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1 2017 Tax Update - Quebec Textbook

2 H&R Block Canada, Inc All Rights Reserved Copyright is not claimed for any material secured from official government sources. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any storage or retrieval system, without permission in writing from H&R Block Canada, Inc.

3 Tax Update 2017 Quebec 1 Table of Contents Introduction... 3 Indexation Factor in Québec for Other Amounts that have been Indexed or Increased... 7 Income averaging for forest producers... 8 Dividends from taxable Canadian corporations... 8 Gross-up percentage... 8 Tax credit rate... 8 Deduction for residents of designated remote areas... 8 Expenses for medical services not available in your area... 9 Age amount... 9 Tax credit for workers 64 or older... 9 Tax credits for donations and gifts... 9 Charitable donations and gifts... 9 Donations of food products... 9 Tax credit for the acquisition of Capital régional et coopératif Desjardins shares Québec prescription drug insurance plan Health contribution Tax credits respecting the work premium Tax credit for home-support services for seniors Tax credit for caregivers Tax credit for children s activities RénoVert tax credit Tax shield The TP1 and the Schedules Instalment payments not made by due date Correcting an oversight to claim the Solidarity Tax Credit (STC) Filing RL-31 Slips: Reporting information about leased dwellings Dividends from taxable Canadian corporations (line 128) Dividend tax credit (line 415) Deduction for workers (line 201) Eligible work income: Deduction for residents of designated remote areas (line 236) Overseas employment deduction (line ) Deduction for foreign specialists working in a stock exchange corporation (line ) Income-averaging deduction for forest producers (line ) Basic Personal Amount (line 350) Adjustment for Income Replacement Indemnities (line 358) Age amount (line 361) Amount for a Severe and Prolonged Impairment in Mental or Physical Functions (line 376) Expenses for Medical Services Not Available in Your Area (line 378) Tax Credit for Volunteer Firefighters and Search and Rescue Volunteers (line 390) Tax Credit for Workers 64 or Older (line 391)... 32

4 2 Tax Update 2017 Quebec - Textbook Tax Credits for Donations and Gifts (line 395) Donations of food products Charitable donations and gifts Income Tax on Taxable Income (line 401) Tax Credit for the Acquisition of Capital Régional et Coopératif Desjardins shares (line 422) Premium payable Under the Québec Prescription Drug Insurance Plan (line 447) Health Contribution (line 448) Elimination of the health contribution Tax Credits Respecting the Work Premium (line 456) Tax Credit for Home-Support Services for Seniors (line 458) Increase in the Ceiling for Eligible Expenses Gradual Increase in the Rate of the Tax Credit Concept of Private Residences for Seniors and Obligation to Obtain Certification. 39 Simplified Method for Completing Schedule J Tax Shield (line 460) Claiming the Tax Shield Tax Credit for Caregivers (line 462-2) Tax Credit for Children s Activities (line ) RénoVert Tax Credit (line ) Recognized eco-friendly renovation work Claiming the Tax Credit What s New in 2017? Income Thresholds and Tax Rates in New parameters for CPP, QPP, EI, and QPIP in Parameters of the Québec Taxation System in Other credits known for the taxation year Changes to the tax credit for experienced workers 64 or older Acceleration of the plan to reduce and eliminate the health contribution Increase of the age eligibility for the age amount Partial increase of the tax credit rate for gifts... 46

5 Tax Update 2017 Quebec 3 Quebec Tax Changes Introduction In this supplement to the Tax Update, we will discuss the Québec tax changes for We will first address the increases to the tax brackets and other amounts resulting from indexation and some new administrative measures that take effect for Then, we will look at the new TP1 and its schedules before discussing in more detail the tax changes in their order of appearance on the 2016 tax return. We will also discuss certain measures that affect 2017 tax return. The main sources of these changes are the budgets tabled by the Québec government in the National Assembly on March 26, 2015 and March 17, Additional changes come from harmonization with federal measures, ministry rulings, legislative bills and information bulletins published by the Québec Ministry of Finance throughout 2015 and At the end of this update, you will be able to: Identify the main tax changes for Québec for 2016 and how they are incorporated on to the TP1 and its schedules; Summarize the changes to the tax rates and personal amounts; Understand the new deduction for income averaging for forest producers; Recall the changes to the following: Gross-up percentage and tax credit rate for the ordinary dividends from taxable Canadian corporations; Deduction for residents of designated remote areas; Expenses for medical services not available in your area; Age amount; Tax credit for workers 64 or older; Tax credits for donations and gifts; Tax credit for the acquisition of Capital régional et coopératif Dejardins shares; Québec prescription drug insurance plan; Health contribution; Tax credits respecting the work premium; Tax credit for home-support services for seniors; Tax credit for caregivers; Tax credit for children s activities;

6 4 Tax Update 2017 Quebec - Textbook Inform clients about the new RénoVert refundable tax credit; Understand the new Tax shield refundable tax credit; and Discuss certain new provisions which will take effect in 2017.

7 Tax Update Québec Supplement 5 Indexation Factor in Québec for 2016 The parameters of the Quebec tax system are adjusted annually to inflation. For 2016, the indexation factor is or 1.09% and most of the amounts are adjusted to the closest $5 (although certain credits such as the tax credit for a caregiver in Schedule H, are rounded to the closest $1). Illustration 2 shows the principal changes resulting from indexation from 2011 to The adjustments to the tax bracket thresholds are as follows: The rate of 16% applies to the taxable income bracket less than or equal to $42,390 (up from $41,935 in 2015); The 20% rate applies to the taxable income bracket over $42,390, but less than or equal to $84,780 (up from $83,865 in 2015); The 24% rate applies to the taxable income bracket over $84,780, but less than or equal to $103,150 (up from $102,040 in 2015); The 25.75% rate applies to the taxable income bracket over $103,150. The rates and income thresholds from 2010 to 2016 are outlined in Illustration 1. The indexation factor for 2017 will be or 0.74%. A comparison of the parameters for 2016 and 2017 are shown on Illustrations 23 to 26 at the end of this chapter.

