Quebec Budget March 30th 2010

The 2010/2011 Provincial budget was tabled in Quebec on March 30th, 2010. The following is a summary of the highlights contained in the budget that will affect Canadian employers.

Funding of the Provincial health-care system
Effective July 1, 2010 Quebec is introducing a general health contribution for adults, excluding low-income earners (people with earnings below the applicable tax exemption). The health contribution will be phased in starting with a prorated contribution for 2010 of $25 per adult on an annual contribution of $50, increasing to $100 in 2011 and $200 in 2012. Quebec has indicated these revenues will provide direct financing to health-care institutions on the basis of their productivity and result in an attempt to stimulate efficiency.

Employers who have collective agreements that specify provincial health premiums will be employer paid may be expected to pay this on behalf of employees. The health contribution will be collected from employees in conjunction with the tax year, and outstanding balances will be settled through income tax returns. Employees may request to have their source deductions increased to fund the health contribution.

Further, the Quebec government indicated they are considering adding a health deductible, possibly calculated on the number of medical visits during the year. The concept of this deductible is that it would be adjusted to encourage the use of front-line services and reduce the pressure on emergency rooms. We will monitor this to ensure that, should Quebec implement this, it is not automatically assumed by employer health plans.

Increased Taxes
The Provincial Sales Tax will be increased from 7.5% to 8.5% in January 2011, and to 9.5% in January 2012. This will impact all benefit plans with employees in Quebec as sales tax is applied to both premium and ASO expenses.

Financial institutions operating in Québec must currently pay a compensatory tax, which is mainly calculated on their salaries paid subject to income tax and on insurance premiums collected.

A temporary rise in rates applicable to two of the three elements of the compensatory tax on financial institutions will remain in effect until March 31, 2014.
• Tax rates for insurance premiums and amounts dedicated to an insurance fund will rise from 0.2% to 0.55%, and
• Tax rates for salaries will increase anywhere from 0.5% to 1.9%, depending on the type of financial institution.

This increase may be passed on to plan sponsors through increased expense charges. As these are relatively small components of the expense charges for a plan, we do not anticipate it will have a significant cost impact.

Please do not hesitate to contact K+A if you have any questions or concerns about these changes and/or communicating these changes to your organization.