-refundable tax credits have been designed to provide low or middle-income households with greater assistance. For the purposes of these measures, a household’s income must be determined in accordance with rules stipulated by the personal income tax system. So that the income determined regarding an individual adequately reflects his economic situation, the tax system stipulates that an individual must include, in calculating his income, various amounts, including some amounts that are not taxable because they give rise to a corresponding deduction in calculating taxable income. 8 Ibid. 9 Ibid. 7 2004-11 December 22, 2004 For the same reason, the tax system allows an individual to deduct, in calculating his income, any amount previously covered by an inclusion that he had to repay. However, to prevent, following the repayment of certain non-taxable amounts, a taxpayer from benefiting a second time from a reduction of his taxable income, the tax system stipulates that taxable income must be adjusted by including the amount deducted for a repayment. Currently, such an adjustment to taxable income must be made only if the repayment applies to an amount that is a non-government social assistance payment, a supplement or allowance paid under the Old Age Security Act, a scholarship, fellowship or bursary, a prize for a remarkable achievement or a benefit from a public indemnity plan. Since the existing rules are too specific to effectively counter all situations in which a twofold reduction of taxable income could occur, these rules will be replaced, as of taxation year 2005, by a general application rule covering the repayment of any non-taxable amount. More specifically, the tax legislation will be amended to provide that an individual will be required to include in the calculation of his taxable income for a given taxation year, any amount deducted in the calculation of his income for the year as repayment of an amount covered, for a prior taxation year, by an inclusion in calculating his income, provided that the amount thus included was deducted in calculating his taxable income for such prior year. 1.4 Changes to averaging mechanisms The existing tax legislation stipulates various averaging mechanisms that can apply when, in a given year, an individual receives a qualifying retroactive payment10 relating to a prior year, pays deductible support allowance arrears or repays a support allowance or certain other benefits11 included in calculating his income for a prior year. The averaging mechanism applicable to a qualifying retroactive payment, whose use is optional, is designed to avoid a situation where an individual pays, for the year during which such payment is received, more tax than what he would have paid had such payment been received and taxed during each of the years to which it relates.12 10 Essentially, income from an office or employment received pursuant to a judgement, arbitration ruling or contract by which the parties settle a lawsuit, a benefit under the Québec Pension Plan, the Canada Pension Plan or federal employment insurance legislation, a deductible support allowance and any other amount, other than income from an office or employment, which, if taxed in the year it is received, would result, in the view of the Minister of Revenue, in an undue additional tax burden. 11 Namely a benefit received under the Québec Pension Plan or the Canada Pension Plan or certain benefits received under federal employment insurance legislation. 12 Generally speaking, to benefit from this mechanism, the portion of qualifying retroactive payments received in a given year that relates to one or more prior years must be at least $300. However, this threshold does not apply to the amounts received by an individual as repayment of support allowance from which a deduction was claimed, in calculating his income for a taxation year after taxation year 1997 and prior to taxation year 2003. 8 2004-11 December 22, 2004 The averaging mechanism applicable to amounts paid as support allowance arrears or repayment of a support allowance, that is, as far as it is concerned, compulsory,13 is designed to prevent an individual from obtaining, for the year during which he pays these amounts, a greater tax reduction than what he would have had had he paid the support allowance in the year when it was payable or had he not received the support allowance that he repaid, as the case may be. Briefly, these mechanisms stipulate than an individual, in calculating his taxable income otherwise payable for the year in which he received a qualifying retroactive payment or paid an amount of support allowance arrears or made a support allowance repayment, must make an adjustment corresponding to the tax that would have been payable, plus or minus, for each of the prior years to which such amount relates, if such amount was received or paid, as the case may be, during such year. The averaging mechanism available to an individual who repays, in a given year, a benefit received under the Québec Pension Plan, the Canada Pension Plan or the federal employment insurance legislation,14 hereunder called “covered benefit”, that was included in calculating his income for a prior year, allows the individual to obtain, for the given year, a refundable tax credit corresponding to the tax reduction to which he would have been entitled for each of the prior years to which the covered benefit is attributable, if such benefit was covered by a repayment during such year. Moreover, an averaging mechanism is also offered, for the purposes of calculating the 1% contribution to the Health Services Fund (HSF),15 regarding a retroactive payment included in the HSF contribution base, provided such payment is of the same nature as the retroactive payments qualifying16 for the income averaging mechanism stipulated in the personal income tax system.17 To enable the various averaging mechanisms to achieve their objective fully, by more adequately reflecting the duties that would have been payable for a given year, had the amounts attributable to such year that were received or paid in a subsequent year been so in such year, many changes will be made to the tax legislation. R Averaging mechanisms stipulated in the personal income tax system The Taxation Act will be amended to stipulate that only the amounts paid or received by an individual in a given taxation year that relate, in whole or in part, to a qualifying prior year of the individual may be covered by the averaging mechanisms stipulated by the personal income tax system. 13 The mechanism applies only if the portion of the amounts paid in a given year that relates to one or more prior years is at least $300. 14 A benefit received under the Unemployment Insurance Act or the Employment Insurance Act, other than a benefit that must be repaid under Part VII of the Employment Insurance Act. 15 This contribution is generally payable by individuals who receive income other than employment income. 16 Supra, 10. 17 Supra, 12. 9 2004-11 December 22, 2004 Accordingly, the expression “qualifying prior year” of an individual means a taxation year throughout all of which the individual was a resident of Canada, other than a taxation year ending in a calendar year during which the individual declares bankruptcy or that is included in an averaging period in accordance with an election made by the individual.18 Moreover, where, in a given taxation year, an individual elects to average the taxation of a qualifying retroactive payment attributable to one or more qualifying prior years,19 pays support allowance arrears or repays a support allowance that had been included in calculating his income for one or more prior qualifying years,20 such individual must adjust his tax payable for the given taxation year by an amount equal to all the amounts each representing the amount of the tax adjustment relating to the averaging attributable to a given qualifying prior year to which relates an amount received or paid during the given taxation year. This adjustment consists of an addition in the calculation of tax otherwise payable when the total of the amounts each representing the amount of the tax adjustment relating to the averaging attributable to a qualifying prior year is a positive amount. Otherwise, such adjustment shall consist of a non-refundable tax credit equal to the total of such amounts. The amount of the tax adjustment relating to the averaging attributable to a given qualifying prior year of an individual, to which relates an amount received or paid during a given taxation year, must be determined using the following formula:21 Difference22 between the corrected tax for the prior year and the tax payable for the prior year + Recovery of the amount of nonrefundable tax credits + Amount of the adjustment allowed for the given year regarding the repayment of a covered benefit attributable to the prior year – Cumulative amount of adjustments relating to averaging for preceding years In addition, where, within a given taxation year, an individual elects to average the repayment of a covered benefit,23 such individual may claim a refundable tax credit equal to all of the amounts each representing the amount of the adjustment allowed for the given year regarding the repayment of a covered benefit attributable to a qualifying prior year. The amount of the adjustment allowed for a given taxation year regarding the repayment of a covered benefit attributable to a given qualifying prior year of an individual must be determined using the following formula: 18 This election was previously available to individuals carrying on a fishing or farming business. 19 Supra, 12. 20 Supra, 13. 21 The amount calculated using this algebraic formula, if negative, shall not be deemed to be equal to zero. 22 For greater clarity, the term "difference" is used to take a negative result, if any, into consideration. 