8 6 Québec Tax Changes Illustration 1: Québec Tax Rates and Taxable Income Thresholds from 2010 to 2016

9 Tax Update Québec Supplement 7 Illustration 2: Personal Amounts for Québec from 2011 to 2016 Other Amounts that have been Indexed or Increased Some other amounts that have been increased for 2016 are listed below: The maximum amount of the deduction for workers goes from $1,120 to $1,130; The basic exemption used to calculate the contribution to the Health Services Fund goes from $14,285 to $14,440; The exemptions used in the calculation of the contribution to the Québec drug insurance plan; for example, single individuals will be exempt from the contribution in 2016 if their net income does not exceed $15,570 (up from $15,360 in 2015), while couples without children will not pay any contribution if their family income does not exceed $25,230 (up from $24,890 in 2015);

10 8 Québec Tax Changes The family income scale used to determine the refundable tax credit for childcare expenses has been indexed; The amounts of the refundable tax credit for medical expenses has been increased; The threshold for the reduction of the refundable tax credit for home-support services for seniors has been indexed from $55,905 to $56,515; and The threshold for reduction of the tax credits for a person living alone, the age amounts, and for retirement income (Schedule B) has been indexed to $33,505 (up from $33,145 in 2015). Income averaging for forest producers A certified forest producer or a member of a partnership that is a certified forest producer, who is resident in Québec on December 31, 2016, can average over a period not exceeding seven years, a portion of the net income generated by non-retail sales of timber produced in the private forest. Dividends from taxable Canadian corporations Gross-up percentage The gross-up percentage of ordinary dividends has been lowered from 18% to 17% as of January 1, The taxable amount of all dividends is reported on line 128 of the tax return. Tax credit rate The tax credit rate of the actual amount of ordinary dividends has been lowered from 8.319% to % as of January 1, The dividends tax credit is claimed on line 415 of the tax return. Deduction for residents of designated remote areas The housing deductions have been increased from $8.25 to $11 per day. The deduction is claimed on line 236 of the tax return.

11 Tax Update Québec Supplement 9 Expenses for medical services not available in your area The minimum distance has been decreased from 250 kilometers to 200 kilometers for medical services to be considered not available in your area. The travel, lodging or moving expenses paid after June 30, 2016 can be claimed on line 378 of the tax return. Age amount The eligibility age has been raised from 65 to 66 in The credit is claimed on Schedule B and line 361 of the tax return. Tax credit for workers 64 or older The eligibility age has been lowered from 65 to 64. The amounts and conditions vary and depend on the age. For example: The maximum eligible work income is $4,000 for workers of 64 on December 31, 2016 and $6,000 for workers of 65 or older at the end of the year. The maximum tax credit is $ for workers of 64 on December 31, 2016 and $ for workers of 65 or older at the end of the year. The credit is claimed on line 391 of the tax return. Tax credits for donations and gifts Charitable donations and gifts The total eligible amount of charitable donations and gifts is no longer limited to 75% of the net income. Donations of food products The eligible amount of the donation can be increased by 50% if eligible food products donated to a member of the Food Banks of Québec after March 17, The credit is claimed on line 395 of the tax return.

12 10 Québec Tax Changes Tax credit for the acquisition of Capital régional et coopératif Desjardins shares The tax credit rate has been lowered from 45% to 40% for shares acquired after February 29, The credit is claimed on line 422 of the tax return. Québec prescription drug insurance plan The maximum premium has been increased from $640 to $660. The maximum premium payable for the 2016 taxation year is $650. The premium payable is calculated on Schedule K and reported on line 447 of the tax return. Health contribution The health contribution has been reduced as of July 1, The maximum contribution has been lowered from $100 to $50 for the net income between $18,570 and $41,265 and from $200 to $175 for the net income between $41,265 and $134,095. The contribution is calculated on Work Chart and reported on line 448 of the tax return. Tax credits respecting the work premium The rate to calculate the maximum amount granted to a person living alone or to a couple without children has been raised from 7% to 9% for work premium and from 9% to 11% for the adapted work premium. The credit is claimed on line 456 of the tax return. Tax credit for home-support services for seniors The tax credit has been raised from 33% to 34% of the eligible expenses. The credit is claimed on line 458 of the tax return.

13 Tax Update Québec Supplement 11 Tax credit for caregivers The tax credit that can be claimed by caregivers of a spouse has been increased from $925 to $1,000. The credit is claimed on line 462 (code 02) of the tax return. Tax credit for children s activities The maximum eligible registration or membership fees have been increased from $300 to $400 per child, for a maximum tax credit of $80 per child, or $160 if the child has a severe and prolonged impairment in mental or physical functions. The credit is claimed on line 462 (code 25) of the tax return. RénoVert tax credit The new refundable tax credit can be claimed if the eligible expenses were paid after March 17, 2016 and before October 1, 2017 for eco-friendly renovation work on the principal residence or cottage (subject to certain conditions) under a contract signed with a qualified contractor after March 17, 2016 and before April 1, The tax credit is equal to 20% of the eligible expenses that exceed $2,500, up to a maximum cumulative tax credit for 2016 and 2017 of $10,000 per eligible dwelling. The credit is claimed on line 462 (code 32) of the tax return. Tax shield The new refundable tax credit can be claimed if a part of the tax credit respecting the work premium or the tax credit for childcare expenses would be lost due to an increase in work income. The tax credit is claimed on the new line 460 of the tax return.

14 12 Québec Tax Changes The TP1 and the Schedules Revenue Québec has made some changes to the 2016 income tax return and to some schedules that were related to indexation and new tax rules. The following is a brief overview of the changes made. We will examine these changes in detail over the course of the update. The general aspect of page 1 of the TP1 has not changed. The section Total income The description of the line 164 has been modified to read Net business income (line 34 of Schedule L). The words Net income that were placed to the left of the line s number, have been removed. No changes have been made to the section "Net income". The section Taxable income Line 297 undergone some changes: o o o Code 15 Deduction for employment income earned outside Canada (RL- 17 slip) was gradually eliminating from 2013 and completely abolished in Code 18 Deduction for foreign specialists working in a stock exchange corporation was eliminated in Code 21 Income-averaging deduction for forest producers was introduced in The section Non-refundable tax credits has a few modifications this year: The basic personal amount, which includes the contributions paid for Employment Insurance, Québec Pension Plan (Régime de rentes du Québec), the Québec Parental Insurance Plan, and the Health Services Fund is $11,550 for The maximum adjustment for income replacement indemnities found on line 358 is $10,395 this year, which is 90% of $11,550. Line 376 Amount for a severe and prolonged impairment in mental or physical functions has been increased from $2,595 to $2,625 in Line 390 A new box was added to indicate the type of the credit claimed: o o 01 Volunteer firefighter 02 Search and rescue volunteer Line 391 The description of the line has been modified to read Tax credit for workers 64 or older. No changes have been made to the section "Income tax and contributions". The section Refund or balance due has a few modifications this year: Line 460 the new line has been added to claim the new refundable Tax Shield tax credit. Lines undergone some changes: o Code 27 LogiRénov tax credit has been eliminated. o Code 32 RénoVert tax credit has been introduced in There were no changes made to the Signature section at the bottom of page 4.

