Due to an agreement between Quebec and the federal government, residents of Quebec qualify to receive an abatement of the tax they owe the Canada Revenue Agency. If you qualify, the abatement can reduce the tax you owe or even trigger a refund. This program has no effect on residents of other territories or provinces.
Quebec Abatement Refundable Credit
The federal government makes significant transfers to provincial and territorial governments to help fund health care, education and other programs. In fact, as of 2014, provincial and territorial transfers consumed 22 percent of all federal tax dollars spent, and they totaled over $60 billion.
The Quebec tax abatement refund does not disqualify this province from receiving essential provincial transfers. Instead, the abatement funds additional transfers above and beyond the usual health and social transfers.
In particular, the Quebec abatement refund is the sum of two different rebate programs: the Alternative Payments for Standing Programs and the Youth Allowance Recovery.
Alternative Payments for Standing Programs
In the 1960s, the federal government gave provinces the chance to opt out of certain federal-provincial programs, and only Quebec decided to opt out.
As a result, the federal government created a 13.5 percent abatement on federal income tax for residents of Quebec. However, Quebec increased its provincial income tax by the same amount.
Essentially, instead of funding these programs through federal money, Quebec opted to avoid the extra federal income tax and fund these programs on its own.
Youth Allowances Recovery
Quebec initiated a youth allowance program in 1961. Through the program, teens ages 16 and 17, who were attending recognized schools received $10 per month. Three years later, the federal government adopted a similar program. However, Quebec opted not to participate directly.
As a result, the CRA created another tax abatement for Quebec residents to offset the costs the province was investing in its own program.
In 1972, the federal program was expanded to include all children over the age of three, and the abatement continued for residents of Quebec.
Effects on Other Provinces
The Quebec abatement refund has no effect on federal transfers to Quebec or transfers to any other provinces or territories.
Rather, at its core, the refund represents a difference in accounting methods. The federal government gives all of the other provinces and territories cash for both of these programs, but it does not give Quebec cash.
Instead, it gives Quebec residents a tax refund which the Quebec government collects or allows its residents to keep, depending on the program.
Eligibility for Abatement
To qualify for the abatement, you must have been a resident of Quebec on the last day of the tax year for which you are filing and you must not own a business outside of Quebec.
If you meet those criteria, you can claim an abatement equal to 16.5 percent of the federal tax you reported on line 58 of schedule 1.
If you reside in Quebec but own a business outside of the province, you do not receive the full abatement. Instead, you must fill out form T2203 to calculate the rate of your partial abatement.
Completing Your Tax Return
To calculate your abatement, multiply the amount of federal tax you reported on line 58 of schedule 1 by 16.5 percent. Note the result on line 440 of page 4 of your income tax return — keep in mind residents of Quebec submit a slightly different federal income tax return than residents of other provinces or territories.
For example, if the figure on line 58 is $3,000, you would write $495 on line 440. The amount on line 440 is added to other amounts claimed on lines 405 to 485. The total of these lines is subtracted from the federal tax you owe. If the difference is negative, you receive a refund.
For example, if you owe $500 in tax, but the amounts you on lines 405 to 486 total $1,000, you receive a $500 refund from the CRA.
Claiming Partial Abatement
To calculate partial abatement you need form T2203. However, if you have to pay tax on split income, you need to fill out form T1206 first and transfer the amount from line 12 of this form to line 5 of form T2203.
If you do not have split income, enter a 0 on line 5. Then, to calculate your abatement, begin with the larger of your federal income tax (line 429 of schedule 1) or the amount from line 12 from form T1206.
Multiply this number by the percentage of income you allocated to Quebec — you can find this figure on part 1 of form T2203. Essentially, if you earned a total of $100,000 and you earned $50,000 in Quebec, you would use 50 percent in this formula.
Finally, multiply the result by the abatement rate of 16.5 percent, and transfer the final product to line 440 of your federal income tax return.