By Maude Proulx, M. Fisc.
Manager, Tax Services
&
Sylvain Thibeault, Attorney, M. Fisc.
Senior Manager, Commodity Taxes
BDO Canada
On July 11, 2013, Quebec's finance ministry announced two measures designed to ease the tax burden for damage insurance firms. The first measure abolished the compensation tax, while the second introduced a temporary refundable tax credit. Seeing as it has been a little more than three years since these measures were announced, we would like to provide you with a few important reminders.
Compensation tax
In line with the financial services tax exemption under the QST regime, the abolition of the base rate portion of the compensation tax, calculated as 1% of total payroll, took effect on January 1, 2013. However, a temporary contribution added to the base component applicable to insurance brokers (introduced in March 2010) was not abolished; in fact, it increased. In July 2013, the finance ministry officially announced the abolition of this temporary contribution for financial institutions included in the "other persons" category, including insurance brokers1 (this measure was retroactive to January 1, 2013).
Insurance brokers no longer have to pay compensation tax on their payroll, nor do they have to pay a temporary contribution (effective January 1, 2013). Therefore, any insurance brokers who paid the compensation tax after January 1, 2013 may file an adjustment request with Revenu Québec. If the tax was paid following an audit or a new assessment, a cancellation or adjustment request can also be filed with Revenu Québec.
Temporary refundable tax credit for damage insurance firms
Also, another measure was introduced more recently to reduce the additional financial impact of non-recoverable QST costs for damage insurance firms.. Announced in July 2013, a temporary refundable tax credit was introduced for 2013, 2014 and 2015.
Please bear in mind that this credit is calculated based on qualified current expenditures incurred by a qualified corporation in its last year ended before January 1, 2013. The rate of the credit is determined using a gradually declining percentage over the three tax years.
To claim the credit, a form (CO-1029.8.36.AD "Tax credit for damage insurance firms") must be completed within 18 months following the end of a tax year that includes all or part of the 2013, 2014 or 2015 calendar years. Firms that have not filed the form for the tax year ended April 30, 2014 have until October 31, 2016 to do so.
For all companies with a permanent establishment in Quebec, we recommend attaching the tax credit claim form to the corporation income tax return (CO-17), that needs to be filed annually within six months of their tax year-end. This form can also be submitted separately if the annual corporation income tax return was already filed.
Since this credit is refundable, even corporations with no income tax payable for a tax year occurring at any point between January 1, 2013 and December 31, 2015 can be a qualified corporation to claim the credit and may apply to claim it. Please note that this credit is taxable and must be included in the calculation of the corporations taxable income for the tax year in which it was received.
For additional information on payment or non-payment of the compensation tax and on eligibility for the tax credit, please feel free to contact the authors of this article.
Important notice
This article was carefully prepared but was written in general terms and should be seen as broad guidance only. This article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained herein without obtaining specific professional advice. Please contact your BDO Canada LLP advisor to discuss these matters in the context of your particular circumstances.
1. Please note that a financial institution having made the joint election set out in Section 150 of the Excise Tax Act with a bank, loan company, trust company, securities company, savings/credit union, insurance company or professional association is still subject to the temporary component. 2. 7.5% for 2013, 5% for 2014 and 2.5% for 2015.
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