15 Tax Update Québec Supplement 13 This is a brief summary of the principal changes made this year to the TP1. We will study the changes in more detail later in this chapter. Compare the 2015 TP1 to the new pages of the 2016 TP1 that are reproduced in Illustrations 3 to 6. The changes to the Schedules are discussed after the illustrations of the 2016 TP1.

16 14 Québec Tax Changes Illustration 3: 2016 TP1, page 1

17 Tax Update Québec Supplement 15 Illustration 4: 2016 TP1, page 2

18 16 Québec Tax Changes Illustration 5: 2016 TP1, page 3

19 Tax Update Québec Supplement 17 Illustration 6: 2016 TP1, page 4

20 18 Québec Tax Changes Schedule A For 2016, Schedule A - Amount for dependants and amount transferred by a child pursuing studies is made up of four parts, as in the past. The amounts for a minor child in post-secondary studies (part A) and the amounts for other dependants (part C) are reduced by 80% of the net world income of the dependent individual, excluding income from scholarships, bursaries or similar financial assistance. The amount that the taxpayer can claim for these persons has been indexed for The amount transferred to a parent by a child 18 or over in post-secondary studies for the recognized parental contribution (part B) is calculated on the student s Schedule S and then claimed on line 28 of the parent s Schedule A. Part D is used when the parent claims tuition or examination fees transferred by a child. The designation of the parent and the tax credit transferred is made by the student on their Schedule T. Schedule B The majority of the amounts on Schedule B Tax Relief Measures, have been indexed for For example, the family income threshold above which the credits are reduced is increased from $33,145 to $33,505 and the age amount increases from $2,460 to $2,485. The maximum amount for retirement income on line 8 of the work chart is set at $2,210 for Note that on line 2 of the same work chart, the individual can deduct the amounts that he/she transferred in 2016 or during the first 60 days of 2017 to a registered pension plan (RPP), a registered retirement savings plan (RRSP), a registered retirement income fund (RRIF) or a pooled registered pension plan (PRPP), including a voluntary retirement savings plan (VRSP), or that he/she used to purchase an annuity. The total amount deducted in this respect must be identified on lines 207, 208 or 232 of the federal income tax return and on line 250 (code 04) of the Québec income tax return. To be eligible for the refundable tax credit for medical expenses the minimum work income has to be $2,985; increased from $2,955. The maximum family income that still gives the entitlement to the credit has been increased from $45,375 to $45,880. The maximum credit that can be claimed is $1,166; increased from $1,153. The family income threshold for the credit reduction has been increased from $22,315 to $22,560. The age at which a taxpayer is eligible to claim the age amount has been increased from 65 to 66 as of 2016 taxation year. The year of birth on lines 22 and 23 of the schedule now reads born before January 1, This means that the age amount of $2,485 can be claimed by a taxpayer or a taxpayer s spouse only if they have reached the age of 66 in No changes have been made to Parts A, C and E of the Schedule B. Ministère des Finances Additional information , March 26, 2015, page A16

21 Tax Update Québec Supplement 19 Schedule C Schedule C Tax Credit for Childcare Expenses, is used to calculate the amount of the refundable credit for childcare expenses. Eligible expenses generally include all the childcare fees paid for the children during the year. The contribution set by the government ($7.30 per day per child) and the additional contribution for subsidized educational childcare (line 434 of the return) do not qualify for the tax credit. The fees must have been paid while one or the other of the spouses was in a situation described at the top of Schedule C, up to the annual limit. In Part D a new box 99 has been added to claim the Tax Shield tax credit. The family income used to determine the tax credit rate has been indexed. Schedule D Schedule D Solidarity Tax Credit (STC) has undergone some changes. To facilitate the understanding, many questions were rephrased. The schedule is shown in Illustration 7. It consists of two parts. Part A Information about you, is for entering the taxpayer s name, surname, date of birth, social insurance number, as well as information regarding the principal residence. Tenants or subtenants have to enter the dwelling number shown in box A of the RL- 31 slip issued by the landlord on their name and the number of tenants or subtenants from box B of the RL-31. Owners have to enter the roll number or cadastral designation shown on the municipal tax bill. Part B Situation about your spouse, is to be completed only if the taxpayer had a spouse on December 31, Schedule E No changes have been made to Schedule E Tax Adjustments and Credits. Schedule F Very few modifications have been made to Schedule F Contribution to the Health Services Fund (HSF). The basic exemption used to calculate the contribution has been increased from $14,285 to $14,440. Schedule G Schedule G Capital Gains and Losses Part C of the schedule was renamed to Qualified farm or fishing property and qualified small business corporation shares. The word Qualified in the description of boxes 51, 52, and 53 was deleted. The lines 72 and 73 were removed.

