Taxation seems to become a hot topic during the election campaign in Quebec. Two political parties are proposing to increase taxes on the rich, three parties are promising to reduce the tax payable on the first $92,579 of income, and we are still waiting for the Parti Québécois tax plan.
Posted yesterday at 12:00 p.m.
Tax cuts were widely commented on earlier this week, but what about tax hikes aimed at the wealthy? To see clearly, let’s take stock of the taxation of the rich in Quebec.
First, what is a rich man in Quebec? According to the most recent tax statistics, the top 1% in Quebec represents 50,000 taxpayers who earned an average income of $580,000 in 2019.
These taxpayers are subject to the statutory tax rate (the one displayed in the tax laws) of 53.31%, of which 27.56% is payable at the federal level and 25.75% in Quebec. But in reality, the wealthy don’t pay 53.31% tax, they would be taxed at an effective rate of 31%.
The most recent tax statistics for Quebec offer a similar portrait for the wealthiest, with an effective tax rate of 15% in 2018, and not 25.75%. Among them, 590 taxpayers paid no tax.
We can expect similar statistics today because the tax regimes are pretty much the same as in 2018 and 2019 for the wealthiest. Higher levels of income are to be expected, however, and a likely different distribution of these, with more significant capital gains.
minimum tax
If Quebec voters believe that an effective tax rate of 15% is too low and that more affluent taxpayers must pay more tax, a simple and effective way must be found.
It would be possible to increase the statutory rate by 25.75%, but is it really effective when we realize, in the end, that the rich pay almost half the tax in Quebec than this 25.75%?
In the current situation, a tool like the minimum tax may prove more effective in ensuring that everyone pays their fair share of tax. Minimum tax regimes already exist in Quebec and Canada, but their impact is insignificant and the rules have never been updated since they were introduced more than 35 years ago.
The principle is simple. When preparing their income tax return, individuals calculate regular tax and minimum tax, and it is the higher of the two that they must pay. In the current systems in Quebec, as in Canada, the excess of the minimum tax on the regular tax can then be applied in reduction of the regular tax for the seven subsequent years.
A look at Ottawa
The federal government put its foot down in the last 2022-2023 budget by announcing the overhaul of the minimum tax. It pledges to look at a new minimum tax regime that will make high-income taxpayers pay more tax, and an approach will be proposed in the fall 2022 economic and fiscal update.
In Quebec, the 2022-2023 budget does not raise this issue relating to the gap between the statutory tax rate and the effective tax rate of the wealthiest. The news bulletins that have followed the federal budget do not indicate any intention to follow the federal government on this subject. Quebec may be waiting to see what the federal government will do before deciding.
One thing is certain, no political party raises the possibility of following in the footsteps of the federal government in the establishment of a minimum tax that is more effective and better adapted to the 21e century. To be continued, then…