23 For greater clarity, only an individual residing in Québec on the last day of the taxation year may make such an election. Accordingly, the last day of the taxation year of an individual who dies or ceases to reside in Canada during a given year is deemed to be the day of his death or the last day on which he resided in Canada, as the case may be. 10 2004-11 December 22, 2004 Corrected tax for the prior year, excluding the repayment of a covered benefit in the given year – Corrected tax for the prior year For the purposes of these formulas, the expression: — “averaging mechanism” means the averaging mechanism applicable to qualifying retroactive payments, the averaging mechanism applicable to support allowance arrears or repayment or the averaging mechanism applicable to the repayment of a covered benefit; — “corrected tax for the prior year” means the tax that would have been payable by the individual for the prior year,24 had all the amounts attributable to such year that are subject, for the given taxation year or a preceding taxation year, to an averaging mechanism been included or deducted, as the case may be, in the calculation of the individual’s taxable income for the prior year; — “corrected tax for the prior year, excluding the repayment of a covered benefit in the given year” means the tax that would have been payable by the individual for the prior year,25 had all the amounts attributable to such year that are subject, for the given taxation year or a preceding taxation year, to an averaging mechanism been included or deducted, as the case may be, in the calculation of the individual’s taxable income for the prior year, except for the amount of a covered benefit repaid in the given taxation year; — “cumulative amount of adjustments relating to averaging for preceding years” means, for a given prior year, the difference between all the amounts each representing the amount of a tax adjustment relating to the averaging attributable to the prior year that was determined for a preceding taxation year and the all the amounts each representing the amount of the adjustment allowed for a preceding taxation year regarding the repayment of a covered benefit attributable to the prior year;26 24 Including, when such year is prior to taxation year 1998, the additional tax that was stipulated in Part I.1 of the Taxation Act. 25 Ibid. 26 For greater clarity, for the purposes of calculating the cumulative amount of adjustments relating to the averaging for preceding years, the proportion of income earned in Québec to income earned in Québec and elsewhere or the proportion of income earned in Québec to income earned in Canada of an individual, as the case may be, shall be deemed equal to 1 for such preceding year. 11 2004-11 December 22, 2004 — “recovery of the amount of non-refundable tax credits” of an individual for a given qualifying prior year means the total of: • – when the prior year is either a year ending before taxation year 2003 for which the individual and his spouse for the year both determined their tax payable according to the rules of the simplified tax system, or a year after taxation year 2002, the excess of the amount that the spouse of the individual for the prior year deducted, in calculating his tax otherwise payable for the prior year, for the transfer of unused tax credits between spouses over the amount that could have been transferred as such by the individual, for the prior year, had all the amounts attributable to the prior year that are subject, for the given taxation year or a preceding taxation year, to an averaging mechanism been included or deducted, as the case may be, in the calculation of the individual’s taxable income for the prior year; – when the prior year ended before taxation year 2003 and the individual or his spouse for the year determined his tax payable for the year according to the rules of the general tax system, the excess of the amount that the spouse of the individual for the prior year deducted, in calculating his tax otherwise payable for the prior year, for the transfer of certain unused tax credits between spouses27 over the amount that the individual’s spouse could have deducted as such for the prior year, had all the amounts attributable to the prior year that are subject, for the given taxation year or a preceding taxation year, to an averaging mechanism been included or deducted, as the case may be, in the calculation of the individual’s taxable income for the prior year; – the excess of the amount that a person deducted, in calculating his income tax otherwise payable for the prior year for the tax credit for a dependant having a severe and prolonged mental or physical impairment over the amount that such person could have deducted as such for the prior year, had all the amounts attributable to the prior year that are subject, for the given taxation year or a preceding taxation year, to an averaging mechanism been included or deducted, as the case may be, in the calculation of the individual’s taxable income for the prior year. Addition of an amount in lieu of interest on the additional tax arising from the application of the averaging mechanism to a retroactive payment When a qualifying retroactive payment received in a given taxation year is attributable to a qualifying prior year that ended before the year immediately preceding the given taxation year, an amount, hereunder called “amount in lieu of interest”, must be added in the calculation of the individual’s tax otherwise payable for the given taxation year. 27 For taxation years prior to taxation year 1998, an individual who had a spouse and could not take full advantage of his tax credits with respect to age, for retirement income or for a severe and prolonged mental or physical impairment, could transfer the unused portion of these tax credits to his spouse. For taxation years 1998 to 2002, only the tax credit for a severe and prolonged mental or physical impairment could be so transferred between spouses. 12 2004-11 December 22, 2004 More specifically, the amount in lieu of interest, that must be added in the calculation of an individual’s tax otherwise payable for a given taxation year, is equal to the amount of interest that would have been calculated, for each of the prior years concerned, at the prescribed rate of interest payable on a refund due by the Minister of Revenue under a tax law, for the period beginning on May 1 of the year following the prior year concerned and ending immediately before the given year, on the excess: — of the amount of the tax adjustment relating to the averaging attributable to the prior year to which an amount received or paid during the given taxation year relates, over — the amount of the adjustment allowed for the given taxation year regarding a repayment of a covered benefit attributable to the prior year. • Individuals who must prorate their income tax payable According to the existing tax rules, individuals who reside in Québec and who carry on a business in Canada, outside Québec, those who reside in Canada, outside Québec, and who carry on a business in Québec, as well as those who do not reside in Canada but who are in particular employed in Québec or carry on a business there must do a prorate calculation to determine their income tax payable under certain provisions of the tax legislation. For the purposes of establishing, regarding a given qualifying prior year of an individual, the amount of the tax adjustment relating to averaging, the amount of the adjustment allowed regarding the repayment of a covered benefit and the amount in lieu of interest, the following rules will apply: — where an individual was resident in Canada but outside Québec on the last day of the prior year, he shall be deemed to have been resident in Québec on the last day of such year; — the proportion of an individual’s income earned in Québec to his income earned in Québec and elsewhere or the proportion of his income earned in Québec to his income earned in Canada, as the case may be, shall be deemed equal to 1 for the prior year. However, when an individual, for a given taxation year, must prorate his tax payable, the amount of the tax adjustment relating to averaging of an amount received or paid during the given taxation year and the amount in lieu of interest, that must be added in calculating his tax otherwise payable for the given taxation year, will be prorated using the same proportion as the one used to determine his tax payable for the given taxation year. Lastly, the amount of the refundable tax credit for repayment of a covered benefit, allowed for a given taxation year, to an individual who is resident in Québec, the last day of the given year, and carries on a business outside Québec in Canada will also be prorated using the same proportion as the one used to determine his tax payable for the given year. 13 2004-11 December 22, 2004 • Averaging mechanism for the 1% contribution to the HSF The Act respecting the Régie de l'assurance maladie du Québec will be amended to stipulate that only the amounts received by an individual in a given year that relate, in whole or in part, to a qualifying prior year of the individual may be covered by an averaging mechanism. Accordingly, a qualifying prior year of an individual means a year throughout all of which the individual was resident in Canada. Moreover, the amount that must be taken into consideration in calculating the 1% contribution payable to the HSF for a given year, the “adjustment to the HSF contribution”, shall be equal to the total of the amounts each of which represents the amount of the adjustment regarding a qualifying prior year to which is attributable a qualifying retroactive payment determined using the following formula: Excess of the corrected amount of the HSF contribution payable for the prior year over the HSF contribution payable for the prior year – Cumulative amount of adjustments made, in a preceding year, for the purposes of calculating the HSF contribution For the purposes of this formula, the expression: — “corrected amount of the HSF contribution payable” by an individual for a given prior year means the HSF contribution that would have been payable by the individual for the prior year, had all the retroactive payments attributable to such year that are subject, for the year or a preceding year, to the averaging mechanism been added in calculating the individual’s total income for the prior year; — “cumulative amount of adjustments made, in a preceding year, for the purposes of calculating the HSF contribution” means, for a given prior year, the total of the amounts each representing the adjustment of the HSF contribution, calculated for a preceding year, further to the application of the averaging mechanism regarding an amount attributable to the prior year.28 • Addition of an amount in lieu of interest on the amount arising from the application of the averaging mechanism An individual must pay, for a given year, an amount, hereunder called “amount in lieu of interest”, when a qualifying retroactive payment subject to the averaging mechanism for the given year is attributable to a qualifying prior year that ended before the year immediately preceding the given year. 28 For greater clarity, for the purposes of calculating the cumulative amount of adjustments made, in a