Memorandum of Agreement Regarding Sales Tax Harmonization with a View to Concluding a Canada-Quebec Comprehensive Integrated Tax Coordination Agreement
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Memorandum of Agreement Concerning a Canada-Quebec Comprehensive Integrated Tax Coordination Agreement
The Government of Canada (referred to as “Canada”), as represented by the Minister of Finance of Canada,
The Government of Quebec (referred to as “Quebec”), as represented by the Minister of Finance of Quebec and by the Minister responsible for Canadian Intergovernmental Affairs and the Canadian Francophonie,
TOGETHER referred to in this agreement as the “Parties”.
This Memorandum of Agreement (“MOA”) reflects the strong commitment by the Parties to work collaboratively to build a stronger economic foundation.
Pursuant to this MOA, the Parties commit to using their best efforts to negotiate a Canada-Quebec Comprehensive Integrated Tax Coordination Agreement (hereafter referred to as the “Canada-Quebec CITCA”), together with any necessary related agreements.
This MOA forms the framework for concluding the Canada-Quebec CITCA.
1. The Parties undertake to enter into the Canada-Quebec CITCA, including seeking any authority that may be required. The Parties understand that this MOA does not constitute an agreement pursuant to subsection 8.3(1) of the Federal-Provincial Fiscal Arrangements Act.
2. The Parties will make their best efforts to enter into the Canada-Quebec CITCA by April 1, 2012.
3. The Parties agree to make their best efforts to fulfill the undertakings set out in this MOA before June 1, 2012, except where otherwise specified in this MOA, including
a) the finalization of all policy and administrative details;
b) the signing of all agreements relevant to the Canada-Quebec CITCA; and
c) the public announcement by Quebec of all legislative amendments to be made to give effect to the Quebec Sales Tax (“QST”) amended pursuant to this MOA (hereafter referred to as the “Amended QST”) and any other measure appropriate to the transition to the Amended QST.
4. Subject to the Parties having signed the Canada-Quebec CITCA, and subject to all necessary legislative approvals, Quebec will work toward implementing the Amended QST on January 1, 2013. Subject to these approvals and subject to the fulfillment before June 1, 2012 of the undertakings described in clause 3, the Agence du revenu du Québec (“Revenu Québec”) and the Canada Revenue Agency (“CRA”) will have the necessary systems in place to effectively administer, as provided for in this MOA, the Amended QST on or before January 1, 2013. The date of implementation of the Amended QST is hereafter referred to as the “Implementation Date”.
Federal Assistance Payments to Quebec
5. Canada will make payments totaling $2,200 million to Quebec (the “Assistance Amount”) subject to clause 22 and any legislative approval that may be required.
6. Unless otherwise mutually agreed by the Parties, the schedule of payments for the Assistance Amount will be as follows: $733 million upon the first business day following the Implementation Date and $1,467 million upon the first business day following the day that is one year after the Implementation Date provided the Amended QST continues to remain in place.
Timing of Specific Rights and Obligations
Maintaining a Harmonized Tax Base
8. Subject to the exceptions described in this MOA, Quebec will ensure that the Amended QST has a tax base, as well as administrative, structural and definitional parameters, that produce results that are identical to the results produced under the Goods and Services Tax (“GST”)/Harmonized Sales Tax (“HST”) and are administered in a manner that produces identical results. Quebec therefore, despite subclause 10d), undertakes to remove the GST from the Amended QST base.
9. Subject to the exceptions described in this MOA and respecting the powers of the National Assembly, Quebec agrees that it will replicate under the QST legislation in accordance with clause 8 any change that Canada makes under the GST/HST legislation as early as possible. Any required change made under the QST legislation
a) will be publicly announced by Quebec as early as possible but no later than 90 days from the date that Canada has publicly announced the corresponding change to the GST/HST, unless otherwise mutually agreed by the Parties; and
b) will, in general, apply as of the same date as the corresponding change to the GST/HST, but no later than 60 days after the date of such change, except in the case of a change imposing penalties or fines.
For a change imposing penalties or fines, Quebec undertakes to table in the National Assembly, as soon as possible after having publicly announced the change, a Bill implementing the change.
Quebec Tax Policy Flexibility
10. Quebec's tax policy flexibility in respect of the Amended QST, established taking into account the existence of the QST since July 1, 1992, will be confirmed in the Canada-Quebec CITCA as follows:
b) The measures under the QST set out in Annex A, as they apply and are administered on the day that this MOA is executed, that deviate from the GST/HST may continue to deviate from the GST/HST under the Amended QST, but only to the extent of the deviation.
c) Quebec may adopt administrative measures to maintain the integrity of the Amended QST system or to simplify, improve or streamline the application of the Amended QST system, provided that the Parties agree on the adoption of such measures in furtherance of the principles of this MOA.
d) The Amended QST base may deviate from the GST/HST base provided that the total of the absolute value of such deviations does not exceed 5% (as determined by Canada in consultation with Quebec) of the estimated GST base for Quebec.
