Expatriate tax - Canada (Québec)

There are no pre arrival procedures in Canada – province of Quebec.

The Canadian tax period is set for a calendar year.

There are two filing deadlines:

• April 30 for most individuals
• June 15 for individuals and their spouse, where at least one of them earns unincorporated business income.

No extension of time to file is allowed and taxes are due, in full, by April 30. Late filing penalties and interests apply and are based only on unpaid taxes.

There are two levels of taxation: federal and provincial. The rates vary depending on which province or territory the individual was a resident of on December 31 of a particular year.

The highest combined rate of tax is 53.31% in the province of Quebec.
For 2025 the rates are the following:

Taxable Income (C$)            Rate (%)                     Cumulative tax
0 – 57,375                               12.53    
57,375 – 114,750                     17.12                   $7,186 + 17.12% on next $57,374
114,750 – 177,882                    21.71                  $17,007 + 21.71% on next $63,131
177,882 – 253,414                   24.48                $30,713 + 24,48% on next $75,531
253,414 and over                   27.56                 $49,205 + 27.56% on excess

Quebec rates
Taxable Income (C$)          Rate (%)                     Cumulative tax
0 – 53,255                             14     
53,255 – 106,495                  19                      $7,456 + 19% on next $53,239
106,495 – 129,590                 24                      $17,571 + 24% on next $23,094
129,590 and over                  25.75                 $23,114 + 25.75% on excess

Federal tax                                                                            Cumulative tax
Base salary                                                                                   95,000
Bonus                                                                                             30,000
Cost of living allowance                                                             15,000
Bank interest                                                                                10,000
Total income                                                                                  150,000
RRSP*                                                                                            (32,490)
QPP enhanced contribution on employment income            (1,010)
Taxable income                                                                             116,500
Federal income tax                                                                      20,823
Less: Non-refundable tax credits (NRTC):
Personal                                            16,129     
QPP                                                   3,510     
EI                                                        861     
QPIP                                                  484     
Canada employment amount      1,471     
Total NRTC                                       22,455 x 15%                     (3,368)
Basic federal tax                                                                         17,455
Refundable Quebec abatement   16.5% x 17,455                   (2,880)
Federal income tax                                                                     14,575
Quebec tax          
Adjustment to federal taxable income:          
Other deductions (workers, QPP, QPIP)                                  (1,456)
Quebec taxable income                                                           115,044
Quebec income tax                                                                    19,623
Less: Non-refundable tax credits          
Basic amount                                   18,571     
Total NRTC                                        18,571 x 14%                      (2,600)
Quebec income tax                                                                    17,023
Quebec prescription drug insurance plan                             738
Total Quebec income tax                                                         17,761
Total tax liability                                                                         32,336
 
*private retirement savings plans are known as Registered Retirement Savings Plans (RRSP).

The taxation of individuals is determined by their residency status. A resident of Canada is taxed on his worldwide income for the period of residency. A non-resident is taxed only on Canadian source income. Canadian source employment income is taxed at graduated rates like those of residents. Income from a business operated in Canada and income from the disposition of Canadian taxable property is also subject to graduated rates.

Passive source income, such as interests, dividends, pensions and rental real estate income earned by non-residents, is subject to a non-resident withholding tax at source. The basic rate is 25% and may be reduced if a tax treaty exists with the country of residence.

Some elections are available for Canadian source rental income earned by non-residents to be taxed at graduated rates instead of being subject to the withholding tax.

The Canadian Income Tax Act (the Act) does not contain a formal definition of residence. Each case must be determined on its own facts and circumstances. The Canada Revenue Agency (CRA) looks at a number of factors in making a determination. These factors include the acquisition of a dwelling place, moving one’s family and establishing social and economic ties, i.e., acquiring provincial health coverage, a driver’s license, opening bank accounts etc.

Residence can also be established if an individual ‘sojourns’ in Canada for more than 183 days in a particular calendar year. The expatriate would then be deemed to be a Canadian resident for the entire calendar year and as such, is taxable on his/her worldwide income for the entire year. However, a treaty ‘tie-breaker’ rule may override this provision if the expatriate has closer connections to another country.

The province of Quebec applies similar concepts when making a residency determination. In some cases, an expatriate can be a non–resident of Canada but be a resident of Quebec. This will happen when a non-factual resident of Quebec has spent more than 183 days in Quebec during the year.

Income from an office or employment includes all amounts received such as salary, wages, commissions, director’s fees, bonuses, honoraria and taxable benefits. In addition to the amounts received while an employee, amounts received in contemplation or on termination of employment are also taxed as employment income. Canadian federal and provincial tax withholdings are required on all wages earned in Canada and Quebec.

Unless a tax treaty applies, income from an office or employment earned by an expatriate in Canada/Quebec is taxable. In addition to income tax withholdings, social security contributions are also required unless a social security agreement exists.