preceding year, for the purposes of calculating the HSF contribution, the proportion of income earned in Québec to income earned in Québec and elsewhere of an individual who was resident in Québec on the last day of a preceding year concerned and carried on a business in Canada outside Québec shall be deemed equal to 1 for such preceding year. 14 2004-11 December 22, 2004 More specifically, the amount in lieu of interest, that an individual must pay for a given year, is equal to the amount of interest that would be calculated, regarding each of the prior years concerned, at the prescribed rate of interest payable on a refund due by the Minister of Revenue under a tax law for the period beginning on May 1 of the year following the prior year concerned and ending immediately before the given year on the amount of the adjustment determined for the given year regarding such prior year. • Application details — Individual deemed to be resident in Québec Where an individual is resident in Canada outside Québec on the last day of a prior year to which is attributable a retroactive payment, such individual shall be deemed for the purposes of calculating the amount of the adjustment determined regarding such prior year, to have been resident in Québec on the last day of that year. — Individuals who must prorate the 1% HSF contribution payable For the purposes of establishing, regarding a given qualifying prior year of an individual, the amount of the adjustment and the amount in lieu of interest, the proportion of an individual’s income earned in Québec to his income earned in Québec and elsewhere shall be deemed equal to 1. However, in the case of an individual who is resident in Québec on the last day of a given year and carries on a business in Canada outside Québec, only the portion of the amount of the adjustment to the HSF contribution and of the amount in lieu of interest represented by the proportion used to determine his tax payable for the given year will be considered in calculating the amounts payable for the given year. R Possibility of making a new assessment following changes made to a prior year The tax legislation will be amended to stipulate that the Minister of Revenue may make a new assessment, after the expiration of the normal assessment period, for a given year in which an averaging mechanism is applied, when, following the application of such mechanism, a notice of assessment, a notice of a new assessment or a notice to the effect that no tax is payable is issued for the prior year to which is attributable an amount to which an averaging mechanism applied in the given year, subject to the other provisions of the tax legislation, for the sole purposes of ensuring the correlation of adjustments arising from the application of an averaging mechanism in the given year with the notice issued for the prior year. 15 2004-11 December 22, 2004 R Application date These changes will be applicable as of 2004. However, for the purposes of the various formulas relating to the averaging mechanisms, when the prior year to which is attributable an amount subject to an averaging mechanism is determined before January 1, 2003, only the amounts attributable to such prior year that are subject to an averaging mechanism for a year after 2003 will be taken into consideration. 16 2004-11 December 22, 2004 2. MEASURES CONCERNING BUSINESSES 2.1 Streamlining of the acquisition of control rules concerning the elimination of fiscal measures relating to the carrying out of eligible activities in a designated site The June 12, 2003 Budget Speech announced the elimination of almost all the fiscal measures relating to the carrying out of eligible activities in a designated site. However, the rights of taxpayers who already benefited from such measures or were in the process of benefiting from them were protected, and these taxpayers can continue to obtain tax assistance for the period initially stipulated. Furthermore, an exception allows certain corporate reorganizations to be carried out without the loss of entitlement to the tax assistance. However, to prevent a corporation from benefiting indirectly from a fiscal measure that has been eliminated by acquiring a corporation whose entitlement to a fiscal measure has been protected, integrity rules were put in place. In general, a corporation that still benefits from a fiscal measure that has been eliminated, but control of which was acquired on or after June 12, 2003, loses the benefit of the protection extended to it and may no longer continue to benefit from the fiscal measure that has been eliminated. Moreover, on December 12, 2003,29 clarifications and streamlining measures were introduced to the exception relating to corporate reorganizations and to the notion of acquisition of control. The implementation of the principles stated in the June 12, 2003 Budget Speech and in Information Bulletin 2003-7 of December 12, 2003 gives rise to undesirable results. Accordingly, streamlining measures are needed concerning the transition rules applicable in cases of acquisition of control and the notion of acquisition of control used in the context of the elimination of these fiscal measures. The fiscal measures covered by these streamlining measures are as follow: — the fiscal measures relating to the carrying out of an innovative project;30 — the fiscal measures relating to the carrying out of specified activities;31 29 Measure 2.1 of Information Bulletin 2003-7. 30 A corporation that carries out an innovative project in the biotechnology field in a biotechnology development centre (CDB) is also covered by the various rules, even though in this case these rules are not used to determine eligibility for tax assistance but instead are designed to determine the continuation or not or eligibility for the tax holiday as well as the rates of the three tax credits such a corporation may claim. 31 The designated sites for such specified activities are new economy centres (CNE) including information technology development centres (CDTI) and CDBs, the Cité du multimédia and the Centre national des nouvelles technologies de Québec (CNNTQ). 17 2004-11 December 22, 2004 — the fiscal measures relating to the carrying out of eligible activities in E-Commerce Place; — the refundable tax credit for the Cité de l'optique; — the refundable tax credit for the Technopôle Angus; — the fiscal measures relating to e-business activities carried out in certain designated sites;32 — the fiscal measures relating to the development of biotechnology in certain designated sites;33 — the fiscal measures relating to nutraceuticals and functional foods; — the fiscal measures relating to innovation centres; — the fiscal measures relating to the Montréal Foreign Trade Zone at Mirabel. R Review of the rules and consequences of an acquisition of control It appears useful to begin by reviewing the objective of the acquisition of control rules used in the context of the elimination of fiscal measures relating to the carrying out of eligible activities in a designated site. These acquisition of control rules are primarily integrity rules designed to prevent a corporation from benefiting indirectly from a fiscal measure that has been eliminated by acquiring a corporation whose entitlement to this fiscal measure was protected. In other words, these rules seek to prevent acquisitions of attestations through the acquisition of attested corporations. As indicated above, taxpayers who already benefited from these measures34 or who were in the process of benefiting from them were protected, and accordingly such taxpayers are not directly concerned by the elimination35 of these measures.36 32 Premises located either in the Montréal E-Commerce Zone or the CNNTQ. 33 The designated sites are the Cité de la biotechnologie et de la santé humaine du Montréal métropolitain, the Zone de développement des biotechnologies de Sherbrooke and the Cité de la biotechnologie agroalimentaire, vétérinaire et agroenvironnementale de Saint-Hyacinthe. 34 To avoid making this document needlessly cumbersome, corporations whose rights are protected either because they had already obtained an eligibility certificate to move into a designated site and carry out covered activities there, or because they had filed, in writing, with the organization concerned, an application for an eligibility certificate before June 12, 2003, are designated, unless otherwise indicated, as a “certified corporation”. 35 To avoid making this document needlessly cumbersome, the “changes” to these measures will be called “elimination”, even if the situation is somewhat different for a corporation that carries out activities in the biotechnology field in a CDB. See footnote 30 in this regard. 36 Such elimination also covers foreign specialists employed by a corporation. However, to avoid making this document needlessly cumbersome, reference will be made simply to the loss of protection for the corporation, even if the result is a direct impact for foreign specialists employed by such corporation. 18 2004-11 December 22, 2004 Accordingly, a corporation whose control is acquired after June 11, 2003 generally loses the protection it enjoyed and is covered by the elimination of the measures. An exception stipulates that the acquisition of control of a corporation benefiting from a fiscal measure, by a corporation that itself benefits from such fiscal measure, will not cause the loss of the protection the acquired corporation enjoyed. R Further streamlining measures Since the initial announcement of the elimination of these fiscal measures, certain situations have been brought to the attention of the ministère des Finances. These are situations covered by the acquisition of control rules, or that could be, whereas these situations correspond to the objectives of maintaining the acquired rights of a corporation, without breaching the integrity objectives of the elimination of the fiscal measures. In this context, the transition rules applicable to the acquisition of control rules and the notion of acquisition of control used in the elimination of these fiscal measures will be streamlined. R Streamlining regarding acquisition of control rules when a corporation that controls an eligible corporation acquires another one As indicated above, an exception stipulates that the acquisition of control of a corporation benefiting from a fiscal measure, by a corporation that itself benefits from such fiscal measure, will not cause the loss of the acquired right the acquired corporation enjoyed. Moreover, under the existing rules, a corporation that controls a corporation that benefits from a fiscal measure may not directly acquire the shares of another corporation that benefits from the same fiscal measure, without causing such other corporation to lose its acquired right. However, it may acquire such other attested corporation, and its control, by means of the attested corporation it already controls and which itself benefits from the same fiscal measure. Such “indirect” acquisition of control by the parent corporation will not cause the acquired attested corporation to lose its acquired right, since the control of such attested corporation is also acquired by an attested corporation that already benefits from the same fiscal measure. However, this form of holding of the acquired attested corporation may sometimes not be appropriate, in particular for certain financial considerations, the parent corporation preferring to hold the acquired attested corporation directly in order not to link the latter’s lot with that of the first attested corporation. 