22 20 Québec Tax Changes Illustration 7: Schedule D

23 Tax Update Québec Supplement 21 Schedule H Schedule H Tax Credit for Caregivers, is comprised of four parts. Part A is for the identification of the person(s) who owned, rented or sublet the dwelling. Part B is for taxpayers who take care of a senior spouse who is unable to live alone. Part C is for caregivers who are housing an eligible relative or cohabiting with an eligible relative (in the home of the relative with the impairment). Part D is a certification. Taxpayers who take care of their senior spouse can claim the tax credit for caregivers of a spouse. This credit is not income dependent. The credit has been increased to $1,000 for For 2017 and subsequent years it will increase according to indexation. The spouse must be 70 or older at the end of the tax year and have a severe and prolonged deficiency in mental or physical functions which renders him or her unable to live alone, as certified by a medical practitioner in part 3 of the TP V Certificate Respecting an Impairment. To claim the housing component of the credit, the eligible relative can be either 70 or older (and not necessarily handicapped), or 18 and older if has a severe impairment. An eligible relative has to live with a taxpayer in a dwelling that a caregiver owned, rented or sublet. To claim the cohabiting component of the credit, the eligible relative must be at least 18 at some time during the cohabitation period and has a severe and prolonged impairment in mental or physical functions that rendered him or her unable to live alone, as certified by a medical practitioner. A caregiver has to cohabit with an eligible relative in a dwelling that a relative owned, rented or sublet. In both cases, the maximum tax credit of $1,167 for 2016 consists of a base amount of $642 and a supplement of $525. The supplement is reduced by 16% of the eligible relative s net income that exceeds $23,330. In all of the above mentioned situations, the taxpayer must have lived with their relative for at least 365 consecutive days, of which at least 183 days in Schedule I Taxpayers must complete Schedule I Additional Contribution for Subsidized Educational Childcare, shown in Illustrations 8 and 9, if they received an RL-30 slip. If the taxpayer s spouse on December 31, 2016 also received an RL-30 slip, he or she must complete a separate copy of Schedule I. As of April 22, 2015, subsidized childcare fees include a basic amount (charged per day, per child), and an additional contribution adjusted to the family income. Both the basic and additional contributions will be indexed every year. The basic amount is paid to the childcare service provider. The additional contribution is paid to the Revenu Québec when filing the income tax return. Schedule I has undergone some changes. Part A No additional contribution to be paid if the net family income for either 2015 or 2016 was $50,545 or less.

24 22 Québec Tax Changes Illustration 8: Schedule I, Page 1

25 Tax Update Québec Supplement 23 Illustration 9: Schedule I, Page 2 Part B The instructions for determining who is the first and who is the second child for the purpose of paying the additional contribution were clarified. Section 2 of Part B was removed. Part C The title of this part has been changed to read Additional daily contribution. The basic contribution has been indexed from $7.30 to $7.55 in 2016.

26 24 Québec Tax Changes At an income of $75,820, the daily rate starts rising gradually, reaching $20.70 per day at an income of approximately $158,820. Part D The new part Additional contribution payable has been added. Schedule J No changes have been made to Schedule J Tax Credit for Home-Support Services for Seniors. Reminder: the top part of the schedule includes questions to determine whether the individual is a dependent senior and if the credit is being claimed on behalf of a couple. The taxpayer may choose a simplified, no-calculation, method when all the questions at the top of the schedule can be answered Yes. In this situation individuals may choose not to complete Schedule J and enter the amount of their advance payments (from box D of their RL-19) on lines 441 and 458, and enter 0 on line 466 of the TP1. In addition, if the senior paid for other eligible services for which no advance payment was received, the amount paid can be reported on line 2 and the Revenu Québec will calculate the additional amount. The rate of the tax credit (line 88) has increased from 33% in 2015 to 34% in Part C of the schedule is used to determine the net family income. For the autonomous seniors, the tax credit is reduced by 3% of the amount by which the net family income exceeds the 2016 threshold of $56,515. That is why it may be advisable to complete the schedule even when it is not required, since a reduction could cause a balance owing to the Revenu Québec. There is no such reduction for dependent seniors. Schedule K No changes have been made to Schedule K Premium Payable Under the Québec Prescription Drug Insurance Plan. The maximum premium payable for taxation year 2016 is set at $650 (up from $ in 2015). Schedule L No changes have been made to Schedule L Business Income. Schedule M No changes have been made to Schedule M Interest Paid on a Student Loan. Schedule N No changes have been made to Schedule N Adjustment of Investment Expenses.

27 Tax Update Québec Supplement 25 Schedule O Schedule O Tax Credit for Respite of Caregivers, is not included in the forms booklet, but is available on the Revenu Québec website or could be ordered by phone or on line. The family income threshold for the credit reduction is $56,515; indexed from $55,905. Schedule P Some modifications were made to Schedule P Tax Credits Respecting the Work Premium, for A new box 5 has been added to claim the Tax Shield tax credit. The thresholds on lines 66 and 80 for the work premium and the adapted work premium have been increased for individuals with and without spouse on December 31, For a single person or for a couple without children, the rates used in the calculation of the maximum amounts have been raised from 7% to 9% for the work premium and from 9% to 11% for the adapted work premium. Schedule Q Schedule Q Retirement Income Transferred to your Spouse, is used by couples who have a spouse on December 31 and choose to split their eligible retirement income. No modifications were made to Schedule Q. Only taxpayers who are 65 or older at the end of the year are eligible to split retirement income. Schedule R Schedule R Québec Parental Insurance Plan (QPIP) Premium, serves to calculate the QPIP premium payable by those Québec residents who are self-employed, who have employment income earned in Canada but outside Québec, and who have employment income earned outside Canada. Self-employment income subject to QPIP premium includes the net business income and the insurable earnings of a person responsible for a family-type resource or an intermediate resource. The maximum insurable earnings have been increased from $70,000 to $71,500. The contribution rates have been decreased: for a regular employee from 0.559% to 0.548% and for a self-employed person from 0.993% to 0.973%. The maximum QPIP premium has been changed from $ to $ Schedule S Schedule S Amount Transferred by a Child 18 or Over Enrolled in Post-Secondary Studies, is completed by students who wish to transfer the unused portion of the basic tax credit to their parents in recognition of the parental contribution. The maximum amount that may be transferred is $7,610 if the student s RL-8 indicates two sessions of studies completed in 2016, or $5,480 if it indicates only one session.

