Tax Alert - The Québec Economic Plan – November 2017 Update

November 2017

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On November 21, 2017, Minister of Finance Carlos J. Leitão released the Québec Economic Plan (the Plan), with less than a year before the next provincial election, in an effort to “enable the government to announce new measures to improve the quality of life of families”. The tax measures consist of a modest reduction in personal taxes, modification in the amount of certain personal tax credits, a new tax supplement for the purchase of school supplies, and the introduction of a streamlined method to access certain tax assistance payments.  Earlier in November, legislation was tabled to provide enhancements to the Quebec Pension Plan (QPP) in a manner that mirrors upcoming enhancements to the Canada Pension Plan (CPP). In this Alert, we also report on these proposed changes.


New Personal Income Tax Reduction

The government announced in the Plan that the tax rate applicable to the first taxable income bracket for individuals is decreasing from 16 percent to 15 percent as of 2017. For 2017, this is the income bracket not exceeding $42,705 and the tax rate reduction will be applied when individuals file their income tax return. In cases where individuals are required to pay their income tax in instalments, any instalment payment due after September 15, 2017, may be adjusted in accordance with the usual rules to take into account the new tax reduction. As well, since personal tax credits are calculated using the tax rate applicable to the lowest tax bracket, as of 2017, changes will be made to reduce the rate used in the calculation of certain personal tax credits so that it corresponds to the new rate of 15 percent.

In order to compensate for the fact that lowering the tax rate applicable in calculating personal tax credits reduces the amount of the tax benefit, the amount of certain credits will be increased, so that for these benefits, there is no change in the amount of tax benefit received. This change will be effective for the 2017 taxation year.

For the 2017 taxation year, source deductions of income tax must be made as if 16 percent was still the rate applicable to the first income tax bracket of the personal income tax table and without taking into account the changes made to the terms for calculating certain credits. In order to give full effect to the new general tax reduction and the changes concerning the calculation of personal tax credits and the credit for experienced workers, amendments will be made for the purpose of determining source deductions of income tax for taxation years subsequent to 2017.


New Supplement for the Purchase of School Supplies

The government also proposed to grant annual, universal financial assistance of $100 per school-aged child by means of a new component incorporated into the refundable tax credit for child assistance.  This new component, the supplement for the purchase of school supplies, will be granted irrespective of the eligible individual’s family income and will be adjusted automatically each year as of 2019.


Enhancement of the Refundable Tax Credit Attributing a Work Premium

There are two work premiums granted under the refundable tax credit program: (1) the general work premium for households whose capacity for employment is not severely limited, and (2) the adapted work premium for households whose capacity for employment is severely limited. The Plan proposed to amend the legislation to gradually increase the rate applicable to certain households for the purposes of calculating the maximum amount under the general work premium and the maximum amount under the adapted work premium. These changes will be phased in over five years, starting in 2018.


Automatic Payment of Certain Tax Assistance

The Québec tax system includes several income support measures for low and middle-income households, including the refundable solidarity tax credit (“solidarity tax credit”), the refundable tax credit granting a work premium (“work premium”) and the refundable tax credit establishing a fiscal shield (“fiscal shield”). Currently, an individual must apply for these forms of tax assistance in order to receive them. It was announced that the requirement that individuals apply for these types of tax assistance would be removed. This change in requirement will be applicable, in the case of the basic amount and the amount for a spouse under the QST component of the solidarity tax credit, starting with the payment period beginning on July 1, 2018, and in respect of the work premium and the fiscal shield, as of the 2018 taxation year. Individuals and their spouses will need to file Québec personal tax returns to receive the credit, but will not need to separately apply within their tax return filing.


Tax Treatment of New Contributions Paid Following the Enhancement to the Québec Pension Plan and the Canada Pension Plan

On November 2, 2017, a bill was introduced to enhance the Québec Pension Plan (QPP) by adding an additional plan to the existing “base plan”. The enhancements will be implemented in two stages, the first as of 2019, and the second as of 2024. Under the additional plan, a first additional contribution will be required on the pensionable earnings of a worker, up to the worker’s maximum pensionable earnings (MPE). A second additional contribution will be applicable on a worker’s pensionable earnings that exceed the worker’s MPE, up to the worker’s additional maximum pensionable earnings (AMPE). In 2024, the amount of the AMPE will be 107 percent of the MPE for that year, and in each subsequent year, it will be 114 percent of the MPE for the year.

In 2016, federal legislation containing measures to effect enhancements to the Canada Pension Plan (CPP) received Royal Assent. The parameters of that enhancement and the proposed QPP enhancement are the same. Firstly, there will be progressive increases in the first additional contribution from 2019 to 2023, when it will reach a combined employer and employee rate of 2 percent of contributory earnings. Secondly, an additional contribution for income exceeding the MPE, up to the worker’s AMPE, will come into effect in 2024 at a combined employer and employee rate of 8 percent. Note that generally, a tax deduction will be provided for the amounts payable by the employee or self-employed worker as the first additional contribution and the second additional contribution to the QPP, or to any similar plan. As the changes proposed for the QPP are very similar to the CPP enhancements, please read our article titled, “Canada Pension Plan Enhancement – How Will It Affect Me?” for more information.

Summary
We are committed to keeping you updated on current tax changes. For further information, contact a trusted BDO advisor or one of our BDO Canada Tax Leaders:

Dave Walsh
Partner, Tax Service Line Leader
Shelley Smith
Partner, East Group Tax Service Line Leader
Rachel Gervais
Partner, GTA Group Tax Service Line Leader
Peter Routly
Partner, Central Group Tax Service Line Leader
Daryl Maduke
Partner, West Group Tax Service Line Leader

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The information in this publication is current as of November 23, 2017.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.