Phasing out of the ITR restrictions
Under the existing QST legislation, businesses having taxable sales in excess of $10 million during their last fiscal year, including those of associated companies, as well as certain financial institutions, are subject to input tax refund (ITR) restrictions. The expenses currently subject to the ITR restrictions generally include expenses pertaining to energy, telecommunication services, meals and entertainment, road vehicles and the fuel to power such vehicles.
On October 25, 2017, Revenu Québec published interpretation bulletin 206.1-10 Particulars regarding the phasing out of the ITR restrictions applicable to large businesses that is to begin on January 1, 2018. This document is intended to provide details regarding the changes that will be made to the existing legislation in order to implement the phase out announced in the March 26, 2015 Quebec Budget Speech. The proposed amendments to the legislation are not expected to be available before January 1st, 2018, so businesses will have to refer to the above-mentioned bulletin in order to prepare for the phase out.
The implementation is straight-forward but requires consequential amendments to several sections of the legislation. As expected, large businesses will be allowed to claim 25% of the QST paid after December 31, 2017 in respect of currently restricted expenses. The allowed rate will be increased to 50% for expenses incurred after December 31, 2018 and to 75% for expenses incurred after December 31, 2019. ITR restrictions applicable to large businesses will be completely eliminated for expenses incurred on January 1st, 2021 or after.
Certain consequential changes were also announced in the bulletin:
- The calculation of ITR on the purchase or lease of a passenger vehicle, taking into account the $30,000 valuation limit ($800 monthly lease limit).
- The calculation of QST to be self-assessed by an automobile dealership on vehicles acquired for resale that are used as courtesy or demonstration vehicles.
- The calculation of QST to be self-assessed on property brought into Quebec by a large business.
- The calculation of ITR on certain allowances paid to an employee that relates to a property or a service subject to ITR restriction.
- The calculation of QST to be remitted on certain taxable benefits provided to employees and shareholders of a large business.
The implementation of the phase-out will impose on large businesses an additional burden of documentation of the restriction percentage applied throughout the phase-out period. The Crowe BGK tax group can assist with this transition.
About the Author
Jean-François Senécal, LL.B., D. Tax, is a Senior Tax Manager at Crowe BGK.
Connect with him: [email protected]