19 2004-11 December 22, 2004 In this context, this form of holding can be changed immediately after the acquisition. For example, the first eligible attested corporation, i.e. the one that acquired control of the other attested corporation, could well sell all of the shares of the other attested corporation to the parent corporation, without such other corporation losing its acquired right. A transfer of the participation in such other attested corporation within corporations controlled by the parent corporation generally does not entail an acquisition of control of such other attested corporation, since ultimate control of such other attested corporation by the parent corporation is not affected. In addition, the result of such transactions does not contravene the objectives of the integrity rule introduced as part of the June 12, 2003 Budget Speech. However, in such a situation, the need to proceed by a series of transactions that comply with the spirit of the fiscal policy seems needlessly complex. Consequently, the scope of the existing exception, stipulating that the acquisition of control of a corporation benefiting from a fiscal measure, by a corporation that itself benefits from such fiscal measure, does not cause the loss of the protection the acquired corporation enjoyed, will be expanded. Accordingly, this exception will be changed so that it also applies to the acquisition of control of a corporation benefiting from a fiscal measure, by a person or a group of persons that, at the time of such acquisition of control, controls another corporation that itself benefits from the same fiscal measure. R Streamlining of transition rules regarding obligations existing on June 12, 2003 Information Bulletin 2003-7 of December 12, 2003 introduced streamlining measures regarding the situation of certain rights relating to shares and existing on June 11, 2003 to prevent the loss of tax assistance when such rights are exercised. Briefly, these streamlining measures covered certain rights37 relating to shares, existing on June 11, 2003 regarding shares of an attested corporation, but not having given rise to an acquisition of control of such corporation when they were granted. Accordingly, the exercise of such rights after June 11, 2003 could have give rise to the application of the rules relating to acquisitions of control and, in the absence of any clarification to the contrary, caused the attested corporation to lose its right to the tax assistance. In this context, it was specified that the exercise, after June 11, 2003, of such rights existing on such date would not give rise to the loss of the right to tax assistance for the certified corporation, even if the exercise of such rights otherwise gave rise to an acquisition of control of the attested corporation after June 11, 2003. 37 The rights referred to are those indicated in section 21.4.1 of the Taxation Act (TA), i.e. those covered in paragraph b of section 20 of the TA. 20 2004-11 December 22, 2004 It is possible that a person does not possess such rights but instead is bound, under a contract for instance, by an obligation to another person. In such a case, if such other person exercises its right, that will give rise to the same result, i.e. that the person bound by the obligation will acquire control of the attested corporation in the same way as if such person had owned and exercise a right covered by the streamlining measures of December 12, 2003. The main difference between the existence of a right and of an obligation is that the decision whether or not to proceed with a transaction does not fall within the power of the acquirer when the latter is bound by an obligation. In other words, the eventual acquirer is not the one who decides whether or not to acquire control of the attested corporation when it is bound by an obligation. It must simply honour its commitments. Accordingly, when a person was bound by such obligations on June 11, 2003 and must honour them after that date, it does not appear desirable that the attested corporation should lose its right to tax assistance because of the transaction that results from the exercise of such obligations. The tax legislation will be amended therefore so that the honouring, after June 11, 2003, of such obligations existing on that date does not give rise to the loss of entitlement to tax assistance for the attested corporation, even if the honouring of such obligations gives rise otherwise to an acquisition of control of the attested corporation after June 11, 2003. For greater clarity, the obligations to another person that are covered by this change are those that, when they are exercised by such other person, result in the person bound by such an obligation acquiring control of the attested corporation in the same way as if such person had owned and exercised a right covered by the streamlining measures of December 12, 2003. R Streamlining measures covering significant shareholders Under existing rules, certain changes in the shareholders of an attested corporation, even if minor, may, particularly when there is an agreement among shareholders, give rise to an acquisition of control of such corporation by a new group of shareholders, resulting in the loss of tax assistance for the corporation. It is useful to recall that the primary objective of the restrictions on acquisitions of control, stipulated as part of the elimination of measures relating to carrying out eligible activities in a designated site, is not necessarily to ensure that the attested corporation continues to be controlled by the shareholders that controlled it on June 11, 2003. As previously indicated, these acquisition of control rules are primarily rules of integrity designed to prevent a corporation from benefiting indirectly from a fiscal measure that has been eliminated by acquiring a corporation whose entitlement to this fiscal measure was protected. Accordingly, these rules seek to prevent acquisitions of attestations through the acquisition of attested corporations. 21 2004-11 December 22, 2004 In this context, the existing rules will be streamlined to prevent situations of loss of tax assistance, while ensuring compliance with the primary objective of these integrity rules. To begin with, it is useful to specify that the basic rule, i.e. that the acquisition of control of an attested corporation gives rise to the loss of tax assistance for such corporation, remains unchanged. Accordingly, when this basic rule applies, a check will be needed to see whether the corporation can benefit from an exception allowing it to retain its right to tax assistance and, in this regard, the exceptions described below must be considered. More specifically, a new exception will stipulate that entitlement to tax assistance will not be lost, as long as control of the attested corporation is not acquired by a person who was foreign to the corporation on June 11, 2003. For that purpose, a person will be considered foreign to the attested corporation if it did not hold at least 25% (by votes and by value) of the shares of such corporation on June 11, 2003 (significant shareholder).38 Accordingly, it is not indispensable that such significant shareholder on June 11, 2003 control the attested corporation (50% + 1) following the analyzed change in shareholders. It is simply necessary that such shareholder control at least 50% of the votes39 of the attested corporation, ensuring that the control of such corporation was not acquired by a shareholder foreign to the attested corporation on June 11, 2003. Thus, with these streamlining measures, there will be no loss of acquired rights to the fiscal measures relating to carrying out eligible activities in a designated site as long as there is no acquisition of control of the attested corporation by a shareholder who was foreign to it on June 11, 2003. Furthermore, shareholders who acquired shares after June 11, 2003 from persons who were holding those shares on June 11, 2003 (or who were deemed to hold them at that time) and with whom they were not at arm’s length will, for the purposes of these rules, be considered to have acquired such shares on June 11, 2003. 38 To determine whether a shareholder or a group of shareholders held a minimum of 25% on June 11, 2003 (by votes and by value), the rules of transparency, used otherwise in the TA in other circumstances, must be applied. In addition, even if the text only refers to the situation “of a shareholder”, it applies in full to “a group of shareholders”. Accordingly, a group of persons will be considered foreign to the attested corporation if such group did not hold in total at least 25% (by votes and by value) of the shares of such corporation on June 11, 2003. 39 In the same way, even if the text only refers to the situation “of a shareholder”, it applies in full to “a group of shareholders”. Accordingly, the situation will be the same when it is possible to identify, following such change in the shareholders, a group of shareholders controlling at least 50% of the votes and holding at least 25% of the shares (by votes and by value) on June 11, 2003. This must obviously be the same group of shareholders. However, in this particular case, for a shareholder to be part of a group of shareholders controlling at least 50% of the votes, he must hold at such time at least 10% of the shares (by votes and by value) of the attested corporation. For greater clarity, the notion of holding of shares always refers to the ultimate holding of shares applying the rules of transparency used otherwise in the TA in other circumstances. Consequently, the holding in common of shares by many shareholders, through a management company for instance, will not be sufficient to avoid the application of the rule of minimum 10% holding of shares. 