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Quebec Introduces a Tax Shield

By Andrew Rickard | March 30 2015 09:45AM

In the provincial budget tabled March 26, Quebec's Minister of Finance Carlos Leitão announced plans to introduce a new "tax shield" for households in straitened circumstances.

If lower income workers earn more money, they lose some of their refundable provincial tax credits. To prevent those who have improved their financial situation from having a large portion of their tax assistance taken away, Quebec has announced that a new benefit will become available on January 1, 2016.

Starting next year, households will be able deduct from their net family income 75% of the lowest of the following:

  • the increase in work income;
  • the increase in household net income;
  • a maximum of $2 500 for each spouse (or a maximum of $5000 per couple)
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    The amount of tax assistance granted through the tax shield will vary depending on marital status and household income, and the benefit would not apply to couples with an income of more than $60,000.

    For example, under the old system, if two spouses each increased their work income by $2,500, raising their household income from $40,000 last year to $45,000 this year, they would have lost $760 in benefits associated with Quebec’s work premium and the tax credit for childcare expenses. With the new tax shield, this family will be able to deduct $3,750, or 75% of their $5,000 combined salary gain from net income, and recover $570 of the benefits they would have otherwise lost.

    "Tax assistance to individuals is generally reducible according to income and is intended to help lower-income households. However, the prospect of losing this tax assistance once income exceeds a certain threshold can diminish an individual’s motivation to work more," reads the budget document. "To make work more appealing, the government acknowledges that it must improve the financial incentives offered to Quebec workers."

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