The Parties agree that, for the purposes of this MOA, the total value of all of the deviations relating to the measures mentioned in Annex B that Quebec implemented prior to the execution of this MOA represents 3% of the estimated GST base for Quebec.
The Parties agree that any new base deviation will only occur subject to data availability and definitions used in the Canadian System of National Accounts or other mutually agreed upon data sources, definitions and methodologies. If mutually agreed upon data or definitions are not readily available, any cost involved in obtaining or establishing such data or definitions will be the sole responsibility of Quebec.
e) Quebec may set the Amended QST rebate rates for municipalities, universities, schools, colleges, hospitals, charities and qualifying non-profit organizations, and the Amended QST rebate rates and thresholds for new housing, subject to matching GST/HST administrative, structural and definitional parameters in respect of those rebates. However, taking into account the existence of an agreement between Quebec and municipalities in Quebec, Quebec is entitled to retain its rebate structure with respect to municipalities, as it applies and is administered on the day that this MOA is executed, but only until December 31, 2013.
Place of Supply Rules
Elimination of Restrictions on Input Tax Refunds
Collection and Administration
18. The Parties agree that
b) the scope of the review will be determined jointly by the CRA and Revenu Québec;
c) the results of the review will be made available to the Parties by February 15, 2012, unless otherwise mutually agreed by the Parties, to allow the Parties to enter into the Canada-Quebec CITCA by April 1, 2012;
d) they will each bear their costs associated with the review;
e) the cost determined by the review represents the maximum amount that Canada will pay to Quebec to administer the GST/HST in Quebec for the year that begins on the Implementation Date ("Implementation Year");
f) for each particular fifth year following the Implementation Year, the cost that the CRA would incur to administer the GST/HST in Quebec will be redetermined using the same methodology used to determine the cost for the Implementation Year, and that redetermined cost represents the maximum amount that Canada will pay to Quebec to administer the GST/HST in Quebec for that particular fifth year; and
g) for each of the four years following the Implementation Year and following each particular fifth year, the maximum amount that Canada will pay to Quebec for administering the GST/HST in Quebec will be equal to the cost determined for the Implementation Year or the particular fifth year, as the case may be, adjusted by a factor mutually agreed upon by the Parties as part of the review.
19. Despite clause 17,
b) the Amended QST in respect of SLFIs and Specified FIs will be collected and administered by the CRA, as set out in an agreement between the Parties, on a fee-for-service basis and conditional on Quebec continuing to mirror under the QST legislation the rules in respect of financial services and in respect of financial institutions under the GST/HST legislation pursuant to clause 13.
Exchange of Information
Amendment and Termination
Constitutional Jurisdiction not Waived
26. It is understood that Quebec will not circumvent the underlying objective of this MOA by means of another value-added tax.
THIS MEMORANDUM OF AGREEMENT ENTERED INTO ON:
The Honourable James M. Flaherty
Minister of Finance
The Honourable Raymond Bachand
Minister of Finance
The Honourable Yvon Vallières
Minister responsible for Canadian
Intergovernmental Affairs and the Canadian Francophonie
- Administrative measures under Quebec’s Tax Administration Act.
- Zero-rating of motor vehicles acquired for re-supply and collection of the QST at the retail level by the Société de l'assurance automobile du Québec.
- Anti-avoidance rule for the purposes of calculating the QST payable regarding a used road vehicle.
- Measures applicable to the operators of flea markets.
- Measures applicable to clothing manufacturers.
- Measures applicable to the operators of establishments providing restaurant services.
- Mandatory registration of certain small suppliers and of certain persons not residing in Quebec and not carrying on a business there.
- The application of the tax to road vehicles supplied otherwise than in the course of commercial activities.
- The compensation to the municipalities of Laval, Montréal and Québec for the repeal of the amusement tax.
- Zero-rating of tobacco.
- Zero-rating of books.
- Zero-rating of diapers for children and items used for bottle-feeding or breast-feeding.
- Zero-rating of admission to a non-foreign convention sold by the convention sponsor to a non-resident participant.
- Zero-rating of passenger transportation services from Quebec to another province with transfer to another conveyance outside Canada.
- Zero-rating of inter-provincial services of ferrying by watercraft of motor vehicles and passengers between parts of a road or highway system separated by a stretch of water.
- Zero-rating of inter-provincial air ambulance services.
- Transitional exemptions for the Mohawks of Kahnawake.