22 2004-11 December 22, 2004 In addition, to ensure that these streamlining measures do not allow step-by-step acquisition of control of the attested corporation by a shareholder who was foreign to it on June 11, 2003, without loss of acquired rights, each change to the shareholders of an attested corporation must be examined on the basis of the situation prevailing on June 11, 2003.40 Even if a seemingly minor change might not appear to give rise to the application of the restrictions regarding acquisitions of control, particularly when the new situation is compared with the situation that prevailed immediately prior to such change, the change must rather be studied in an overall context to ensure that there has been no step-by-step acquisition of control of the attested corporation by a person foreign to the attested corporation on June 11, 2003. It should also be stipulated that these changes are streamlining measures that apply only when there is an acquisition of control and they are designed to allow an attested corporation to retain its entitlement to tax assistance in spite of such acquisition of control. Accordingly, these are not free-standing rules that may, on their own, entail the loss of entitlement to tax assistance. In this context, the integrity rule specifically applicable to these streamlining measures and designed to prevent the step-by-step acquisition by a person foreign to the corporation on June 11, 2003 without loss of tax assistance, and that requires comparing the situation of the shareholders after each change to the situation prevailing on June 11, 2003, applies to an attested corporation only after such corporation has benefited from these streamlining measures to avoid the loss of its entitlement to tax assistance. In other words, the trigger item for the purposes of this specific integrity rule causing loss of tax assistance for an attested corporation when there is a change in its shareholders that does not necessarily entail an acquisition of control, is the use of these streamlining measures as part of a previous acquisition of control. Lastly, these additional streamlining measures and in addition to the clarifications made in Information Bulletin 2003-7 of December 12, 2003. Accordingly, situations of the exercise of rights that existed on June 11, 2003, which exercises of rights are covered by a specific exception, will continue to benefit from the streamlining measures announced on December 12, 2003. For the same reasons, holders of such rights to shares on June 11, 2003 who exercised these rights will, when determining whether the shareholders held a significant participation on June 11, 2003, be considered to have exercised these rights on June 11, 2003. This will also apply for shareholders bound by an obligation and covered by the streamlining measures indicated above. 40 Since the tax system is based on a self-assessment principle, this responsibility clearly lies with the attested corporation. 23 2004-11 December 22, 2004 Lastly, the situation will be the same for transactions in the course of being carried out on June 12, 2003 and completed before July 1, 2004. Accordingly, these transactions covered by this grandfathering rule, when determining whether such shareholder held a significant participation on June 11, 2003, will be considered to have existed on June 11, 2003. R Application date These streamlining measures will apply retroactively to June 11, 2003, allowing all transactions to be treated on the same basis. In addition, the retroactive application of these streamlining measures will simplify integration with other existing rules. Accordingly, the sole pivotal application date for the restrictions relating to acquisitions of control remains June 11, 2003. 2.2 Adjustments concerning international financial centres The international financial centres (IFC) program is designed to encourage the establishment, development and maintenance within the territory of Ville de Montréal of businesses specializing in international financial transactions. Briefly, an IFC is a business or part of a business established in Montréal, regarding which the operator keeps separate accounting and all of whose activities pertain to qualified international financial transactions (QIFT). Briefly, a QIFT is defined as a financial transaction carried out on foreign financial markets, or on domestic financial markets for foreign clients. An IFC business can be carried on through a corporation or a partnership and the benefits stipulated in the legislation regarding the operations of an IFC include, in particular, a partial exemption from income tax, the tax on capital and the employer contribution to the Health Services Fund (HSF). The March 30, 2004 Budget Speech contained numerous adjustments to the measures of the IFC program to refocus it on its initial objectives. More specifically, these adjustments in particular were designed to further direct the IFC program to financial corporations and their subsidiaries and to facilitate the determination of the IFC part of an operator’s business by introducing a formula for determining the IFC part of the business (the determination formula). In addition, certain administrative requirements relating to the time allocation of certain employees (salary record) were also introduced. Following the announcement of these changes, various players in the financial sector have made representations to the ministère des Finances concerning the actual or apprehended difficulties that some of the announced changes might raise. It appears that some of these difficulties require that adjustments be made to the changes announced on March 30, 2004. 24 2004-11 December 22, 2004 Briefly, the determination formula will be changed to better adapt it to the money-lending industry, a streamlining measure will be introduced for certain securities advisers regarding transactions between persons not at arm's length, and adjustments will be made to the concepts of “financial corporation” and “international financial centre”. R Formula to determine the IFC part of the business As mentioned above, an IFC is a business or part of a business that can be carried on by a corporation or a partnership. Accordingly, it frequently happens that the same entity encompasses activities that are eligible for the IFC program and others that are not. It can sometimes be difficult to adequately allocate the expenditures attributable to each business or to each part of a business, such as general and administration expenses, carried on by an operator of an IFC. This difficulty also exists regarding the determination of the paid-up capital attributable IFC operations for the purposes of the exemption from the tax on capital. Accordingly, to overcome the difficulties raised by the allocation of expenses and expenditures among the various businesses or parts of businesses of an operator of an IFC, and to facilitate the determination of the portion of paid-up capital attributable to the operations of an IFC, if applicable, a formula to determine the IFC part of the business of an operator was introduced in the March 30, 2004 Budget Speech. Conceptually, the determination formula consists of two components, namely a ratio established using the salaries and gross incomes of the operator, not including gross interest income, and a base determined, for the purposes of the tax on capital, using the paid-up capital of the corporation otherwise determined and, for the purposes of income tax, using the adjusted net income of the operator and consisting essentially of its net tax income determined excluding non-taxable income and investment income. For illustration, the determination formula for income tax is as follows: Adjusted net X income 1 2 Gross income derived from the operations of an IFC Total gross income + Salaries attributable to the operations of an IFC Total salaries More specifically, in the March 30, 2004 announcement, the expression “adjusted net income” was defined as the net tax income of the operator of an IFC otherwise determined for the taxation year, excluding the following items: — any dividend income; — any interest income net of interest expenditures directly attributable thereto, with the exception of interest income from the carrying out of a QIFT; — any net capital gain; 25 2004-11 December 22, 2004 — any other income giving rise to a deduction in the calculation of taxable income of the operator; and reduced by the amount of any charitable donation made by the operator during the taxation year. The expression “gross income” was defined as the gross income of the taxpayer or of the partnership, as the case may be, excluding any dividend income, any capital gain or loss and any interest income, except for net interest income from the carrying out of QIFTs, i.e. the interest income from the carrying out of QIFTs net of the interest expenditures directly attributable thereto. According to the representations made to the ministère des Finances, the determination formula does not produce desirable results in terms of income tax in certain circumstances, particularly when interest income constitutes the main source of income of the IFC operator. In such a situation, the result of the determination formula is generally negative since the base, i.e. adjusted net income, consists of only a fraction of income, while 100% of expenses are taken into consideration. Accordingly, to prevent this type of situation, the treatment of interest from the operation of a money-lending business, for the purposes of the determination formula, will be changed. • Change to the concept of adjusted net income First, the definition of the expression “adjusted net income” applicable regarding income tax will be changed so that the adjusted net income of an IFC operator includes his interest income, when such income is derived from the operation of a money-lending business of the operator and does not constitute property income for the latter. Accordingly, the expression “adjusted net income” will mean the net tax income of the operator of an IFC otherwise determined for the taxation year, excluding the following items: — any dividend income; — any interest income that is property income, net of interest expenses directly attributable thereto; — any capital gain; — any other income giving rise to a deduction in the calculation of taxable income of the operator; and reduced by the amount of any