ARCHIVED CD 1997-036

This Web page has been archived on the Web.

November 17, 1997

SUBJECT: Québec Tax Reform - Effective January 1, 1998

1. PURPOSE

1.1 The purpose of this directive is to provide information concerning the above-noted subject.

2. BACKGROUND

2.1 The reform of the Québec Income Tax System was presented in the Québec budget dated March 25, 1997.

2.2 The Québec Government introduced this new measure with the intention of simplifying personal income tax calculation.

3. POLICY

3.1 All measures as described hereunder are effective January 1, 1998.

3.2 The number of income tax brackets will be reduced from five to three as follows:

ANNUAL TAXABLE INCOME

Over	Not Exceeding	RATES
$0 -	$25,000	20%
$25,0000 -	$50,000	23%
$50,000 -	and over	26%

3.3 The 5% surtax applicable to income tax exceeding $5,000, the additional surtax of 5% applicable to income tax exceeding $10,000 and the income tax reduction of 2% will all be eliminated.

3.4 The non-refundable tax credit, applicable to an employee's personal claim amount, will be increased from 20% to 23%.

3.5 Commencing with the filing of the 1998 income tax returns, Québec Tax Reform provides taxpayers with the option of filing with the new "simplified" income tax system, or the "general" income tax system. Le ministère du Revenu du Québec has advised that they will include a chart in the 1998 income tax return to assist taxpayers in determining which system is more advantageous to them.

The "simplified" income tax system will continue to provide personal tax credits; however, tax credits for Québec Pension Plan, Canada Pension Plan, Employment Insurance, union dues, tuition fees, physical or mental impairment, member of a religious order and Labour Sponsored Funds such as Le Fonds de solidarité des travailleurs du Québec, will all be replaced by one lump sum deduction of $2,350 per taxpayer.

The "general" income tax system will continue to provide the same tax credits (i.e. personal, Québec Pension Plan, Canada Pension Plan, Employment Insurance, union dues, etc.) as exist today. This system may only be used by a taxpayer upon filing his income tax return.

Employers have been instructed by le ministère du Revenu du Québec to utilize the "simplified" income tax system for calculations of income tax at source.

3.6 Taxpayers will now complete the form TP-1015.3 entitled Source Deductions Return (formerly known as the MR-19). The changes on the form for the 1998 taxation year are as follows:

• The basic credit will change from $5,900 to $8,250 to include the new lump sum amount of $2,350 as per the "simplified" income tax system;
• The married credit will also change from $5,900 to $8,250. This new amount also takes into consideration the new lump sum amount of $2,350;
• Credits for physical or mental impairment, credits for members of a religious order, and credits for tuition and examination fees will be eliminated;
• One calculation for the reduction of credits for a person living alone, the age credit and the credit for a person receiving retirement income has been introduced. This new calculation replaces three separate calculations;
• Employees who pay the $5.00 parental contribution per day set by the Government of Québec for services provided in early childhood centres and certain day care centres, should note that they are not entitled to claim this amount as child care expenses;
• Alimony and child support payments will be included on the TP-1015.3. Employees will be responsible for determining the amount of the tax exemption. This measure replaces tax exemptions provided by court orders and tax waiver letters previously issued by le ministère du Revenu du Québec. Please note that this procedure providing this exemption applies to the calculation of Québec income tax only. Please refer to Compensation Directive 1997-034 dated November 6, 1997 for information concerning Federal income tax exemptions;
• The tax reduction for families will now be calculated using a single threshold of $26,000.

3.7 The rate of income tax on lump sum payments, such as retiring allowances and returns of pension contributions, will be raised to 20% (previously 16%) if the payment is no more than $5,000 and 23% (previously 20%) if the payment exceeds $5,000.

4. PROCEDURES/INSTRUCTIONS

4.1 Effective January 1, 1998, the Regional Pay System (RPS) will be modified to incorporate the above tax changes with the exception of the amount claimed by employees on the TP-1015.3 form.

4.2 To avoid mass refiling of the TP-1015.3, the following changes to the current amount in field 84 "Provincial Tax Credit" will be processed automatically in the RPS:

	CHANGE FROM CURRENT AMOUNT	CHANGE TO AMOUNT AS OF 01-01-98
(Employees who had chosen not to claim the basic amount.)	$0	$0
(Employees who were claiming the basic exemption.)	$5,900	$8,250
(Employees who were claiming the basic and married exemption.)	$11,800	$16,500

Where an employee has an amount in field 84 "Provincial Tax Credit" other than the one stated above, the RPS will automatically impose $8,250.

4.3 Effective January 1, 1998, departments will be required to remove any Québec exemption in field 44 "Additional Provincial Tax Exemption" for child support or alimony payments that were previously authorized by a letter from le Ministère du Revenu du Québec or by a court order.

Employees who are entitled to take advantage of the Québec tax exemption at source for child support or alimony payments will be required to complete the new TP-1015.3 form.

4.4 It is also suggested that employees who were claiming the credits for physical or mental impairment, member of a religious order, tuition and examination fees, residents of designated areas, person living alone, person receiving retirement income, age credit, the tax reduction for families, child-care expenses, or any employee who feels that their personal claim might not properly reflect their present situation should file a new TP-1015.3.

4.5 The TP-1015.3 forms are available at the offices of le ministère du Revenu du Québec.

5. INQUIRIES

5.1 Any request for information regarding the foregoing should be addressed to your Public Works and Government Services Canada (PWGSC) Compensation Services Office.

Original Signed by
B. Bartley

P. Charko
Director General
Compensation Sector
Government Operational Service

Reference: CJA 9007-8