For the 2025 calendar year, income earned under the personal allowance of $16,129 ($18,571 in the province of Quebec) will not be subject to tax.

All remuneration received in Canada/Quebec is taxed including items relating to a pre-Canadian period of employment. As such, it may be prudent to ensure that all pre-assignment remuneration is received prior to commencing Canadian residency.

Many benefits are subject to tax and many exceptions exist. Generally, any benefit that refers to personal living expenses or can be related to ‘disguise’ additional remuneration is taxable.

In some cases, board and lodging allowances can be received tax free by an individual assigned temporarily in a special work site.

Specific Quebec provisions apply to certain foreign experts and specialists, although many conditions and obligations apply.

A foreign tax credit is granted by both Canada and Quebec for foreign taxes paid by a Canadian/Quebec resident.

The foreign tax credit is first applied against federal income tax. Any unused amount is then applied against Quebec income tax.

There are no standard deductions against employment income.

A few employment deductions are allowed, for example: business-related car expenses, trade union dues and professional membership dues.

In Quebec, trade union and professional membership dues are not allowed as a deduction; rather they give rise to a personal tax credit.

Deductions for contributions made to a Registered Pension Plan or a Registered Retirement Savings Plan (RRSP) are allowed within defined limits.

Contributions made to a RRSP may be made in the calendar year or within 60 days after the end of the year. The annual deduction is limited to the lesser of: 18% of the employee’s previous earned income (as defined in the Act) or the RRSP limit for the year. For the 2025 calendar year, the limit is C$32,490.

Employee contributions to a foreign pension plan are not deductible, however, some exceptions exist for contributions to specific U.S. pension plans. The federal and provincial governments each provide personal exemptions and tax credits.

Main non-refundable federal and Quebec tax credits for 2025 are as follows:

• Basical personal amount:
  • Federal C$: 16,129
  • Quebec C$: 18,571
• Spousal or elgible dependents:
  • Federal C$: 16,129    
  • Quebec C$: N/A
• Person living alone
  • Federal C$: N/A
  • Quebec C$:  2,128
• Supplement for single-parent family
  • Federal C$: N/A
  • Quebec C$: 2,627
• Minor dependent in professional training or post-secondary studies (per session)
  • Federal C$: N/A
  • Quebec C$: 3,823
• Employment amount: 
  • Federal C$: 1,471
  • Quebec C$: N/A
• Age amount:
  • Federal C$: 9,028
  • Quebec C$: 3,906
• Career extension:
  • Federal C$: N/A
  • Quebec C$: 12,500
• Retirement income:
  • Federal C$: 2,000
  • Quebec C$: 3,470
• Person suffering from a disability: 
  • Federal C$: 10,138
  • Quebec C$: 4,123
• Supplement (under 18 years of age)
  • Federal C$: 5,914
  • Quebec C$: N/A
• Adoption fees:
  • Federal C$: 19,580 
  • Quebec C$: N/A
• Purchase of first home:
  • Federal C$: 10,000  
  • Quebec C$: 10,000
• Medical expenses: 
  • Federal C$: 15% of expenses which exceed the lesser of $2,833 or 3% of applicant's net income 
  • Quebec C$: 20% of expenses which exceed 3% of net family income
• Charitable donations:
  
  • Federal C$:
    • Max. donations: 75% of net income 
    • 15% on the first $200 and 29% or 33% on the excess amount
  • Quebec C$: 
    • 20% on the first $200 and 24% or 25.75% on the excess amount
    • Additional credit for certain cultural donation

Half of the net capital gains (taxable capital gains), on the disposition of capital property, are included in the calculation of taxable income. Allowable capital losses (half of the net loss) can only be applied against capital gains and cannot be deducted against any other source of income in the current year. The denied losses can be carried back three years and forward indefinitely to be applied against net capital gains arising in those years, if any.

For 2025, the maximum combined Federal/Quebec effective capital gain rate should be 26.65%*.

Capital gains arising from the disposition of an individual’s principal residence are not subject to capital tax. A principal residence can be located outside Canada. Families, however, can only designate one property by calendar year, as their principal residence.

*The prorogation of the federal Parliament had led to uncertainty regarding the application of the changes to the capital gains inclusion rate announced by the federal government in its last budget. However, the Department of Finance Canada announced on January 31, 2025, that the application of this measure would be postponed until January 1, 2026.

In its 2024 Budget, the government had announced its intention to raise the capital gains inclusion rate for corporations and trusts from 50% to 66.67%.

Under the measures initially proposed, individuals would have benefited from an exemption on the first $250,000 of capital gains, which would still be included at 50%. Unlike individuals, businesses would not benefit from an exemption. Thus, capital gains realized, for example on the sale of land or buildings, would be included in income at 66.67% from the first dollar for a corporation.

In a press release dated January 31, 2025, the Departement of Finance Canada announced that it would continue to apply measures to offset the increase in the capital gains inclusion rate.