charitable donation made by the operator during the taxation year. 26 2004-11 December 22, 2004 • Change to the concept of gross income Moreover, the concept of gross income applicable both regarding income tax and the tax on capital will also be changed to include the gross interest income of an IFC operator, when such income is derived from the operation of a money-lending business and does not constitute property income for the latter. Accordingly, for the purposes of the determination formula, the expression “gross income” will mean the gross income of the taxpayer or of the partnership, as the case may be, excluding any interest income that constitutes property income for the operator, any dividend income and any capital gain or loss of the operator. • Application date These changes will apply retroactively to the coming into force of the determination formula of the IFC part of the business, i.e. in relation to a taxation year or a fiscal year beginning after March 30, 2004. R Transactions between persons not at arm's length A change was made in the March 30, 2004 Budget Speech concerning the treatment of QIFTs involving an IFC operator and a person with whom he is not at arm’s length. Briefly, it was announced that a transaction carried out after March 30, 2004 between an IFC operator and a person with whom he is not at arm's length henceforth could not constitute a QIFT, unless one of the parties to the transaction was a financial corporation. Moreover, for various regulatory and commercial reasons, a corporation that otherwise is not a financial corporation within the meaning of the legislation but nonetheless carries out financial transactions for the benefit of its clients, could decide to out-source a portion of its activities to another corporation that otherwise holds IFC status, and with which it is not at arm's length. In such a situation, the out-sourced activities carried out by IFC-ABC for instance, on behalf of ABC corporation but for the benefit of the latter’s clients, could not be recognized as QIFTs since they were carried out in a non-arm’s length context between IFC-ABC and ABC corporation that, in this context, is technically the client of IFC-ABC. To illustrate, a non-financial corporation such as a corporation that manages mutual funds carries out financial activities for the benefit of third parties with whom it is at arm’s length, i.e. the holders of the mutual fund units. Moreover, for various commercial reasons, the corporation out-sources part of its activities, for instance portfolio management of foreign securities accounts of its mutual funds, to a subsidiary corporation that has IFC status. Although the IFC subsidiary carries out portfolio management of mutual funds foreign securities accounts of the parent corporation, an activity that normally qualifies as a QIFT when it is carried out directly by the parent corporation, this activity may not be recognized as a QIFT because, technically, the client of the IFC subsidiary is the parent corporation and not the holders of the units of its mutual funds who, in fact, are the real beneficiaries of the portfolio management carried out by the IFC subsidiary. 27 2004-11 December 22, 2004 Accordingly, in this type of situation, although the nature of the activities carried out by the IFC subsidiary is not in question and these activities could otherwise constitute QIFTs if they were carried out directly by the parent corporation if its holds IFC status, the out-sourcing of the activities within the corporate group to which the parent corporation and its IFC subsidiary belong prevents the group from benefiting from the IFC program. • Addition of the concept of “designated financial corporation” To enable certain non-financial corporations to benefit, in certain circumstances, from the same treatment as that enjoyed by financial corporations regarding the transactions they carry out in a non-arm’s length context, the concept of “designated financial corporation” will be added to the legislation. More specifically, the expression “designated financial corporation” means, for a fiscal year, an IFC that is a securities adviser and with which no ultimate beneficiary is not at arm’s length, or regarding which no ultimate beneficiary has, directly or indirectly, in any way whatsoever, an interest as either an employee holding an IFC employee attestation, or a specified shareholder or specified member41 of the IFC operator, or as a person not at arm’s length with a person holding such an interest. Moreover, the expression “ultimate beneficiary”, for a fiscal year, means, regarding an IFC, any person or group of persons who, directly or indirectly, in any way whatsoever, owns an interest of more than 10% regarding the securities the IFC manages or, if applicable, regarding which the IFC provides advice, for such fiscal year. Consequent to this adjustment, the IFC business that obtains designated financial corporation status may, in relation to the transactions it carries out in a non-arm’s length context, receive the same treatment as that otherwise enjoyed by a financial corporation. This change will apply retroactively to the introduction of the restriction relating to transactions carried out in a non-arm’s length context between an IFC and its client, i.e. in relation to a transaction carried out after March 30, 2004. • Change to the definition of the expression “financial corporation” Under the existing legislation, the expression “financial corporation” includes, in particular, a bank, a savings and credit union, a loan corporation, a trust company, a corporation dealing in securities, an insurance corporation or any other similar financial or insurance institution. Essentially, in addition to being part of the financial industry, being subject to a regulatory structure involving a high degree of constraint is the common characteristic shared by the various categories of corporations covered by the definition of the expression “financial corporation”. 41 The concept of specified member is the adaptation, in the context of a partnership, of the concept of specified shareholder. 28 2004-11 December 22, 2004 Unlike the other categories of corporations covered by this definition, the loan corporation category is not subject to a regulatory structure involving the high degree of constraint to which the other categories of corporations covered by this definition are subject. Consequently, the category of loan corporations will be withdrawn from this definition. More specifically, the legislation will be amended so that the expression “loan corporation” is removed from the definition of the expression “financial corporation”. This change will apply as of the day following the day of publication of this information bulletin. R Withdrawal of the obligation to maintain separate accounting Under the existing legislation, the expression “international financial centre” means a business carried on by a corporation or by a partnership and regarding which certain requirements are satisfied. One of these requirements is that the corporation or the partnership operating this business maintain separate accounting of its operations attributable thereto. In the context where the determination of the value of the main tax benefits arising from the operation of an IFC was based on the financial attributes specific to the IFC business (branch accounting method), maintaining separate accounting was a basic characteristic of the IFC concept. Moreover, as mentioned above, in the March 30, 2004 Budget Speech, the branch accounting method used up until then to determine the value of the main tax benefits arising from the operation of an IFC was replaced by a formula to determine the IFC part of the business. However, unlike the branch accounting method, the method of the determination formula does not seek to determine the financial results specific to the IFC business, but rather seeks to assess the relative size of the IFC activities compared to all the commercial activities carried out by the IFC operator. In this context, the reasons justifying the importance of maintaining separate accounting in relation to the IFC business no longer exist. Accordingly, this requirement will be withdrawn. More specifically, the legislation will be amended so that the requirement concerning maintaining separate accounting will be withdrawn from the definition of the expression IFC. This change will apply retroactively to the coming into force of the formula to determine the IFC part of the business, i.e. in relation to a taxation year or a fiscal year beginning after March 30, 2004. 29 2004-11 December 22, 2004 2.3 Clarification of the scope of the limit on the deductibility of investment expenses Under existing tax provisions, an individual may deduct, under certain conditions, the expenses incurred during a taxation year to earn income from a business or from property. In order to consider that expenses incurred to earn income from property are attributable to the earning of passive income and to achieve a degree of symmetry between the flow of income from the investments held and the expenses incurred to earn such income, a limitation on the deductibility of investment expenses was announced in the March 30, 2004 Budget Speech, which applies in addition to the general provisions concerning the deductibility of expenses. Briefly, the deduction of investment expenses otherwise deductible, by an individual, is henceforth limited to the income from such investments earned during a taxation year. For the purposes of this measure, an individual includes a trust. The limit on the deductibility of investment expenses essentially targets investors for whom holding property requires little time or attention i.e., in general, individuals and most testamentary and non-testamentary trusts formed for personal reasons and used in the course of tax and succession planning. Mutual fund trusts, which are non-testamentary trusts, carry out a large number of transactions on which employees spend a lot of time and attention. Accordingly, to recognize that the activities carried out by mutual fund trusts are similar to carrying on a business and, consequently, to earning active income, a clarification will be made to the scope of the limit on the deductibility of investment expenses to remove mutual fund trusts from its application. More specifically, and as of March 30, 2004, the limit on the deductibility of investment expenses regarding trusts will apply only to personal trusts. 