Basic tax concepts

Introduction

In Quebec, individuals file two tax returns: a federal tax return with the CRA and a provincial tax return with Revenu Québec.

Both levels of government collect income tax and other taxes. Income tax is based on income, whereas other taxes are generally paid on the purchase of goods and services.

The income tax system is based on the principle of self-assessment.

The individual's responsibility within our income tax system is to:

• file their tax returns by the deadlines:
  • federal tax return
  • Quebec income tax return

  Tax tip

  Note that tax returns must be filed before the deadlines to avoid penalties and interest.

   
• pay any income tax they are required to pay
• provide all the necessary information to the CRA and Revenu Québec to accurately determine their tax assessment

Total income

Total income is the income from all sources, both inside and outside of Canada. Some common sources of income include employment income, interest income, pension or retirement income, social assistance income and self-employment income.

To learn more about the income you must report, refer to Reporting income on the CRA website and Total income on the Revenu Québec website.

Net income

The net income is used to calculate various amounts such as:

• certain tax credits (ex: the goods and services tax/harmonized sales tax (GST/HST) credit and the solidarity tax credit)
• the Canada child benefit and the Family allowance
• certain contributions and premiums (ex: Quebec prescription drug insurance plan premium)
• certain social benefits (ex: Old Age Security pension)

Taxable income

The taxable income is used to calculate the income tax payable.

The income tax payable is calculated based on income brackets. These brackets are based on graduated tax rates. In other words, as your income hits higher thresholds, the next bracket of income is taxed at a higher amount.

Tax rates and income brackets are different at the federal and provincial levels.

Non-taxable income

Some amounts are non-taxable and must not be included in an individual's tax returns. Examples include:

• the value of property received as an inheritance
• the Family Allowance and the Canada child benefit
• the solidarity tax credit and the GST/HST credit
• lottery winnings

For the complete list of non-taxable amounts, refer to Amounts that are not reported or taxed on the CRA website and Taxable and non-taxable income on the Revenu Québec website.

Non-refundable tax credits

Non-refundable tax credits reduce or cancel the income tax payable.

If the total credits are greater than the income tax payable, the difference will not be refunded.

The unused portion of some credits can be transferred to another person or carried forward to reduce the income tax payable for another tax year.

Refundable tax credits

Refundable tax credits reduce or cancel the income tax payable and contributions.

However, unlike the non-refundable tax credits, if the total credits are greater than the income tax payable and contributions, the individual will receive the difference as a refund.

Quebec residents with federal income tax payable may be entitled to a Quebec abatement, which has the same characteristics as a refundable tax credit, in the federal tax return. For more information on the Quebec abatement, please refer to Line 44000 - Refundable Quebec abatement on the CRA website.

Refund or balance owing

Once the individual's tax return is complete, they may be eligible for a refund or have a balance due or a nil balance.

If the individual has a balance owing, they must pay it before the deadline in order to avoid interests.

Identification and personal information

The first section of either tax return is where you enter the individual's identification information, such as:

• their social insurance number (SIN)
• their name, date of birth and address
• their marital status

Make sure to fill in this section correctly since it is used to calculate certain amounts, credits and benefits.

Understanding how tax returns are calculated

Here is a brief overview of how the federal and Quebec tax returns are calculated.

Income tax calculation

• In the first step, calculate the individual's total earned and reported income. From that total, subtract certain deductions to determine the net income.
• In the second step, calculate the taxable income by subtracting other deductions from the net income.
• In the third step, calculate the income tax payable based on the taxable income.
• In the fourth step, the final result is calculated, which may be a refund, a balance owing or a nil amount. This amount is obtained by subtracting non-refundable tax credits, amounts withheld at source, the Quebec abatement (federal tax return) and refundable tax credits from the income tax payable, to which are added any contributions and premiums.

Credits and benefits

(Provincial Fleur-de-lys icon) Solidarity tax credit

Most people who are eligible for the Income Tax Assistance – Volunteer Program qualify for the solidarity tax credit. Make sure to check their eligibility nonetheless.

The solidarity tax credit has three components: the QST component, the housing component and the component for individuals living in a northern village.