First, the lifetime capital gains exemption will increase to $1.25 million, effective June 24, 2024. Prior to this announcement, the exemption was capped at $1,016,836 for 2024. This exemption applies to the disposition of small business shares.

In addition, still with the objective of offsetting the increase in the capital gains inclusion rate, the last budget announced the creation of a new incentive for Canadian entrepreneurs. As of January 2025, a reduced rate of 33.3% will apply to a maximum of $400,000, with a gradual increase in the ceiling to $2 million in 2029. This measure is reserved for active investors holding at least 5% of a company’s shares for a period of 24 consecutive months.

In addition, transferors must have been actively involved in the company’s activities for three years since its founding. Québec plans to align itself with this provision, excluding certain sectors such as finance, real estate and catering.

It should be noted that these measures will have to be the subject of a bill to implement them.

There are no inheritance, estate and gift taxes in Canada. However, a deemed disposition of all assets owned by the deceased, at fair market value, occurs at the time of death. Tax free rollovers are available.

Dividends and interests are taxable when received. Compound interest securities are subject to accrual requirements, generally on an annual basis.

Dividends from taxable Canadian corporations are taxed at a reduced rate through a gross up and tax credit mechanism.

Income from a trust, royalties and similar income is taxed as received or allocated, depending on the circumstances.

The most common local taxes are for health care and worker’s compensation programs. The employee’s contributions are collected through payroll withholdings.

An additional premium (drug insurance plan) is also charged on some individuals when they file their Quebec income tax return.

Employment insurance

Individuals employed in Canada and in Quebec are required to contribute to the Canada Employment Insurance fund (EI). For 2025, the maximum annual premium is C$860 based on a contribution rate of 1.31% on maximum insurable earnings of C$65,700. The employer is required to pay a premium equal to 1.4 times the employee contributions. The employer’s maximum annual premium is C$1,205. The employee premium is partially creditable against federal income tax. EI contributions are not eligible for exemption under a social security agreement.

Quebec Pension Plan (QPP)

Individuals employed in the province of Quebec are not subject to the Canada pension plan contributions, but rather subject to the QPP. The maximum annual contribution is C$4,339 based on a contribution of 6.4% on the maximum contributory earnings of C$67,800 (maximum pensionable earnings of C$71,300 less the basic exemption amount of C$3,500).

The employer is also required to match the contribution. The employee contribution is partially credited against federal income taxes. An expatriate may qualify for exemption from the QPP if he is subject to a social security tax in the home country with which Quebec has a social security agreement.

Quebec Parental Insurance Plan (QPIP)

Individuals employed in Quebec are required to contribute to the QPIP. The maximum annual premium is C$484 based on a contribution rate of 0.494% on the maximum insurable earnings of C$91,000. The employer is required to pay a premium equal to 0.692% on the same amount of insurable earnings. The employer’s maximum annual premium is C$650. The employee premium is partially creditable against federal income tax.

Canada taxes stock options in two possible ways depending on whether the employer is a Canadian Controlled Private Corporation (CCPC) or not. In general, stock option benefits from a non-CCPC are taxable when the option is exercised. There are no exceptions for foreign plans or options granted prior to becoming a resident.

Options granted while resident but exercised after emigration will continue to be taxable in Canada and Quebec. The benefit is equal to the difference between the fair market value of the stock, on the date of exercise, and the option exercise price. A deduction for half of the benefit is permitted, in the federal return, in calculating the taxable income if the option meets certain criteria. For options granted after June 30, 2021, a $200,000 limit applies on employee stock options that may vest in a calendar year and continue to qualify for the 50% securities option deduction (the $200,000 limit).

The deduction is limited to 25% of the benefit for Quebec’s tax purposes.

The taxable event for CCPC options may be deferred until the shares are sold.

There are no wealth taxes in Canada or in the province of Quebec.

Since 2022, any owner of residential property located in Canada may be subject to the Underused Housing Tax Act. These owners must file a return and, in some cases, pay an annual tax of 1% of the property value.

This tax applies essentially to vacant or underused residential property that belongs directly or indirectly to non-resident. Canadian citizens and permanent residents who personally own residential property in Canada are not subject to this law.

When individuals leave Canada, they are deemed to have disposed of all their capital property, with limited exceptions, at fair market value. Half of the resultant gain, if any, will be brought into taxable income. Canadian real property, assets used in a business, certain pensions and stock options are excluded from the departure rules, as they remain subject to Canadian tax upon disposition.

The departure tax can be deferred by posting adequate security acceptable by the Canada Revenue Agency and Revenue Quebec. Security is not required on the first C$100,000 of capital gains. The deferred tax is due when the assets are sold.

The province of Quebec applies the same rules as the federal ones.

For some wealthy short-term immigrants (less than 60 months of residence), pre-immigration planning may be considered.

Tax planning on stock options can be made.

Depending on the individual’s personal situation, planning may be possible.