2.4 Changes to study certification applications relating to the Zone de commerce international de Montréal à Mirabel In the June 12, 2003 Budget Speech, the fiscal measures relating to the Montréal Foreign Trade Zone at Mirabel (Mirabel zone) were abolished. However transition rules protect the rights of taxpayers who, on that date, already benefited from such measures or were in the process of benefiting from them. Moreover, in the March 30, 2004 Budget Speech, all the administrative responsibilities that, at that time, were assumed by the Minister of Finance concerning the tax benefits relating to the Mirabel Zone were transferred to Investissement Québec. 30 2004-11 December 22, 2004 In this regard, taxpayers established in the Mirabel zone that continue to receive tax benefits associated with this zone because of the transition rules mentioned above must send their application to the Société de développement de la Zone de commerce international de Montréal à Mirabel (Société de développement), to obtain the eligibility attestations necessary to receive these tax benefits. The taxpayers covered by these transition rules must still obtain eligibility attestations concerning eligible employees and eligible equipment, among others, to continue to receive these tax benefits until the end of the period initially stipulated. The Société de développement is mandated to study attestation applications concerning the tax benefits relating to the Mirabel zone that are submitted by taxpayers that carry on a business in this zone, and to make recommendations on the matter to Investissement Québec. The involvement of the Société de développement regarding the tax benefits relating to the Mirabel zone is no longer required, since Investissement Québec has the expertise to study attestation applications concerning the tax benefits relating to the Mirabel zone. A bill stipulating the abolition of the Société de développement has already been tabled in the National Assembly. In this context, as of the day following the day of the this Information Bulletin, the Société de développement will no longer be mandated to study attestation applications concerning the tax benefits relating to the Mirabel zone and to formulate recommendations regarding such applications to Investissement Québec. Accordingly, as of that day, Investissement Québec alone will be charged with studying attestation applications concerning tax benefits relating to the Mirabel zone and with issuing eligibility attestations associated with these applications. In this regard, Investissement Québec will complete the study of the attestation applications that were submitted to the Société de développement no later than the day of this Information Bulletin. Consequently, as of the day following the day of this Information Bulletin, taxpayers already established in the Mirabel Zone that benefit from the transition rules mentioned above and that want to obtain the eligibility attestations needed to receive these tax benefits must send their application to Investissement Québec. For greater clarity, Investissement Québec will also be charged, as of the day following the day of the this Information Bulletin, with studying applications relating to the annual eligibility attestation required for the purposes of the tax holiday that may be received by a foreign specialist employed by a taxpayer who carries on a business in the Mirabel zone. Lastly, as of the day following the day of the this Information Bulletin, Investissement Québec will be charged with monitoring taxpayers who carry on a business in the Mirabel zone, to ensure compliance with the eligibility conditions associated with the attestations issued to them. Thus, Investissement Québec will assume the obligations, past and future, of the Société de développement regarding that matter. 31 2004-11 December 22, 2004 3. OTHERS MEASURES 3.1 Measures relating to tax-advantaged funds Since the creation of the Fonds de solidarité des travailleurs du Québec, of Fondaction the Fonds de développement de la Confédération des syndicats nationaux pour la coopération et l'emploi - and of Capital régional et coopératif Desjardins, the government has supported the mission of these investment companies by allowing them to collect capital enjoying a tax benefit consisting of a non-refundable tax credit granted to individuals who acquire their shares. Since such a tax benefit makes it easier to finance these investment companies, investment requirements have been included in the acts under which they were constituted to ensure, notably, that the funds collected are used as a financing tool to foster the growth of Québec entities. To enable such investment companies to play a greater role in Québec’s economy and to improve consistency regarding the capital structure of labour funds, various changes will be made. R Major investments Each act constituting the investment companies whose financing is facilitated by granting a tax benefit stipulates in particular that, in the course of each fiscal year, the proportion of investments made by the company concerned in eligible entities, entailing no security or hypothec, must represent, on average, at least 60% of its average net assets for the preceding year. If a company fails to comply with this investment requirement, referred to hereafter as the “60% requirement”, it will incur a sanction. To ensure that the 60% requirement does not limit the participation of these investment companies in major projects that have a developmental effect on Québec's economy, changes will be made to the Act to establish the Fonds de solidarité des travailleurs du Québec (F.T.Q.), the Act to establish Fondaction, le Fonds de développement de la Confédération des syndicats nationaux pour la coopération et l'emploi and to the Act constituting Capital régional et coopératif Desjardins. More specifically, these laws will be amended to stipulate that the investments that, at a given time during a fiscal year of the investment company, qualify as major investments will be eligible for the purposes of the 60% requirement, up to 5% of the net assets of the investment company concerned at the end of the preceding fiscal year. 32 2004-11 December 22, 2004 To that end, the following shall be considered a major investment at a given time: investments in a partnership or a legal person42 that are not otherwise eligible for the purposes of the 60% requirement and that consist of an initial capital outlay of at least $25 million, provided the Minister of Finance recognizes the strategic value of such initial capital outlay. Should an investment company hold more than one major investment at a given time during a fiscal year, only one of these investments may be considered, at such time, as a major investment for the purposes of the 60% requirement. For greater clarity, the investments that qualify as major investments that Fondaction will be able to make will be deemed, for the purposes of the 60% requirement, to be made in entities whose assets are less than $50 million or whose net equity does not exceed $20 million. The investments that qualify as major investments made by Capital régional et coopératif Desjardins that, in the view of the Minister of Finance, have an impact on the economic activity of the regions will be deemed, for the purposes of the “regional” component of the 60% requirement imposed on this company, to have been made in a entity located in one of the resource regions of Québec.43 R Class of shares issued in series Under its act of incorporation, Fondaction is authorized to issue class “A” shares and fractions of shares with no par value. However, unlike the Fonds de solidarité des travailleurs du Québec, it is not authorized to create one or more series of class “A” shares, making it easier to obtain, with no tax impact for shareholders, the refundable tax on hand determined under the federal tax system. To allow Fondaction more flexibility in the organization and management of its capital stock, its act of incorporation will be amended to stipulate that it may, by amending statutes: — create one or more series of class “A” shares with the right to be exchanged for shares of another series or any other characteristic that is not inconsistent with the law; 42 For greater clarity, Capital régional et coopératif Desjardins may, to that end, make investments in a partnership or a legal person whose activities consist mainly in investing, even if such entity does not currently constitute an eligible entity within the meaning of its act of incorporation. 43 The 60% requirement imposed on Capital régional et coopératif Desjardins stipulates that, during each fiscal year, the share of investments in eligible entities entailing no security or hypothec must represent, on average, at least 60% of its average net assets for the preceding year, and that a part representing at least 35% of that percentage must be invested in eligible cooperatives or in entities located in Québec’s resource regions (Abitibi-Témiscamingue, Bas-Saint-Laurent, Côte-Nord, Gaspésie–Îles-de-la-Madeleine, Mauricie, Nord-du-Québec and Saguenay– Lac-Saint-Jean). 33 2004-11 December 22, 2004 — convert in whole or in part the class “A” shares held by shareholders or some of them into one or more series thus created, under conditions and terms that may, with the authorization of the Minister of Finance, if applicable, depart from certain provisions of the Companies Act.44 These changes will apply as of the date of publication of this information bulletin. R Shares in a labour fund acquired by an RRSP trust The tax system stipulates that an individual is entitled, for a taxation year, to a non-refundable tax credit equal to 15% of the amount45 he pays, or that is paid by a qualifying trust in respect of the individual, in the year or within the following 60 days to purchase, as first acquirer, a class “A” share issued by the Fonds de solidarité des travailleurs du Québec or a class “A” or “B” share issued by Fondaction, hereunder called “share of a specific class of a labour fund”, up to a total tax credit of $750 per year. Any unused portion of this tax credit can be deducted in a subsequent year. For the purposes of this tax credit, the expression “qualifying trust” in respect of an individual means, briefly, a trust governed by a registered retirement savings plan (RRSP) under which the individual or his spouse is the annuitant. Under the acts of incorporation of labour funds, while a trust governed by an RRSP can hold a share of a specific class of a labour fund, it may not, in any case, be the first acquirer of such share, such capacity being reserved exclusively to natural persons. The tax legislation will therefore be amended, with declaratory effect, so that the rules applicable to the tax credit relating to a labour fund no longer refer to the possibility for a trust governed by an RRSP to acquire, as first acquirer, a share of a specific class of a labour fund. 3.2 Exemption from the obligation to file an information return regarding certain contractual payments made by credit card Since 2002, Québec government departments and budget-funded bodies46 have been required to file an information return regarding amounts they pay to a person or a partnership under certain contracts. Starting in 2005, this requirement will be extended to bodies other than budget-funded bodies and to government enterprises.47 44 Namely paragraphs 6 and 7 of section 48 or section 49 of the Companies Act. 45 This amount cannot exceed the issue price paid for the share. 