28 26 Québec Tax Changes Students may only transfer an amount if they have a RL-8 with an amount in box A. A RL-8 can be produced by an institution outside Québec, as well. To claim the transferred amount, parents have to complete Part B of Schedule A, and enclose it with their returns. Schedule T Schedule T Tax Credit for Tuition or Examination fees (Claiming or Transferring the Credit), remains unchanged for Reminder: Part A Claiming the tax credit for tuition or examination fees and calculating the cumulative amount of such fees that can be carried forward, is divided into two sections. The first section is used for calculating the unused part of the tuition or examination fees qualifying for the tax credit at the rate of 20%. The second section is used for calculating the tax credit for tuition fees paid for 2014 or 2015, or being carried forward from 2013 at the rate of 8%. Schedule V Schedule V Tax Credits for Donations and Gifts, was created in 2013 to calculate a tax credit for gifts of cultural property, ecological gifts and gifts of musical instruments, as well as an additional tax credit for a large cultural donation and a tax credit for cultural patronage. However, if the donations and gifts are all made in 2016 (there are no amounts carried forward from the previous years) and all the donations and gifts are monetary donations made to the specified donees, Work Chart 395 must be completed; not Schedule V. Many lines and a work chart were removed from the schedule, as the 75% of the net income limit was eliminated as of Schedule V is shown on Illustration 10.

29 Tax Update Québec Supplement 27 Illustration 10: Schedule V

30 28 Québec Tax Changes Instalment payments not made by due date Revenu Québec will charge additional daily compound interest at the rate of 10% if a taxpayer did not make 75% of his required payments by the due date. For more information, consult the guide IN-105-V Instalment Payments of Income Tax. Correcting an oversight to claim the Solidarity Tax Credit (STC) The 11-month period rule about the retroactive claim of the STC has been changed as of July 1, Revenu Québec indicates on pages 10 and 11 of the 2016 Income Tax Guide that taxpayers who did not claim the solidarity tax credit for the period from July 1, 2016 to June 30, 2017 while filing their 2015 income tax return can claim it until December 31, 2019: o o By completing Schedule D for 2015, as well as form TP-1.R-V, Request for an Adjustment to an Income Tax Return; or Online, using My Account, at the following address: Taxpayers who did not file a 2015 income tax return must complete one and file it along with Schedule D. Taxpayers who did not claim the solidarity tax credit for the period from July 1, 2015, to June 30, 2016 while filing their 2014 tax return, can still claim it. However, they will not receive the credit for all the months in that period. According to the previous rule, in order to receive an amount for a given month, taxpayers must claim the tax credit within the 11 months that follow this month. Refer to the table below to see the month(s) for which taxpayers may receive the credit based on the date of the request. Illustration 11 Revenu Québec 2016 Income Tax Return Guide, pages 10, 11

31 Tax Update Québec Supplement 29 Filing RL-31 Slips: Reporting information about leased dwellings The RL-31 Information about a leased dwelling, must be issued by any person or partnership that is the owner of a residential complex with one or more leased dwellings. Such property owners have to provide a copy of the slip to all tenants or subtenants of a dwelling on December 31, 2016 on or before the last day of February, The RL-31 has to contain certain information. Box A Dwelling number, which is specific to the dwelling address and is valid for one year only. Box B Number of tenants or subtenants who signed the lease. It must be filed with Revenu Québec before the deadline to avoid a $100 penalty. Guide to Filing the RL-31 Slip: Information About a Leased Dwelling (RL-31.G-V) Dividends from taxable Canadian corporations (line 128) The gross-up percentage of ordinary dividends has been lowered from 18% to 17% as of January 1, Dividend tax credit (line 415) The tax credit rate of the actual amount of ordinary dividends has been lowered from 8.319% to % as of January 1, Deduction for workers (line 201) The deduction for workers is equal to 6% of eligible work income to a maximum of $1,130. Eligible work income: Eligible work income includes employment income, net business income, net research grants, Wage Earner Protection Program (WEPP) payments and amounts received under a work-incentive project. The following amounts are not included: Employment income consisting solely of taxable benefits from previous employment (this amount is shown in box 211 of RL-1);

32 30 Québec Tax Changes Employment income received as an elected member of a municipal council; A member of the council or executive committee of a metropolitan community or a regional county municipality; or A member of the National Assembly, the House of Commons or the Senate of Canada, or a legislative assembly of another province. Deduction for residents of designated remote areas (line 236) Taxpayers can claim this deduction if they lived in a designated remote area for a period of at least six consecutive months that started or ended in The deduction includes the housing deduction and the travel deduction. The housing deduction has two components: the basic deduction and the additional deduction. The both amounts have been increased from $8.25 to $11 per day. The travel deduction can only be claimed if taxable benefits respecting trips were received and shown on RL-1. To calculate the deduction, Form TP V Calculation of the Deduction for Residents of Designated Remote Area, has to be used. Allowable housing deduction is limited to 20% of the net income. For more information, consult the guide TP G-V, Deduction for Residents of Designated Remote Areas. Overseas employment deduction (line ) A deduction for eligible employment income earned outside Canada has been eliminated as of Deduction for foreign specialists working in a stock exchange corporation (line ) A deduction for foreign specialists working in a stock exchange corporation has been eliminated in Income-averaging deduction for forest producers (line ) Income-averaging deduction for forest producers was introduced in A resident of Québec on December 31, 2016, who is a certified forest producer or a member of a partnership that is a certified forest producer, can request a portion of the net income from certified commercial activities be averaged over a period not exceeding seven years, if the sales are made to a buyer with an establishment in Québec.

33 Tax Update Québec Supplement 31 To qualify for the income-averaging measure, the income must been realized in a fiscal period ending after March 17, 2016, but no later than December 31, This measure does not affect the tax on logging operations. To calculate the deduction, Form TP V Income Averaging for Forest Producers, has to be completed. Basic Personal Amount (line 350) The basic personal amount includes an allowance for EI, QPP and QPIP contributions, as well as those for the Health Services Fund. As such, no additional amounts are given on the TP1 for these contributions as compared to the separate claims permitted for EI, QPP and QPIP by the federal government on Schedule 1. The amount is indexed for inflation from $11,425 for 2015 to $11,550 in Adjustment for Income Replacement Indemnities (line 358) The maximum amount for the adjustment is $10,395 for Age amount (line 361) A taxpayer can claim this credit if on December 31, 2016 he was 66 or older. The credit is calculated on Parts A and B of Schedule B. For a deceased person, the age amount can be claimed only if a person was 66 or older at the time of death. Amount for a Severe and Prolonged Impairment in Mental or Physical Functions (line 376) The amount is $2,625 for Expenses for Medical Services Not Available in Your Area (line 378) A taxpayer can claim this credit if the expenses were paid for himself, his/her spouse, or a dependant during the year in which they were incurred.

