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Published | Category : Source deductions and contributions

Changes to the Guide Entitled Formulas to Calculate Source Deductions and Contributions (TP-1015.F-V)

Below are the changes made to the guide entitled Formulas to Calculate Source Deductions and Contributions (TP-1015.F-V) for 2016. The formulas were updated further to the Budget Speech delivered on March 17, 2016, to take into account the maintenance of the rate of the tax credit for the purchase of shares issued by Fondaction and the reduction of the health contribution.

Variable E

The indexation factor used to calculate the value of personal tax credits for 2016 is 1.09%.

Variables H, H1 and H2 – Deduction for employment income

The maximum deduction for employment income has been increased from $1,120 to $1,130 for 2016. Consequently, the maximum amount of variables H, H1 and H2 has been increased from $1,120 to $1,130.

Variable K – The constant for adjusting the income tax rate

For 2016, the income tax rates applicable to the taxable income brackets remain unchanged and the income thresholds for these brackets have been indexed. Specifically,

  • the 16% rate applies to taxable income of $42,390 or less (previously $41,935);
  • the 20% rate applies to taxable income of more than $42,390, but not more than $84,780 (previously $83,865);
  • the 24% rate applies to taxable income of more than $84,780, but not more than $103,150 (previously $102,040);
  • the 25.75% rate applies to taxable income of more than $103,150.

The values of variable K are therefore $1,695 (increased from $1,677), $5,086 (increased from $5,032) and $6,891 (increased from $6,817).

Variable M – Québec Pension Plan

The QPP contribution rate has been increased from 10.50% to 10.65% for 2016, which corresponds to a contribution rate of 5.325% for the employee and 5.325% for the employer.

In addition, the maximum pensionable earnings for the purposes of the QPP have been increased from $53,600 to $54,900. Variable M has therefore been increased from $2,630.25 to $2,737.05.

Variables N and N1 – Québec parental insurance plan

The maximum insurable earnings subject to QPIP premiums have been increased from $70,000 to $71,500 for 2016. The employee premium rate is reduced from 0.559% to 0.548%, and the employer premium rate is reduced from 0.782% to 0.767%. As a result, variable N is $391.82 (instead of $391.30) and variable N1 is $548.41 (instead of $547.40).

Variables Y, Y1 to Y4, Q and Q1– Fondaction

Effective June 1, 2015, the rate of the tax credit for the acquisition of shares issued by Fondaction is 20% for any eligible share acquired after May 31, 2015, but before June 1, 2016.

In the Budget Speech delivered on March 17, 2016, the Minister of Finance of Quebec announced that the rate of this tax credit would be maintained at 20% for any eligible share acquired after May 31, 2016, but before June 1, 2018.

Accordingly, for 2016, if an employee has authorized you to withhold an amount from his or her pay for the purchase of shares issued by Fondaction, you must use the 20% rate to calculate the amount to withhold. See the table below.

Calculation of source deductions of income tax

Regular payments

Y = (T × I) − K − K1 − (0.20 × E) − (0.15 × P × Q) − (0.20 × P × Q1) + Z

Gratuities, retroactive pay or similar lump-sum payments

Y1 = [T × (I1 + B1)] − K − K1 − (0.20 × E) − (0.15 × P × Q) − (0.20 × P × Q1) + Z1

Y2 = [T × (I1 + B1 + B2)] − K − K1 − (0.20 × E) − (0.15 × P × Q) − (0.20 × P × Q1) + Z2

Cumulative average

First method

Y = (T × I) − K − K1 − (0.20 × E) − (0.15 × S1 × Q) − (0.20 × S1 × Q1) + Z

Second Method

Y3 = (T × I3) − K − K1 − (0.20 × E) − (0.15 × S1 × Q) − (0.20 × S1 × Q1) + Z3

Y4 = (T × I4) − K − K1 − (0.20 × E) − (0.15 × S1 × Q) − (0.20 × S1 × Q1) + Z4

Definitions

Q = amount withheld for a pay period for the purchase of class A shares in the Fonds de solidarité FTQ

Q1 = amount withheld for the pay period for the purchase, before June 1, 2016, of class A or class B shares in Fondaction

Note

The total value of variables Q and Q1 must not exceed $5,000 for the year. For the pay period in which the annual maximum is reached, the value of variables Q and Q1 must be zero.

Variable Z – Health contribution

In the Budget Speech delivered on March 17, 2016, the Minister of Finance of Quebec announced that the health contribution would be reduced gradually beginning in 2016 and ultimately eliminated in 2018. More specifically, for 2016, the maximum amount of the health contribution has been reduced as follows:

  • from $100 to $50, for income greater than $18,570 but not greater than $41,265; and
  • from $200 to $175, for income greater than $41,265 but not greater than $134,095.

Accordingly, you must take the reduction into account when calculating source deductions as of July 1, 2016. In addition, the amounts used to calculate the health contribution included in calculating source deductions of income tax have been reduced (from $50 to $0 and from $175 to $150) so that individuals can benefit from the reduction retroactively to January 1, 2016.

Be sure to use the reduced amounts when calculating source deductions of income tax for any pay period beginning after June 30, 2016.

Estimated annual net income (R)Health contribution (Z)

More than

Equal to or less than

$0

$41,265

$0

$41,265

$134,095

Whichever is less:

  • $150; or
  • 5% × (R − $41,265).

$134,095

Whichever is less:

  • $1,000; or
  • $150 + [4% × (R − $134,095)].

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