46 The bodies listed in Schedule 1 of the Financial Administration Act. 47 Bodies other than budget-funded bodies and government enterprises respectively listed in listed in schedules 2 and 3 of the Financial Administration Act. 34 2004-11 December 22, 2004 Briefly, any covered government entity that pays a person or a partnership, directly or indirectly, an amount other than an excluded amount, during a calendar year in payment of the price stipulated in a business, service, transportation or mandate contract, a contract for both the delivery of a service and the sale or rental of property48 or a contract relating to the consumption of food or beverages must file an information return for that amount using the form prescribed by the ministère du Revenu du Québec (MRQ). In this regard, an amount paid to a government or to a person exempt from income tax under the Taxation Act or an amount regarding which another information return must be filed using the prescribed form under Québec tax regulations notably constitutes an excluded amount. Neither does the information return have to be filed if the total of such amounts, other than an excluded amount, paid to a person or a partnership during a calendar year is less than $1 000. The purpose of this measure is to promote tax compliance. It is a dissuasive measure based on the transmission of information to the MRQ directly by payers by means of an information return a copy of which is also sent to the supplier concerned. It is acknowledged that the holding of information linked to income by the MRQ acts as an incentive to report such income in view of the ease of fiscal control provided by such information. In addition, the issue of such returns by the various payers gives the MRQ an excellent way to combat tax evasion. Moreover, to obtain the services inherent in the operations of government at the best possible conditions and manage the cash position at a lower cost, various payment tools are used by government departments, bodies and government enterprises. In this regard, the government credit card, which offers many economic and administrative advantages,49 is a preferred payment instrument. Accordingly, many transactions whose payments are covered by the measure are, or could be, made by credit card. In the interests of administrative simplification and to facilitate the use of an efficient payment tool that offers advantages for the government’s operations, the tax regulations will be amended to stipulate that the payments concerned that flow from a transaction made using a credit card during a given year will not be covered by the requirement to file an information return relating to certain contractual payment provided an account statement reflecting such transaction is send to the MRQ for the year. 48 Except for a contract whose price represents, wholly or almost wholly, the value of property sold or rented under the contract. 49 Simplification of the process of acquiring low-cost goods or services or relating to the operation of motor vehicles, access to discounts, appreciable savings on banking expenses and non-tax billing (GST and QST). 35 2004-11 December 22, 2004 This change will apply to contractual payments made by government departments and budget-funded bodies of the Québec government50 as of 2004, as well as to those made by bodies other than budget-funded bodies and by government enterprises,51 during a calendar year subsequent to 2004. 3.3 Harmonization to news release of Decembre 17, 2004 issued by the federal Department of Finance regarding limits and rates governing the use of an automobile On December 17, 2004, the Minister of Finance of Canada announced, in a news release,52 changes to certain limits governing the deductibility of automobile expenses and to rates applicable to calculation of the value of taxable benefits relating to the use of an automobile for the year 2005. In this regard, in keeping with the principle of substantial harmonization of tax legislation regarding automobiles, the various limits and rates governing the deductibility of automobile expenses and the calculation of the value of taxable benefits relating to the use of an automobile contained in Québec’s tax legislation and regulations will be the same as those applicable for the purposes of the federal system. These limits and rates are described in the following table. Limit / Rate Tax-exempt allowances paid by an employer to an employee based on the distance travelled with his automobile: – first 5 000 km As of January 1, 2005, the limit will rise from 42 to 45 cents/km1 – additional kilometres As of January 1, 2005, the limit will rise from 36 to 39 cents/km1 Benefit relating to the personal portion of automobile operating expenses when the automobile is supplied by the employer: – if the employment consists mainly in selling or leasing As of January 1, 2005, the rate will rise from 14 automobiles during the taxation year to 17 cents/km – in other cases As of January 1, 2005, the rate will rise from 17 to 20 cents/km Maximum capital cost of passenger vehicles for the For vehicles acquired after 2004, the maximum purposes of the deduction for depreciation capital cost will remain at $30 0002 Interest expenses eligible as a deduction For vehicles acquired after 2004, the limit will remain at $300/month Leasing charges eligible as a deduction For leases concluded after 2004, the limit will remain at $800/month2 1. 2. 50 The limit will be 4¢ per kilometre higher in the Yukon Territory, Northwest Territories and Nunavut to reflect the higher cost of maintaining and operating a vehicle in these territories. Before applicable sales taxes. Supra, 46. 51 Supra, 47. 52 Department of Finance Canada news release 2004-081. 36 2004-11 December 22, 2004 3.4 Non-Harmonization to the measures of the Federal Budget Speech of March 23, 2004 regarding mutual funds On March 23, 2004, the federal Minister of Finance tabled, in the House of Commons, Supplementary Information, as well as a Notice of Ways and Means Motion to Amend the Income Tax Act53 in particular. Some of the proposed measures are designed to introduce a set of rules for limiting the level of investments that a pension fund can make in a business income trust (BR 12 to BR 14)54 while others seek to reduce the disparity between the tax regime that applies to non-residents who invest in taxable Canadian properties through Canadian mutual funds and the regime that applies to non-residents who invest directly in such properties (BR 15 to BR 17). In this regard, it was mentioned in the March 30, 2004 Budget Speech that the decision whether to adopt these measures or not would be announced at a later date.55 Concerning the measures relating to income trusts (BR 12 to BR 14) and the one relating to the rules limiting the amount of taxable Canadian property that may be held by a mutual fund that was constituted, or operated, chiefly for the benefit of non-residents (BR 17), the Minister of Finance of Canada having announced on May 18, 2004 and December 6, 2004 respectively that their implementation was deferred pending consultations,56 the decisions of the ministère des Finances in this regard are also further deferred to a later date. Moreover, the following measures have not been retained because they do not correspond to the features of Québec's tax system or because Québec's tax system does not contain corresponding provisions. The measures concern: 1. the taxation, under Part XIII of the Income Tax Act, of distributions of gains from taxable Canadian property made by a mutual fund to a non-resident (BR 15); 2. the 15% tax applicable, as tax on capital gains, to certain distributions, not taxable otherwise, made by a mutual fund to a non-resident (BR 16). 3.5 Non-Harmonization to the measures of the news release of December 20, 2002 regarding assessments issued to third parties On December 20, 2002, the federal Minister of Finance made public, as part of News Release 2002-107, a series of draft technical amendments to the Income Tax Act. 53 Further to these announcements, draft legislation was released on September 16, 2004 (news release 2004-051) and a Notice of Ways and Means Motion was tabled on December 6 (news release 2004-075). 54 The references in parentheses correspond to the number of the budget resolution in the Notice of Ways and Means Motion to Amend the Income Tax Act tabled on March 23, 2004. 55 2004-2005 Budget, Additional Information on the Budgetary Measures, pages 180 and 181. 56 News Releases 2004-036 and 2004-075. 37 2004-11 December 22, 2004 The amendments concern, in particular, measures relating to the calculation of interest on assessments issued regarding personal and several liability (91, 92 and 94 to 96) and the calculation of interest relating to an assessment for refund over-payment (93).57 In this regard, in the March 11, 2003 Budget Speech, the ministère des Finances announced that the federal measures announced by the Department of Finance Canada in News Release 2002-107 would be dealt with in an announcement at a later date.58 Subsequent analysis has shown that Québec’s tax legislation in this regard is satisfactory. Accordingly, Québec’s tax legislation will not be harmonized with the federal measures announced by the Department of Finance Canada on December 20, 2002 in News Release Communiqué 2002-107, concerning the calculation of interest on assessments issued regarding personal and several liability (91, 92 and 94 to 96) and the calculation of interest relating to an assessment for refund over-payment (93). 57 The numbers in parentheses correspond to the section numbers of the federal draft bill released on December 20, 2002. 58 This announcement was confirmed in the June 12, 2003 Budget Speech. 38