For more information, refer to the Solidarity tax credit – RL-31 slip section.

(Federal Maple leaf icon) Goods and services tax/harmonized sales tax credit

The goods and services tax/harmonized sales tax (GST/HST) credit comes in the form of quarterly tax-free payments to individuals and families with low-to-modest incomes to compensate for all or a portion of the GST/HST they pay.

To receive the GST/HST credit, the individual needs to file their federal tax return.

The CRA automatically determines each individual's eligibility for the credit using the information provided in the tax return. When both members of a couple are eligible for the credit, it will be granted to the spouse whose notice of assessment is issued first.

For more information, refer to GST/HST credit – Overview on the CRA website.

(Federal Maple leaf icon) Canada child benefit and  (Provincial Fleur-de-lys icon) The Family Allowance

The Canada child benefit (CCB) and the Family Allowance are non-taxable amounts paid to eligible families with children under 18.

Since they are calculated based on the individual's income and personal and family situation, people wanting to receive these amounts or continue receiving them must file their tax returns every year.

Both spouses, if applicable, must file the federal and Quebec tax returns each year, even if they have no income. The CRA and Retraite Québec also provide benefits for children under 18 with a serious physical or mental impairment.

For more information, refer to Canada child benefit on the CRA website and to Family Allowance on the Retraite Québec website.

(Federal Maple leaf icon) Guaranteed Income Supplement, Allowance for people aged 60 to 64 and Allowance for the Survivor

The Guaranteed Income Supplement (GIS), the Allowance for people aged 60 to 64 and the Allowance for the Survivor allow seniors and their spouses, if applicable, to receive an amount in addition to the basic Old Age Security pension (OAS) paid to seniors 65 or older.

Since these amounts are calculated based on the individual's income and personal and family situation, people wanting to receive or continue to receive them must file their federal tax returns each year, even if they have no income.

For more information about these amounts or how to apply, refer to Public pensions on the Service Canada website.

Guaranteed Income Supplement

The Guaranteed Income Supplement is paid on a monthly basis to Old Age Security pension recipients with low income living in Canada.

Allowance for people aged 60 to 64

The Allowance for people aged 60 to 64 is a benefit paid to people aged 60 to 64 who are the spouse or de facto spouse of a recipient of the Guaranteed Income Supplement.

Allowance for the Survivor

The Allowance for the Survivor is paid to low-income individuals between the ages of 60 and 64 who live in Canada and whose spouse is deceased.

(Provincial Fleur-de-lys icon) Shelter allowance program

The shelter allowance program provides financial assistance to low-income households that spend too much of their budget on rent. The assistance is calculated on the basis of the individual's income and personal and family situation.

To receive the shelter allowance, the individual and their spouse, if applicable, must file their Quebec income tax returns and apply online or use the form LEX-165-V, Shelter Allowance Application.

For more information, the individual can refer to the Shelter Allowance Program page on Revenu Québec's website.

(Provincial Fleur-de-lys icon) Quebec parental insurance plan

The Quebec Parental Insurance Plan (QPIP) pays benefits to all eligible workers who take maternity, paternity, parental or adoption leave.

For more information, the individual can contact the Ministère de l'Emploi et de la Solidarité sociale or refer to the Québec Parental Insurance Plan page on the QPIP website.

(Provincial Fleur-de-lys icon) Premium payable under the Quebec prescription drug insurance plan

When completing the Quebec income tax return, you must determine whether the individual has to pay a Quebec prescription drug insurance plan premium on line 447.

For more information, refer to the Quebec prescription drug insurance plan premium section.

After filing the tax returns

The CRA and Revenu Québec send individuals a notice of assessment once their tax returns have been processed.

This includes a summary of the assessment and, where applicable, details of any changes made to the tax returns.

As a general rule, individuals must keep their supporting documents (on paper or electronically) and their notices of assessment or reassessment for six years after they have filed the tax returns.

Related topics

CRA

• Quebec - Income Tax package
• Tax credits and benefits for individuals

Revenu Québec

• Income Tax Return. schedules and guide
• Tax credits for individuals