Almost nine months ago, Prime Minister Stephen Harper and
Premier Jean Charest announced the conclusion of a memorandum of
agreement ("MOA") relating to the harmonization of the
QST with the federal GST. The MOA was intended to form the basis
for a final agreement between the two levels of government on the
harmonization of the two taxes. This past April 18th, the Quebec
Minister of Finance, Raymond Bachand, announced that the agreement,
called the Canada-Quebec Comprehensive Integrated Tax
Coordination Agreement (the "Agreement") has now
been concluded. The Agreement essentially addresses two elements:
1) harmonization of the tax base and rules and 2) the payment to
Quebec of a total of $2.2 billion to compensate the province for
implementing the harmonization measures. Although the $2.2 billion
compensation amount envisaged by the MOA has remained unchanged in
the Agreement, it could be reduced and might even have to be repaid
if Quebec fails to fulfill or violates the terms of the
Agreement.
The Agreement has now eliminated some of the inconsistencies
between the Quebec and federal systems, which had
"displeased" the federal government. We would note,
however, that Quebec has retained its separate legislation and that
it will not, therefore, become an HST "participating
province" as is the case, in particular , for Ontario or
British Columbia. With one exception, the Agreement contemplates
that Quebec will also retain its administrative responsibility for
both the GST/HST and the QST within the province. As a result,
taxpayers (even those established outside Quebec) registered for
the QST will still have to prepare separate QST returns and will
still be subject to tax audits by officials of Revenu
Québec. The Agreement has now also confirmed that Quebec
will have until January 1, 2013 to implement the amended QST. A
bill relating to the harmonization of the QST with the GST will,
therefore, have to be made public in the coming months.
This latest step in the process of harmonizing the QST and the GST
has in large measure confirmed and filled out the details of the
measures that were envisaged by the MOA. However, some of the grey
zones in the MOA have not been clarified, particularly those
relating to rebates of the QST for public service organizations and
consequences for pension plans. Publication of the bill amending
the Act respecting the Québec sales tax will
presumably provide further clarifications.
For the average consumer, the harmonization will change almost
nothing from an economic point of view. On the other hand, the
impact on businesses could be significant in certain circumstances,
especially for financial institutions. Pension plans will also be
adversely affected.
In our October 2011 "Tax Update" bulletin, we dealt with
the harmonization measures that were contemplated in the MOA. Since
the Agreement has now largely followed through on these same
measures, we invite you to consult that bulletin by
clicking here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
