Changes to the tax code keep tax accountants in business, as clients need help navigating their complex returns at tax time. Fortunately for you and your clients, all Québécoiscan look forward to the changes in the province’s updated 2017 plan, which include a reduction in income tax liabilities for most taxpayers along with an increase in credits and allowable deductions. Learn how you can help your clients take advantages of these changes.
A Reduction in Individual Tax Liability
The updated economic plan includes an immediate decrease for more than 4.2 million taxpayers thanks to a 1% reduction of the tax rate for the lowest income bracket. This puts the tax rate for the first $44,050 at 15%, the lowest historical rate for Quebec. The new 15% rate also applies to the alternative minimum tax and experienced worker tax credit. This can lower tax bills by up to $500 for individuals and $1,000 for couples.
You can help your clients take advantage of this rate when they file their 2017 taxes, as the change is effective retroactively, and the rates are in place for both the 2017 and 2018 tax years. For these tax years, individuals can also claim a new tax credit of $100 per child to cover the cost of school supplies. From 2019 onward, the rate adjusts annually as a part of the ongoing refundable tax credit for child assistance program.
Only the rate for the first tax bracket is decreasing. All other brackets remain the same from previous years. In addition, several credits continue to use the 20% rate for calculating returns. These include credits for medical expenses, student loan interest, and gifts or donations up to $200.
Changes to Pension Deductions
The 2017 economic plan also includes several proposed changes to the Quebec Pension Plan. Coming into effect in 2019, these changes include an increase of the income replacement rate for pensions from 25% to 33.33% of the worker’s average income. The tabled proposal also includes an increase in the maximum allowable income for contributions from $55,300 to $63,000, with a contribution rate of 12.8% for the first $55,300 and 8% for the remainder.
For tax purposes, rather than resulting in a tax credit at the lowest tax rates, the proposed plan allows filers to deduct all increases in their contributions. Likewise, employers can also deduct their matched contributions. The government projects that these additional allowable deductions should decrease individual taxes by up to $270 million annually and corporate income taxes by up to $68 million.
Some of the changes in the economic plan will reduce your tax-filing workload. A streamlined filing process for individual tax returns, set to go into effect in 2018, means that taxpayers no longer have to claim the Solidarity Tax Credit, the Fiscal Shield, and the Work Premium on their TP1 returns. The new plan, in fact, will automate this process, and individuals will receive these benefits simply by filing their 2018 tax returns.
Tax time can be stressful for your clients, and changes to the tax code can add to that stress. Your clients who live and operate in Quebec, however, can look forward to some good news when it comes time to file taxes in 2018 onward under the updated Quebec economic plan.