34 32 Québec Tax Changes The eligible expenses are: o o Travel and logging expenses paid in 2016 to obtain medical services in Québec that were not available within: 250 kilometres of the taxpayer s home, if the expenses incurred before July 1, 2016; 200 kilometres of the taxpayer s home, if the expenses incurred after June 30, 2016; Moving expenses paid in 2016 to move to within 80 kilometres of a health establishment in Québec located: 250 kilometres of the taxpayer s home, if the expenses incurred before July 1, 2016; 200 kilometres of the taxpayer s home, if the expenses incurred after June 30, If the same expenses can be claimed on line 228 Moving expenses or on line 236 Deduction for residents of designated remote areas, it may be more beneficial to claim these deductions instead of the non-refundable tax credit on line 378. Form TP V Expenses for Medical Services Not Available in Your Area, has to be completed, certified by a physician and enclosed with a tax return. Tax Credit for Volunteer Firefighters and Search and Rescue Volunteers (line 390) A new box was added to indicate which credit is being claimed: Volunteer firefighter (code 01) or Search and rescue volunteer (code 02). Tax Credit for Workers 64 or Older (line 391) A resident of Québec can claim this credit if on December 31, 2016 he was 64 or older. To calculate the credit, Work Chart 391 has to be completed. For 2016, the work chart has been redesigned to accommodate the difference in calculation of the credit for workers 64 and workers 65 or older on December 31, Only income earned after turning 64 is eligible work income. The credit cannot be claimed if the eligible work income is $5,000 or less. The maximum eligible work income depends now on the age. For workers of age 64 the maximum eligible work income is $4,000. For workers of age 65 or older this amount is $6,000.

35 Tax Update Québec Supplement 33 The maximum tax credit is $ for workers 64 and $ for workers 65 or older on December 31, The credit is reduced by 5% if the eligible work income exceeds $33,505. Ministère des Finances Additional information , pages A.6 and A.24 Tax Credits for Donations and Gifts (line 395) Donations of food products If, after March 17, 2016, an individual donated food products that he or she produced, the eligible amount of the donation can be increased by 50%, provided all of the following conditions were met at the time of the donation: A taxpayer was a recognized agricultural producer; The donated food products were eligible agricultural products; A taxpayer operated a food processing business; The donation was made to a registered charity that was a member of the Food Banks of Québec; The donated food products were eligible food products. Recognized agricultural producer is an individual who: o Operates an agricultural business registered with the Ministère de l Agriculture, des Pêcheries et de l Alimentation du Québec (MAPAQ) as an agricultural operation; or o Is a member of a partnership that operates such a business, provided he or she is a member of the partnership at the end of its fiscal period. Eligible agricultural products are products that are gown, raised or harvested by a registered agricultural operation and can be legally sold at a place other than where they were produced as food products or beverages for human consumption. Note: A product that has been processed is not eligible agricultural product unless it can still be legally sold at a place other than where it was produced as a food product or beverage for human consumption. Eligible food products are milk, oil, flour, sugar, pasta, prepared meals, deep-frozen vegetables, baby food and infant formula. The eligible amount of the donation is entered on line 5a of Schedule V. Charitable donations and gifts The total eligible amount of charitable donations and gifts is no longer limited to 75% of the net income.

36 34 Québec Tax Changes Income Tax on Taxable Income (line 401) For the 2016 tax year, the tax rates have not been changed. However, the taxable income brackets have been indexed as follows: 16% for taxable income of $42,390 or less; 20% for taxable income of more than $42,390 but not more than $84,780; 24% for taxable income of more than $84,780 but not more than $103,150; 25.75% for taxable income of more than $ 103,150. Tax Credit for the Acquisition of Capital Régional et Coopératif Desjardins shares (line 422) A resident of Québec on December 31, 2016, can claim this credit if he acquired Capital régional et coopératif Desjardins shares during the period from March 1, 2016 to February 28, The tax credit has been lowered from 45% to 40% for shares acquired after February 29, The credit is shown in box B of the RL-26. Premium payable Under the Québec Prescription Drug Insurance Plan (line 447) The annual premium paid to the plan is subject to adjustment in July each year. On July 1, 2016 it has been increased from $640 to $660. Therefore, for the taxation year 2016, the maximum premium for Schedule K increased to $650 per person, calculated as ($640 + $660)/2. This is an increase over the maximum premium of $ for the taxation year To take into account the capacity of each taxpayer to pay, adjustments are made each year to the exemption thresholds. The amounts of the thresholds for 2015 and 2016 are shown on Illustration 12.

37 Tax Update Québec Supplement 35 Illustration 12: Income Thresholds of Premium payable under the Québec Prescription Drug Insurance Plan Health Contribution (line 448) The health contribution ensures proper funding of the public healthcare system. As a general rule, the taxpayer must pay a health contribution if he or she was resident in Québec and was 18 or older on December 31, 2016 (or on the day he/she ceased to be resident in Canada in 2016). Starting in 2013, the health contribution changed from a flat fee to an amount based on net income. The health contribution can reach a maximum amount of $1,000 for high-income individuals. In the case of couples, each spouse must pay a contribution. A taxpayer does not have to pay the health contribution if any of the following apply: The amount on line 275 of his or her return is $18,570 or less. In the case of couples, the total amount on line 275 of their returns is $23,880 or less. In the case of taxpayers born before January 1, 1951, all their medications were free throughout 2016 because they received 94% or more of the Guaranteed Income Supplement (calculated without the top-up benefit). The health contribution which is payable in 2016 by an adult, other than one who is exempt, would be: If net income for the year is not more than $41,265, the lessor of $50 or 5% of the amount of net income exceeding $18,570; If net income for the year is more than $41,265 but not more than $134,095, the lessor of $175 or the total of $50 plus 5% of the amount of net income exceeding $41,265;

38 36 Québec Tax Changes If net income for the year is more than $134,095, the lessor of $1,000 or the total of $175 plus 4% of the amount of net income exceeding $134,095. Illustration 13: Health Contribution for Taxation Year 2016 Income of the individual Contribution for 2016 $0 $18,570 $0 $18,570 $41,265 $0.01 to $50 $41,265 $134,095 $50.01 to $175 $134,095 $ to $1,000 Certain families and seniors are exempt from the payment of the health contribution (see pages 72 and 73 of the income tax return guide 2016). The exemption thresholds for 2016 are shown in Illustration 14. Illustration 14: Exemption Thresholds for the Health Contribution for 2016 To calculate the amount of the health contribution the Work Chart 448 has to be completed. If the net income is lower than the prescribed threshold, a person would be exempt from paying the contribution. In this case, the number corresponding to the situation, must be entered in box of the return. Elimination of the health contribution The health contribution will be phased out beginning in 2016 and will be completely eliminated by 2018.

