Expatriate tax - Canada (Québec)

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

Most temporary employment does not require an employment visa.

The Canadian tax period is set for a calendar year.

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.

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 2021 the rates are the following:

Federal rates

Quebec rates

*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 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.

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 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 2023 calendar year, income earned under the personal allowance of $15,000 ($17,183 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 a Canadian/Quebec resident assigned 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.

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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 2023 calendar year, the limit is C$30,780.

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 2023 are as follow:

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 2023, the maximum combined Federal/ Quebec effective capital gain rate is 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.

Capital gains arising for the disposition of Canadian Private Controlled Corporations (CPCC) can benefit from a maximum exclusion of C$971,190.

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 2021, the maximum annual premium is C$664.34 based on a contribution rate of 1.25% on maximum insurable earnings of C$56,300. The employer is required to pay a premium equal to 1.4 times the employee contributions. The employer’s maximum annual premium is C$930.08. 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$3,427.90 based on a contribution of 5.9% on the maximum contributory earnings of C$58,100 (maximum pensionable earnings of C$61,600 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$412.49 based on a contribution rate of 0.494% on the maximum insurable earnings of C$83,500. 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$577.82. 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.