By Rob Cosman, Partner, Jones & Cosman Chartered Professional Accountants
If you are a resident of Québec but work in Ontario, you typically must file a tax return (TP1) with Revenu Québec. However, there are special points to keep in mind. It is important to know your residency status, and how to report employment income depending on where you earned it.
Determining Your Residency Status
For the purposes of taxation, your residency is based on where you reside on the last day of the tax year for which you are filing. As a result, if you live in Québec on Dec. 31, you must file a tax return with Revenu Québec. However, if you live in Ontario on that day, you do not need to file in Québec.
If you moved during the year, you still use your residency status on the last day of the year to determine where you need to file. To explain, imagine you lived in Ontario for most of the tax year; however, you moved to Québec in December and resided there on the last day of December. In this case, although you only lived in Québec for a short time, you must still file your return with Revenu Québec.
Reporting Employment Income Earned Outside of Québec
If you earned employment income outside of Québec, you must enter that income on line 101 of your provincial tax return (TP1) along with any employment income earned in Québec. In most cases, you use information from RL-1 or RL-25 slips to complete this line, but if your employer is based in Ontario, it will likely give you a T4 slip. This slip has all the details you need.
Tick box 95 to indicate you earned your income outside of Québec but inside of Canada. If you earned money in another country, you also need to tick box 95.
Reporting Other Employment Income Earned in Ontario
If you have other employment income earned in Ontario, you must note that on line 107 of your Revenu Québec tax return. This includes tips that were not noted on your T4 slip, as well as wage loss replacement benefits and GST rebates.
Reporting Self-Employment or Business Income Earned in Ontario
Similarly, if you run a business in Ontario, you also have to report those earnings on the TP1 you submit to Revenu Québec. Complete Schedule L for each of your businesses, note your total business income on line 164 of your return, and check box 403 to indicate you earned business income outside of Québec.
Then, complete Form TP-22-V, Income Tax Payable by an Individual Who Carries On a Business in Canada, Outside Québec. This form prompts you for information on which portion of your business income was earned inside Québec and which portion was earned outside of Québec in Ontario, another province or another country. The form also requests information on deductions claimed for foreign researchers, experts and professors as well as figures related to employment income earned outside of Canada.
Using a range of numbers pulled from various parts of your provincial tax return, this form helps you determine how much income tax you owe in Québec.
Completing Schedule R
As a resident of Québec, you must complete Schedule R if you worked or ran a business in Ontario or any other province. This schedule helps you determine whether you owe premiums for the Québec Parental Insurance Plan.
To complete this form, you need your T4 and RL-1 slips. The schedule guides you through some basic computations to determine your premium. Then, if you owe a premium, you note the amount on line 439 of your Québec TP1 return.
Transferring Income Tax Withheld in Ontario
If you work in Ontario, your employer may have withheld Federal income tax from your paycheque as if you were a resident of Ontario. Luckily, you can claim a credit worth up to 45 percent of the withheld tax. Claiming this credit involves both your federal and TP1 Québec tax returns.
To start, grab your T4 slip and find the amount of income tax deducted. Note this amount on line 437 of your federal return. Then, multiply this number by 45 percent and write the result on line 438. Finally, transfer that amount to line 454 of the return you submit to Revenu Québec.
For example;
Rachael lives in Quebec but works in Ontario. She receives a T4 reporting that her employer withheld $5,000 in income tax. 45 percent of this amount is $2,250, So she may claim this as a credit on her Revenu Québec tax return (TP1), and it works as a refundable tax credit:
- If she doesn’t owe taxes to Revenue Quebec, she can receive a refund of $2,250
- If she owes taxes to Revenue Quebec, she reduces the amount by $2,250; ie. if she owes $1,500 in taxes, she can receive a refund of $750.
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About Rob Cosman
Rob Cosman, is a Chartered Professional Accountant who runs his own accounting and tax practice with his wife in Toronto, Ontario. Beginning in 2000, Rob’s career spanned over Halifax, Cayman Islands and Toronto. Rob held senior industry positions including CFO roles in public and private industries ranging from telecommunications, retail sales, and consumer packaged goods.
Rob has over 10 years of tax experience and is the author of numerous articles. He has the ability to take complex tax situations, explain them in common sense terms, and guide clients to make the best decisions based on their individual situations.