39 Tax Update Québec Supplement 37 Low-income tax payers will no longer have to pay the health contribution starting from 2016 taxation year. The maximum amount payable for middle-income tax payers will be $175 in 2016 and $70 in 2017; and for high-income tax payers it will be $1,000 in 2016 and $800 in As of 2018, the Act respecting the Regie de l assurance maladie du Québec will no longer require adults to pay a health contribution. Ministère des Finances Additional information , pages A.5 and A.6 Tax Credits Respecting the Work Premium (line 456) The purpose of these credits is to encourage people to stay in the workforce or enter it. The work premium is calculated on Schedule P on the basis of an individual income, a family income, and a family situation. The rate used to calculate the maximum amount of a work premium has been raised from 7% to 9% for the work premium and from 9% to 11% for the adapted work premium for a person with or without a spouse who does not have a designated dependent child. The maximum amounts of the work premium are shown on Illustrations 15 and 16. Illustration 15: Maximum Work Premium for 2016

40 38 Québec Tax Changes Illustration 16: Maximum Adapted Work Premium for 2016 Tax Credit for Home-Support Services for Seniors (line 458) The tax rules grant a refundable tax credit to persons 70 years of age or older who obtain certain support services for their home. The purpose of this tax credit is to prevent or delay the housing of elderly persons in the public health and social services systems. The tax credit rate has been increased form 33% to 34% of eligible expenses. Increase in the Ceiling for Eligible Expenses For an independent senior, the annual limit of the allowable expenses is $19,500, for a maximum tax credit of $6,630 ($19,500 x 34%). For a couple with both spouses being independent seniors, the annual limit is $39,000, for a maximum tax credit of $13,260 ($39,000 x 34%). For a dependent senior, the annual limit of the allowable expenses is $25,500, for a maximum tax credit of $8,670 ($25,500 x 34%). For a couple with one or both dependent seniors, the annual limit is $45,000, for a maximum tax credit of $15,300 ($45,000 x 34%). An elderly person is recognized as dependent if, according to the written certification of a physician, the person depends and will permanently continue to depend, for a prolonged and indefinite period, on other persons for most of his or her needs and personal care, or the person needs constant monitoring due to a severe mental problem characterized by an irreversible deterioration of thinking activities. In this regard, the requirements and personal care of an elderly person refer only to their health, clothing, food and mobilization or transfers (movements within the residence). Gradual Increase in the Rate of the Tax Credit Beginning in 2013, the credit is being increased from 31% to 35% over a five-year period as shown below. The rate for 2016 is therefore 34%.

41 Tax Update Québec Supplement 39 Illustration 17: Gradual Increase in the Rate of the Tax Credit for Home-Support Services for Seniors Taxation Year and after Tax Credit Rate 31 % 32 % 33 % 34 % 35 % In 2017, single independent seniors who incur the maximum allowable expenditures will therefore be entitled to a tax credit of $6,825 ($19,500 x 35%) if their net income does not exceed the specified threshold. Concept of Private Residences for Seniors and Obligation to Obtain Certification A residence is considered to be a private seniors residence if it is: Either a group residence building, or a part of such a building, the operator of which is the holder of a valid temporary certification of compliance, issued by the health and social services agency of the region in which the building is located (such a building is registered in the Registry of Private Seniors Residences maintained by the agency in question); or A private long-term housing and care centre not on the public health service list. In other words, a centre not subsidized by public funds. Generally, the tax legislation has been amended to provide that, for the application of the refundable tax credit for home-support services for seniors, it is necessary for the private seniors residence to be recognized as such at the beginning of a given month. Otherwise, expenditures allowed for the month in question shall be limited to 5% of the monthly rent, up to the total rent amount of $600 per month. Simplified Method for Completing Schedule J A simplified method is available to seniors who answer Yes to all three questions asked at the top of Schedule J. The individuals may choose not to complete Schedule J and enter the amount of their advance payments on lines 441 and 458, and enter 0 on line 466 of the TP1. However, this method should be exercised with caution because for the autonomous seniors, the tax credit is reduced by 3% of the amount by which the net family income exceeds the 2016 threshold of $56,515. That is why it is still recommended to complete the schedule even if it is not required. There is no reduction based on the family income for dependent seniors. Revenu Québec 2016 Income Tax Return Guide, pages 79 to 84 Tax Shield (line 460) A resident of Québec could be eligible for a new refundable tax credit if he/she or a spouse is entitled to the tax credit for childcare expenses, the work premium or adapted work premium. The purpose of the tax shield is to offset a part of the loss of those credits due to an increase in work income.

42 40 Québec Tax Changes The following requirements must be met: If a taxpayer did not have a spouse on December 31, 2016: The 2016 net income is greater than that of 2015, and The 2016 eligible work income is greater than that of 2015 If a taxpayer had a spouse on December 31, 2016: The 2016 net family income is greater than that of 2015, and The 2016 taxpayer s or his/her spouse s eligible work income is greater than that of 2015 Claiming the Tax Shield To claim the credit, box 99 of Schedule C or box 5 of Schedule P has to be checked. The Revenu Québec will calculate the eligible amount. If a taxpayer would prefer to calculate the amount himself, Form TP-1029.BF-V Tax Shield, has to be completed. The tax credit can be evenly split between spouses. Tax Credit for Caregivers (line 462-2) Taxpayers who are taking care of their senior spouses can claim the tax credit for caregivers of a spouse. The spouse must be 70 or older at the end of the tax year and have a severe and prolonged deficiency in mental or physical functions which renders him or her unable to live alone, as certified by a medical practitioner in part 3 of the TP V Certificate Respecting an Impairment. The credit has been raised from $700 in 2012 to $1,000 in 2016 in $75 increments. For 2017 and subsequent years it will be increased according to indexation. Illustration 18: Increase in the amount of the refundable tax credit for caregivers taking care of their elderly spouses The tax credit is calculated on Part B of Schedule H Tax Credit for Caregivers. Revenu Québec 2016 Income Tax Return Guide, pages 86, 87

