New Québec tax measures announced - including harmonization with recent federal tax changes

The current Québec rules on intergenerational business transfers are generally considered more restrictive than the existing federal rules. The Ministry intends to amend the current Québec rules to mirror the proposed federal rules. A separate joint election will be required for Québec purposes.

Under current federal rules, sibling shareholders have the ability to split up their business under the more favourable related party butterfly provisions of the Income Tax Act (Canada). Québec legislation will be amended to also include this rule.

These changes are expected to apply beginning in 2024.

Alternative minimum tax

The proposed 2023 federal budget measures broaden the application of the alternative minimum tax (AMT) by limiting tax preferences (i.e., exemptions, deductions, and credits) in the AMT calculation, increasing the tax rate applicable, and increasing the AMT exemption amount.

The Ministry intends to introduce parameters similar to those proposed by the federal government. However, the projected Québec provincial AMT tax rate will increase from 15 percent to 19 percent. The Québec AMT exemption will increase from the current allowable deduction of $40,000 to $175,000 in 2024 and will be indexed annually starting in 2025.

The changes are expected to take effect in the 2024 taxation year. The Ministry will announce its final position on the provincial AMT rules at a later date.

General Anti-Avoidance Rule

Various changes to the General Anti-avoidance Rule (the GAAR) were announced in the 2023 federal budget. These generally broaden the existing rules and introduce a federal penalty of 25 percent on the tax benefit for transactions subject to the GAAR. Where the tax benefit is a tax attribute that has not yet been used to reduce tax (e.g., unused tax losses), the tax benefit will be treated as nil for purposes of the penalty.

The Québec rules will be amended such that a tax benefit relating to an unused tax attribute will also be considered to have no value for purposes of determining the 50 percent GAAR penalty. No other changes to further align existing GAAR rules to the federal proposals were announced.

This amendment will apply from April 7, 2022, pending enactment of the federal proposals.

Tax measures not adopted

Certain 2023 federal budget measures will not be adopted by Québec — including those related to clean energy and clean technology investment tax credits and the introduction of a tax on repurchases of equity.

Alignment with Bill C-47

Québec tax legislation will be amended to implement most changes in Bill C-47, which received royal assent on June 22, 2023. These amendments will apply on the same dates as the federal measures with which they are harmonized. Refer to the Information Bulletin for a detailed list of harmonized measures.

Other tax measures

• Effective for the 2023 taxation year, eligibility for the tax credit for persons living alone is expanded to include certain single Basic Income Program (BIP) recipients. Furthermore, no income tax will be payable by BIP recipients where the basic BIP benefit and the adjustment for persons without a spouse are their only income for the year.

• The economic vitality index was recently revised. The index is relevant in determining the investment and innovation tax credit and the new tax holiday for large investment projects. Territories impacted by the 2023 update are the Matawinie, Argenteuils, Appalaches and Témiscamingue regional county municipalities.

• The number of paid hours required to benefit from the small business deduction following an amalgamation will be adjusted. The change announced will apply to corporations with tax years ending after June 27, 2023, and will better allow for the paid hours of predecessor corporations to be considered in determining eligibility for the small business deduction following an amalgamation.

• Changes will be made to simplify the process for rebates of Québec Sales Tax (RQST) paid by the Québec government, its departments, and certain mandataries. Proposed changes will come into force on the date the bill giving effect to it is assented to.

Full details of the changes announced are available on the Ministry website. If you have any questions on how these changes will impact you or your business, contact your local MNP Tax Advisor.