Quebec tax systems

Please note that starting with tax year 2005, the Quebec simplified tax system has been abolished.

Although Revenu Québec is returning to a single detailed form, the mechanics of deciding which is the better option for the taxpayer remain.

In order to retain the benefits of the lump sum that the simplified system offered, the complementary amount of $2,965 is still granted.

Starting in 2005, the calculation of non-refundable tax credits must include the higher of the following:

The lump sum of $2,965, or the total of:

• the contributions to the QPP/CPP;
  
• the employment insurance premiums;
  
• the contributions to the Health Services Fund.
  

The information below is provided with respect to tax year 2004.

For a taxpayer who is single, optimization occurs by comparing the tax payable (line 450) under each tax system, respectively. For a couple, the program will indicate the amount obtained on line 450 for each of the four possible scenarios (each spouse having two options to choose from) taking into account the unused tax credits of either spouse, if any. The amount of unused tax credits (line 439) to which a person is entitled but does not use can be transferred to the spouse (line 440 of the spouse's return).

A number of other tax-related considerations should be kept in mind to help determine whether it would be more advantageous for the taxpayer to file a simplified return despite the program's optimization recommending the filing of a general return. Among these various considerations, please note the following:

• Amounts that can be carried forward to a subsequent year, including
  • deductions pertaining to strategic investments (excl. the QSSP deduction)
  • amount for tuition or examination fees
  • amount for interest paid on a student loan

• Carryforward amounts from prior years, including
  • non capital losses
  • net capital losses
  • alternative minimum tax

• Capital gains exemption available for gains on disposition of
  • qualified farm property
  • qualified small business shares
  • certain resource property

DT Max will select the most profitable tax system by considering all the amounts available as credits or deductions in the year. This, of course, includes carryforward amounts from prior years. Therefore, if, for example, under the general tax system, using an amount of $3000 for tuition fees only reduces the payable tax by $5.00 (line 450) for the current year, DT Max will still choose this particular alternative without regard for the fiscal incidence of losing the possibility to carry these expenses forward to the next year.

In addition to the extra cost of choosing this option, the notion of "opportunity cost" prompted by the decision to carry forward an eligible credit or deduction in order to file a simplified return requires that considerations such as the anticipated tax situation of the taxpayer for future years be taken into account.

It is the tax preparer's responsibility to determine whether it might be more advantageous for a client not to use a credit or deduction in order to qualify for the simplified tax system for the current year and, instead, use the credits and/or deductions in subsequent years.

However, taxpayers who are in either of the following situations may not avail themselves of the simplified tax system:

• the taxpayer's province of residence was other than Quebec on December 31 of the current year;
• the taxpayer did not reside in Canada for the entire year;
• the taxpayer is filing a pre-bankruptcy or a post-bankruptcy return;
• the taxpayer filed a proposal in bankruptcy or a consumer proposal, and elected to file two tax returns for the current year.

Note that it remains possible to override the option selected by DT Max by using the keyword Optimize and selecting the appropriate tax system among the options offered.