- Non-taxation of certain properties and services supplied by municipalities due to the fact that these inputs were not eligible for any rebate.
- Rebate of the tax paid by certain international organizations.
- Rebate of the tax paid regarding automatic door openers for handicapped persons.
- Rebate of the tax paid regarding a pleasure boat temporarily brought into Quebec for winter storage.
- Taxation by self-assessment of food products intended for making wine or beer.
- Non-rebate of the tax paid regarding short-term accommodations or camping accommodations included in a tour package.
- Easing of the self-supply rule for a single unit residential complex or a residential unit held in co-ownership.
1. If Canada proposes that property or a service (the "Property or Service") be removed from the GST/HST base, Quebec is required to replicate that tax base change pursuant to clauses 8 and 9 of this MOA and the replication (the "Base Change Replication") of that tax base change under the QST legislation would have the effect (taking into account Amended QST rebated, refunded or remitted) of reducing (the "Reduction") by more than one percent the net Amended QST revenues (determined based on information from the Canadian System of National Accounts) that would, in the absence of the Base Change Replication, accrue to Quebec for the calendar year in which the GST/HST base change is proposed to be implemented (estimated by Finance (Canada), in consultation with Quebec, at the time the base change is proposed, using the latest available data and on the assumption that the Base Change Replication would have been in place at the beginning of that calendar year), Canada may implement the GST/HST base change:
a) with prior written agreement from Quebec; or
b) by fully compensating Quebec, upon completion of each calendar year that the GST/HST base change continues and the Amended QST base is in place under the Canada-Quebec CITCA, for the revenue loss (the "Revenue Loss") of Quebec solely attributable to the Base Change Replication for that calendar year (estimated by Finance (Canada), in consultation with Quebec using the latest available data), provided that such compensation, if any, is subject to a reconciliation and adjustment process as well as a payments schedule to be agreed upon by the Parties.
2. For greater certainty, clause 11 of this MOA does not apply in respect of a proposed amendment to the GST/HST legislation if:
a) the amendment is proposed as a consequence of changes in circumstances affecting the GST/HST and for the purpose of maintaining
- the GST/HST tax policy, or
- the application or administration of the GST/HST that would exist in the absence of those changes; and
b) the proposed amendment prevents or redresses an increase in the GST/HST base.
2. If Quebec is considered to have committed a material breach of the Canada-Quebec CITCA, the Parties agree that the Assistance Amount will become immediately due and repayable by Quebec as a debt due to Canada to the extent that the Assistance Amount has been received by Quebec. Canada will be entitled to set off any debt owed, or amount payable, to Canada at any time by Quebec under this clause against any amount due, or becoming due, to Quebec from Canada for any reason and at any time, until such indebtedness of Quebec is fully paid to Canada. This right of set-off will survive any termination of the Canada-Quebec CITCA.
3. Where Canada has, at a particular time, provided written notice to Quebec that Canada considers Quebec to have committed a material breach of the Canada-Quebec CITCA, for the purposes of clauses 1 and 2, Quebec will be considered to have, at the particular time, committed a material breach of the Canada-Quebec CITCA if:
a) Quebec has, at or before the particular time, committed a material breach of the Canada-Quebec CITCA; and
- has not, within 60 days of the particular time, commenced reasonable steps to fully effect a cure or remedy of the material breach, or
- has not, within 180 days of the particular time, remedied or cured the material breach.
5. A Party will, prior to giving written notice to the other Party that the Party considers the other Party to have committed a material breach of the Canada-Quebec CITCA, consult with the other Party in respect of the material breach and, during that consultation, discuss the circumstance or action that, in the Party's opinion, constitutes the material breach by the other Party.
6. Despite clause 2, the Assistance Amount will not become, at a particular time, immediately due and repayable by Quebec as a debt due to Canada if, at or before the particular time:
b) Canada has committed that material breach; and
c) Canada has not cured or remedied that material breach.
7. Despite clause 3, where Canada has, at a particular time, provided written notice to Quebec that Canada considers Quebec to have committed a material breach of the Canada-Quebec CITCA and Quebec has not, within 60 days of the particular time, commenced reasonable steps to fully effect a remedy or cure of the material breach, but the material breach is remedied or cured within 180 days of the particular time, the Parties agree that, for the purposes of clauses 1 and 2, Quebec will not be considered to have committed the material breach.
8. For greater certainty, for the purposes of subclause 3a) Quebec has committed a material breach of the Canada-Quebec CITCA if any change that Canada makes under the GST/HST legislation is not replicated under the QST legislation as early as possible and in accordance with this MOA read without reference to the powers of the National Assembly in the first sentence of clause 9 of this MOA.