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Significant changes to the Quebec Sales Tax (“QST”) system will take effect on January 1, 2013. These new measures have been instituted following a sales tax harmonization and coordination agreement (“agreement”) entered into by the government of Quebec with the government of Canada in September of 2011.

Revenue Quebec Agency will continue to administer the QST, the Goods and Service Tax (“GST”), and certain aspects of the Harmonized Sales Tax (“HST”) in Quebec. In addition the QST will continue to be legislated by the government of Quebec. The major changes relate to the new method for calculating the QST.

New method for calculating the QST

As of January 1, 2013, the QST will be calculated on the selling price not including GST. Pursuant to the agreement, Quebec plans on harmonizing its tax base by removing the GST from the QST base (no more “tax on tax”). However, to ensure the total taxes payable remain the same, the QST rate will be increased to 9.975%.

As an example, below is a calculation of how a product or a service costing $100.00 would be treated before January 1, 2013 and on and after January 1, 2013.

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As can be seen in the above example, the QST paid remain the same only the method of calculating the QST has changed.

You must use the following rates based on whether your accounting or billing software or cash register calculates GST and QST in one or two steps and whether it processes a three-decimal number:

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What should appear on the invoice you are sending or remitting to your clients?

Depending on the amounts charged, the following information should always appear on invoices for supplies are:

  • The name of your business as it appears in the incorporation documents or in the GST and QST application documents you submitted when you applied for your sales tax registration numbers;
  • The GST and QST registration number assigned;
  • The date of the invoice;
  • Where an invoice is not issued in respect of the supply or supplies, (in case of a commercial rental or lease agreement) the date on which there is tax paid or payable;
  • The total amount paid or payable for the supply or supplies;
  • The tax paid or payable or the tax rate in respect of each supply;
  • A description of each supply sufficient to identify it; and
  • Your client’s name and address and the terms of payment (not necessary for supplies under $150.00).

 

Impact of the changes on financial services and investment holding companies

Also a part of the agreement is the full removal of key business inputs tax credits (“ITC”) for financial institutions and investment holding companies such as telecommunications, energy, and financial services to harmonize the QST sales tax treatment with the GST.

As of January 1, 2013, financial services and investment holding companies, which are currently zero-rated under the QST system, will become exempt. Currently these companies were entitled to claim input tax refunds (ITR) on their expenses that had a QST tax element. Consequently, financial institutions and investment holding companies will no longer be entitled to claim an ITR on goods or services acquired to supply financial services or hold investments.

Revenue Quebec has put forward some transitional rules that should be taken into account in order to ensure an unhindered shift for those companies from zero rated status to exempt status.

The following transitional rules will take effect on January 1, 2013:

  1. Financial services and investment holding companies that are registered for the QST on January 1, 2013, but are not registered for the GST/HST, must request a cancellation of their registration as of that date. Those are registered for both can also request a cancellation, as there would be little need for it. Registrants must file Form LM-1.A-V Request for Cancellation by December 31, 2012 so that the effective date is January 1, 2013 (Form LM-1.A if the registrant uses the French version of the Form). As of January 1, 2013, any sales tax paid on goods and services acquired would be tax deductible.
  2. Financial services and investment holdings companies registered for the QST that file an annual information return under the GST/HST system must also file a return under the QST system. The return must be sent within six months following the end of a fiscal period beginning after December 31, 2012.
  3. Financial services and investment holdings companies whose reporting period includes January 1, 2013, the reporting period will end on December 31, 2012. As such, a return must be filed by January 31, 2013.

Impact on government departments and agencies

To simplify compliance for businesses, all federal and Quebec departments and agencies will now be required to pay the GST and the QST on goods and services acquired on and after April 1, 2013. As a result, these departments and agencies will no longer be able to use the exemption certificates required at the time of purchase.

Other harmonization issues

Pursuant to the agreement, the government of Quebec will ensure that the QST tax base produce results that are identical to those under the GST system by harmonizing the same rules and regulations so as to avoid instances of non-taxation and double taxation.

As an example, the GST or HST system stipulates that the supply of imported goods that have not cleared customs, despite being held in bonded warehouses, are deemed to be made outside Canada. As the supply is outside Canada, it is not taxable for GST/HST purposes, prohibiting the purchaser from claiming an ITC. As a result, the GST or HST on imported goods is not payable until they clear customs. Currently, the QST system has no comparable presumption. In view of the harmonization objective, the QST legislation will be changed to stipulate the same presumption.

The government of Quebec will also, commit to replicate under the QST legislation any change that Canada makes under the GST legislation. The change will generally apply on the same date as the corresponding GST change but, in any event, no later than 60 days from the application date for the GST change.