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Normandin Beaudry

Impact of tax measures announced by the Quebec government on group benefits plans

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There, in black and white

NB Bulletin Vol. 17 N. 13, December 2014

On December 2, 2014, in the Update on Québec's Economic and Financial Situation, the Quebec Government announced some tax measures that have an impact on group benefits plans and employers' contributions to the Health Services Fund:

  • Increase in the temporary contribution relative to the compensation tax for financial institutions;
  • Increase in the tax on capital for insurance corporations; and
  • Reduction of the Heath Services Fund contribution rate for SMEs in the primary and manufacturing sectors.

These measures took effect on December 3, 2014 and will have an impact on group benefits plan costs.

Increase in the temporary contribution relative to compensation tax and increase in the tax on capital

Compensation tax and tax on capital are payable by insurance companies that include these taxes in their administration fees and, consequently, in premium rates for group benefits plans.

For the past several years, the Quebec government has imposed a temporary contribution relative to compensation tax on insurance premiums for financial institutions. The contribution rate was 0.30% of the premium up to December 2, 2014. In the Update on Québec's Economic and Financial Situation, the Quebec government announced that this rate will increase from 0.30% to 0.48% up to March 31, 2017. The 0.30% rate will be reinstated on April 1, 2017 and abolished on April 1, 2019.

It should be noted that compensation tax is generally combined with tax on capital for insurance corporations. The tax on capital rate, which is was previously 2.00% of premiums, increased to 3.00% of premiums on December 3, 2014.

These taxes increased from 2.30% to 3.48% since December 3, 2014. An adjustment of around 1.18% owing to the increase in taxes can thus be expected when your group benefits plan premiums next increase. 

Reduction of the Health Services Fund contribution rate for SMEs in the primary and manufacturing sectors

In Quebec, all employers must make a contribution to the Health Services Fund. Before January 1, 2015, this contribution was based solely on the employer's total payroll and ranged from 2.70% to 4.26% of payroll.

As of 2015, SMEs in the primary and manufacturing sectors will be able to benefit from a reduction in this contribution. Eligibility for the reduced rate is subject to certain conditions, which are detailed on page 5 of the Information Bulletin published on December 2, 2014 and available on the Ministère des Finances website. The table below presents the contribution rates that will apply in 2015:

Employer's contribution rate as a percentage of total payroll
(1)Subject to certain conditions.

You can consult the Information Bulletin published on December 2, 2014 on the Ministère des Finances du Québec website.

 

Please feel free to contact us for additional information.

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