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Published | Category : Income tax - businesses

Implementation of an Income-Averaging Mechanism for Forest Producers

An income-averaging mechanism will be introduced on a temporary basis. This mechanism will, for the purposes of income tax and the individual contribution to the health services fund, make it possible to average a portion of the income generated by non-retail sales of timber produced in a private forest for a period not exceeding seven years.

This mechanism will apply to an eligible individual or a qualified corporation which, at the end of a particular taxation year ending after March 17, 2016, but before January 1, 2021, is either a certified forest producer in respect of a private forest or a member of a qualified partnership that is a certified forest producer in respect of a private forest at the end of the partnership's fiscal period ending in the year.

Income-averaging mechanism for the purposes of calculating income tax

The tax legislation will be amended to stipulate that an eligible individual or a qualified corporation may deduct, in calculating taxable income for the year, an amount not exceeding 85% of the lesser of the following amounts: $200,000 or the amount determined according to the formula (A − B) + (C − D), that is, the income earned from certified commercial activities minus the losses resulting from these activities.

An individual or a corporation, as applicable, that has deducted, in calculating the taxable income for a particular taxation year, an amount from certified commercial activities in respect of a private forest will be required to include in calculating taxable income:

  • for each of the six taxation years following the particular taxation year, an amount that cannot be less than 10% of the amount so deducted, up to the amount by which the amount so deducted exceeds the aggregate of the amounts each of which is an amount included in the calculation of the taxable income for a previous taxation year in respect of the amount so deducted;
  • for the seventh year following the particular year, an amount equal to the amount by which the amount so deducted exceeds the aggregate of the amounts each of which is an amount included in the calculation of the taxable income for a previous taxation year in respect of the amount so deducted.

An individual will be considered an eligible individual for a particular taxation year if the individual resides in Québec at the end of that year. A qualified corporation for a particular taxation year is a Canadian-controlled private corporation with paid-up capital, taking into account the paid-up capital of any corporations with which it is associated in the taxation year, is at least $15 million for its previous taxation year.

An individual, corporation or partnership, as applicable, will be considered to be a certified forest producer at any time in respect of a private forest if the individual, corporation or partnership at that time holds a certificate as a certified forest producer issued under the Sustainable Forest Development Act in respect of that private forest.

The certified commercial activities in respect of a private forest mean the non-retail sales of timber produced in that private forest to a buyer having an establishment in Québec.

For more information, see pages A.44 to A.48 of the document entitled Additional Information 2016-2017 (PDF – 2.88 MB), published by the Ministère des Finances.

Income-averaging mechanism for the purposes of calculating the individual contribution to the health services fund

An individual who so chooses may deduct, in calculating his or her total income for a particular year, an amount equal to the amount that he or she deducted for the purposes of the tax system in calculating his or her taxable income for the year under the income-averaging mechanism for forest producers.

However, an individual who makes such a choice for a particular year will be required to include, in calculating his or her total income for each of the seven years following the particular year, an amount equal to the amount that, for the purposes of the tax system, was included in calculating his or her taxable income for that year under the income-averaging mechanism for forest producers.

For more information, see pages A.48 and A.49 of the document entitled Additional Information 2016-2017 (PDF – 2.88 MB), published by the Ministère des Finances.

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