43 Tax Update Québec Supplement 41 Tax Credit for Children s Activities (line ) The government of Québec introduced this tax credit in 2013 with regard to physical, artistic and cultural activities for children from 5 to 16 years of age. An individual who resides in Québec at the end of the year may claim a refundable tax credit equal to 20% of eligible expenses (up to an annual ceiling) paid for an eligible child s registration or membership in a recognized program of activities. This credit is not available for families whose net family income exceeds $134,095 in The tax credit is being phased in over a period of five years. For 2016, the ceiling for eligible expenses per child is $400, which provides a credit of $80 (calculated as $400 x 20%). The maximum ceiling in 2017 will be $500 per child, which will provide a credit of $100 (calculated as $500 x 20%). If a child has a severe and prolonged impairment in mental or physical functions and the eligible expenses are at least 25% of the general limit, the additional $400 can be added to the amount of the expenses. However, the total of these two amounts ($400 and the amount of registration or membership) cannot exceed $800, or a maximum credit of $160 per child. To calculate the amount of credit that may be claimed, Revenu Québec has created the work chart shown on page 92 of the Guide to the Income Tax Return A separate calculation must be made for each eligible child. Revenu Québec 2016 Income Tax Return Guide, pages 91, 92 RénoVert Tax Credit (line ) A new refundable tax credit is available for residents of Québec at the end of the year who had eco-friendly renovation work done on an eligible dwelling. This credit is intended for homeowners who hire a qualified contractor to carry out renovation work on their principal residence under a contract entered into after March 17, 2016 and before April 1, Recognized eco-friendly renovation work To qualify for the tax credit, the renovation work must have been: o related to the dwelling s insulation or sealing, to its exterior doors, to its windows, to its heating, cooling, hot water or ventilation systems, or to water conservation or water or soil quality; o done on existing parts of the eligible dwelling; o done in compliance with applicable municipal, provincial and federal policies, regulations and legislation.

44 42 Québec Tax Changes Claiming the Tax Credit The amount of the tax credit corresponds to 20% of the portion of the eligible expenses paid in 2016 (after March 17) that exceeds $2,500. The maximum cumulative tax credit for 2016 and 2017 is $10,000 per eligible dwelling. To claim the credit, Form TP-1029.RV-V RénoVert Tax Credit, has to be completed. A contractor who has carried out renovation work is required to provide Form TP RV.A-V Certificate of compliance with energy and environmental standards, to confirm that the work complies with recognized standards. The tax credit cannot be claimed without having this form. To qualify for the tax credit, the eligible expenses must have been paid after March 17, 2016, but before January 1, 2017 for the 2016 taxation year; and after December 31, 2016, but before October 1, 2017 for the 2017 taxation year. Revenu Québec 2016 Income Tax Return Guide, page 93

45 Tax Update Québec Supplement 43 What s New in 2017? Income Thresholds and Tax Rates in 2017 In 2017, the rates of taxation of 16%, 20%, 24%, and 25.75% applicable to the four income brackets will remain the same. However, the taxable income thresholds for each of these brackets is indexed at a rate of 0.74% in the following manner: The 16% rate will apply to the taxable income bracket less than or equal to $42,705 (up from $42,390 in 2016); The 20% rate will apply to the taxable income bracket greater than $42,705 but less than or equal to $85,405 (up from $84,780 in 2016); The 24% rate will apply to the taxable income bracket greater than $85,405 but less than or equal to $103,915 (up from $103,150 in 2016); and The 25.75% rate will apply to the taxable income bracket greater than $103,915. New parameters for CPP, QPP, EI, and QPIP in 2017 The new parameters for 2017 are as follows: Canada Pension Plan (CPP) For 2017, the maximum pensionable earnings for a CPP pension remain at $54,900. The basic exemption remains at $3,500 and the contribution rate at 4.95%. Consequently, the maximum contribution in 2017 by employees of provinces other than Québec will be $2, and that of self-employed individuals $5, Québec Pension Plan (QPP) For 2017, the maximum earnings eligible for the QPP increase from $54,900 to $55,300. The basic exemption remains at $3,500, but the contribution rate is increased from 5.325% to 5.40%. Consequently, the maximum contribution in 2017 for an employee resident in Québec will be $2, and that of selfemployed individuals $5, Employment Insurance (EI) For residents of Québec, maximum insurable earnings for 2017 increase from $50,800 to $51,300. The employee contribution rate decrease from 1.52% to 1.27%. Consequently, the maximum contribution to EI for employees in Québec will be $ in For residents of other Canadian provinces, maximum insurable earnings for 2017 will also increase from $50,800 to $51,300. The employee contribution rate decrease from 1.88 % to 1.63%. Consequently, the maximum contribution to EI for employees in provinces other than Québec will be $ in Québec Parental Insurance Plan (QPIP) For 2017, maximum insurable income for the QPIP increases from $71,500 to $72,500. The employee contribution rate remains at 0.548% and that of selfemployed individuals remains at 0.973%. Consequently, the maximum contribution of an employee will be $ in 2017, and that of a self-employed individual $

46 44 Québec Tax Changes Illustration 19: Amounts used to calculate source deductions The maximum deduction for employment income has been increased from $1,130 to $1,140 for The tax-exempt financial compensation paid to an emergency services volunteer has been increased from $1,130 to $1,140 for Parameters of the Québec Taxation System in 2017 Illustrations 23 to 26 on the following pages are published by the Québec Ministry of Finance. They show the principal parameters of the taxation system for individuals which are in effect for taxation year The indexation factor for 2017 for Québec is 0.74%. The amounts for tax year 2016 are given for comparison purposes. Other credits known for the taxation year 2017 Changes to the tax credit for experienced workers 64 or older Changes will be made to the tax credit for workers 64 or older for 2017 taxation year. The changes will: Lower the age of eligibility for the tax credit from 64 to 62 over a period of two years; and Gradually increase the maximum amount of eligible work income on which the tax credit is calculated until it reaches $10,000 for all workers 65 or over. The following table illustrates the change.