Global expatriate tax guide

Expatriate tax - Canada (Québec)

Expatriates taking up employment in the province of Quebec will be subject to comprehensive rules and in some cases visa requirements. Expatriates leaving the province of Quebec to take up employment in a foreign country will also be subject to comprehensive rules. Raymond Chabot Grant Thornton’s Expatriate tax team can help expatriates and their employers in dealing with the Canadian and Quebec tax, including withholdings, employment visa requirements and departure tax rules.

In particular, Raymond Chabot Grant Thornton can assist expatriates and their employers in identifying Canadian and Quebec tax planning opportunities, review tax equalisation policies and provide compliance services regarding the many Canadian and Quebec tax filing requirements.

Click on each of the areas below to expand for more information:

Facts and figures
Pre arrival procedures

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

Employment visas

Most temporary employment does not require an employment visa.

Tax year

The Canadian tax period is set for a calendar year.

Tax returns and compliance

There are two filing deadlines:

  1. April 30 for most individuals
  2. 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.

Income tax rates

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 2019 the rates are the following:

Federal rates

Taxable Income (C$) Rate (%) Cumulative tax
0 – 47,630 15  
47,631 – 95,259 20.5 $7,145 + 20.5% on next $47,629
95,260 – 147,667 26 $16,908 + 26% on next $52,408
147,668 – 210,371 29 $16,908 + 26% on next $52,408
210,372 and over 33 $48,719 + 33% on excess

Quebec rates

Taxable Income (C$) Rate (%) Cumulative tax
0 – 43,790 15  

43,791 – 87,575

20 $6,569 + 20% on next $43,785
87,576 – 106,555 24 $15,326 + 24% on next $18,980
106,556 and over 25.75 $19,881 + 25.75% on excess
Sample income tax calculation
Federal tax   Cumulative tax
Base salary   80,000
Bonus   20,000
Cost of living allowance   15,000
Bank interest   5,000
Total income   120,000
RRSP*   (26,500)
Taxable income   93,500
Federal income tax   16,532
Less: Non-refundable tax credits (NRTC):  
Personal 12,069  
Spousal 12,069  
QPP 2,911  
EI 664  
QPIP 402  
Canada employment amount 1,222  
Total NRTC 29,336 x 15% (4,401)
Basic federal tax   12,131
Quebec tax 16.5% x 12,131 (2,001)
Federal income tax   10,130
Quebec tax    
Adjustment to federal taxable income:    
Deduction for workers   (1,170)
Quebec taxable income   92,249
Quebec income tax   16,447
Less: Non-refundable tax credits    
Basic amount 15,269  
Amount transferred by spouse 15,269  
Total NRTC 30,538 x 15% (4,580)
Quebec income tax   11,867
Quebec prescription drug insurance plan   641
Total Quebec income tax   12,508
Total tax liability   22,638

*private retirement savings plans are known as Registered Retirement Savings Plans (RRSP).

Basis of taxation
Charge to tax

The taxation of individuals is determined by their residency status. A resident of Canada is taxed on their 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.

Residence

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, ie 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 is present in the province on December 31 and has spent more than 183 days in Quebec during the year.

Income from employment

Income from an office or employment includes all amounts received as salary, wages, commissions, director’s fees, bonuses, honoraria and taxable benefits. In addition to 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 2019 calendar year, income earned under the personal allowance of $12,069 ($15,269 in the province of Quebec) will not be subject to tax

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Source of employment

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.

Benefits (in kind)

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 a Canadian/Quebec resident assigned in a special work site.

Expatriate concessions

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

Relief for foreign taxes

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.

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Deductions from taxable income

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 2019 calendar year, the limit is C$26,500.

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

Main non-refundable federal and Quebec tax credits for 2019 are as follow:

  Federal C$ Quebec C$
Basic personal amount 12,069 15,269
Spousal or eligible dependents 12,069 N/A
Person living alone N/A 1,750
Supplement for single-parent family N/A 2,160
Parental contribution for adult children engaged in studies N/A 10,482
Minor dependent in professional training or post-secondary studies (per session) N/A 2,933
Other dependent aged 18 and older who has a disability 7,140 N/A
Employment amount 1,222 N/A
Age amount 7,494 3,214
Retirement income 2,000 2,853
Person suffering from a disability 8,416 3,391
Supplement (under 18 years of age) 4,909 N/A
Adoption fees 16,255 N/A
Volunteer firefighters 3,000 3,000
Search and rescue volunteer 3,000 3,000
Purchase of first homer 5,000 5,000
Home accessibility 10,000 N/A
Medical expenses 15% of expenses which exceed the lesser of $2,352 or 3% of applicant’s net income 20% of expenses which exceed 3% of net family income
Charitable donations

Max. donations: 75% of net income

15% on the first $200 and 29% or 33% on the excess amount

20% on the first $200 and 24% or 25.75% on the excess amount

Additional credit for certain cultural donation

Other taxes
Capital gains tax

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 2019, the maximum combined Federal/ Quebec effective capital gain rate is 27.56%.

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.

Capital gains arising for the disposition of Canadian Private Controlled Corporations (CPCC) can benefit from a maximum exclusion of C$866,912. This maximum amount will be increased in 2020 to C$883,384.

Inheritance, estate and gift taxes

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.

Investment income

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.

Local taxes

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.

Social security taxes

Employment insurance

Individuals employed in Canada and in Quebec are required to contribute to the Canada Employment Insurance fund (EI). For 2019, the maximum annual premium is C$663.75 based on a contribution rate of 1.25% on maximum insurable earnings of C$53,100. The employer is required to pay a premium equal to 1.4 times the employee contributions. The employer’s maximum annual premium is C$929.25. 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$2,991.45 based on a contribution of 5.55% on the maximum contributory earnings of C$53,900 (maximum pensionable earnings of C$57,400 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$402.39 based on a contribution rate of 0.526% on the maximum insurable earnings of C$76,500. The employer is required to pay a premium equal to 0.736% on the same amount of insurable earnings. The employer’s maximum annual premium is C$563.04. The employee premium is partially creditable against federal income tax.

Stock options

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. 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.

Wealth tax

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

Other specific taxes

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.

Tax planning opportunities

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.

For further information on expatriate tax services in the Canadian province of Quebec, please contact:

Martin Caron.png
Martin Caron, CPA, CGA, D. Fisc.

E caron.martin@rcgt.com