Quebec brokers have won a victory against the tax man.
The Quebec Ministry of Finance and the Economy (MDEIE) has adopted measures to reduce the impact of tax harmonization on brokerage firms. The controversial compensation tax on brokers has been abolished and a new refundable tax credit for brokerage firms has been introduced.
The Harmonized Sales Tax (HST) in Quebec had essentially increased the tax on a broker’s operating expenses by 10%. That’s roughly $12 million in additional tax the government was collecting from the province’s 7,000 to and 8,000 brokers.
Brokers were warning the government that its tax measures could potentially lead to staff layoffs in brokerages across the province.
The province introduced the new measures after Quebec agreed with the federal government in March 2012 to implement the HST, which merges the federal government’s Good and Services Tax (GST) and the Quebec Sales Tax (QST).
As part of the new HST, “up until December of last year, we were able to claim back the provincial sales tax that we paid on taxable purchases,” said Ted Harman, secretary-treasurer of the Regroupement des cabinets de courtage d’assurance du Québec (RCCAQ). “That would be for office staff, the tax that you pay for leasing your car – basically any provincial tax that we were paying, we were able to claim back. It’s the benefit for collecting the HST. We collect premium tax for the government.”
But as of Jan. 1, 2013, Revenu Canada announced that brokers could no longer claim an exemption on taxes that brokers collect from their clients on insurance products.
Prior to the HST harmonization, brokers collected from their clients a 9% tax for goods and 5% tax on automobile insurance products, and then claimed this amount back from the government at tax time.
“From one day to the next, our operating costs increased by 10%,” said Harman. “We had been discussing with the government the possibility to alleviate the ultimate effect on this on insurance brokers.”
The province’s compensation tax, now abolished back to January 1, 2013, was 0.3% of payroll. So, for a payroll of $1 million, a brokerage would be paying $3,000 in tax to the government.
The government has also introduced a temporary refundable tax credit.
“To facilitate the transition of damage insurance firms towards harmonization of the QST system with the GST/HST system, a new refundable tax credit will be introduced for three years,” the government announced in a bulletin.
“Briefly, an eligible corporation may receive a refundable tax credit calculated on the basis of certain expenditures of a current nature it incurs during its 2012 taxation year and that can reasonably be attributed to its damage insurance activities in Québec.
“The rate applicable for calculating this tax credit will be 7.5% for 2013, 5% for 2014 and 2.5% for 2015.”
