Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

February 27, 2019
2019-5285

Canada: Quebec further phases out QST ITR restrictions

Consistent with the amendments to the Act Respecting the Québec Sales Tax (the AQST) tabled on 9 May 2018, the restrictions on obtaining an input tax refund (ITR) applicable to large businesses have been gradually phased out since 1 January 2018. Accordingly, large businesses concerned must once again update their procedures as of 1 January 2019 and increase the rate of the ITRs they claim in respect of restricted expenses from 25% to 50%.

As a result, with respect to taxable benefits provided to employees in 2018, registered employers that are deemed to be large businesses are required to include in the calculation of their net tax to be remitted 25% of the tax arising from taxable benefits related to expenses subject to the restrictions applicable to ITRs.

ITR claims at the 50% rate starting 1 January 2019

For background, see EY Global Tax Alert, Canada: Quebec relaxes QST ITR restrictions, dated 31 October 2017, which discussed the details published by Revenu Québec in Interpretation Bulletin 206.1-10 regarding the gradual phasing-out of the ITR restrictions applicable to large businesses, including the following covered expenses:

  • Electricity, gas, combustibles and steam used for a purpose other than to produce property intended for sale
  • Telecommunication services, with the exception of internet access services and toll-free numbers (e.g., “1 800” and “1 888” numbers)
  • Meals and entertainment expenses whose deductibility is limited to 50% for income tax purposes
  • Road vehicles under 3,000 kg that must be registered to be driven on public roads
  • Fuel, other than diesel, used to power such road vehicles

Starting 1 January 2018, the restrictions applicable to ITRs have been gradually phased out at a rate of 25% per year. Since 1 January 2019, large businesses can claim as ITRs 50% of the Quebec sales tax (QST) paid on their restricted expenses. Ultimately, the restrictions will be completely eliminated as the ITR rate increases to 75% on 1 January 2020 and then to 100% on 1 January 2021.

Impact on the calculation of the QST payable on taxable benefits for 2018

In calculating the QST to be remitted on their returns including the last day of February 2019, large businesses will have to take into account 25% of the ITRs claimed in 2018 in respect of restricted expenses incurred to provide taxable benefits to employees during 2018.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (Canada), Montréal
  • Jean-Hugues Chabot | jean-hugues.chabot@ca.ey.com
  • Manon Jubinville | manon.jubinville@ca.ey.com
  • Louis Fournier | louis.fournier@ca.ey.com
  • Jadys Bourdelais | jadys.bourdelais@ca.ey.com
  • Jean-Baptiste Congy | jb.congy@ca.ey.com
  • Catherine Dickner | catherine.dickner@ca.ey.com

ATTACHMENT

 
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 2023, Ernst & Young LLP.

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

 

"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

 

Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct