The 2011-2012 Quebec budget, which Finance Minister Raymond Bachand delivered on March 17, 2011, contained the following items of interest to payroll professionals:
QPP rates going up
The budget proposes to increase Quebec Pension Plan (QPP) contributions by 0.15 percentage points a year over the next six years, beginning in 2012, as the following table shows:
Proposed QPP contribution rates
The changes would be implemented on January 1 each year. No changes to the basic exemption were proposed.
The current combined rate is 9.9 per cent. Budget documents state that a combined rate of 11.02 per cent is needed to ensure the QPP’s long-term health due to an aging population, longer life expectancy at retirement and lower financial returns for QPP investments. Without the changes, it notes that QPP benefits will exceed contributions by 2013 and the plan’s reserve fund will be empty by 2039.
The budget also proposes to implement an automatic contribution rate adjustment beginning in 2018. Under the proposal, the contribution rate would be automatically adjusted every three years after the release of a QPP actuarial report. If the report showed that the rate needed to ensure the plan’s long-term stability exceeded the contribution rate in effect by 0.1 percentage point, the QPP rate would automatically go up by 0.1 percentage point a year until the desired rate was reached or a new actuarial assessment was carried out. The budget proposals allow the government some flexibility in that it could implement another measure to ensure the plan’s health rather than have an automatic increase.
Budget documents also note that if the actuarial assessments done every three years showed that the plan’s funding level had improved, the proposed contributions rates could be lowered. The next assessment will be in 2013.
Voluntary registered retirement savings plans proposed
The budget proposes to set up a type of pooled registered pension plan called voluntary retirement savings plans (VRSPs) to provide a new way of saving for retirement for individuals who do not have employer-sponsored pension plans or who are self-employed. Under the proposal, employers who meet certain criteria would have to offer the plan to their employees. The government has not yet specified which employers would be required to set up the VRSPs. Budget documents indicate that the proposal would apply to employers who “satisfy certain criteria that remain to be determined”.
Affected employers would have to select a plan and present it to their employees, explaining the provisions. Employers would then automatically enrol employees not covered by the company pension plan in the VRSP. Employees would have to be at least 18 years old to participate. Employees would be allowed to opt out if they notified the employer. Employers would deduct employee contributions at source for the plan and remit them to the plan administrator. Employers would not be required to contribute to the plan, but if they chose to, their contribution would deductible from taxable income and would not be subject to payroll taxes. If an employer decided to contribute to the plan, it would be allowed to make participation in the plan mandatory for employees, provided they have the employee’s agreement.
The plans would be administered by financial institutions, such as insurance companies, and would have to have simplified membership and operating terms and conditions to make it easy for individuals to take part. The plans would also have to have low management costs. Similar to Registered Retirement Savings Plans, the savings in a VRSP would not be subject to income tax until they are withdrawn. Individuals would be able to transfer assets from one plan to another if they changed employers.
The budget did not provide a timeline for when the VRSPs would be introduced. It noted that for the plans to grow in size and have lower management costs, it is important that federal and provincial laws be harmonized. To establish the plans, the budget states that the federal government must first change its tax legislation so that an employer-employee relationship is no longer required for making contributions to a private pension plan and to eliminate the requirement for employers to contribute a minimum amount to a private pension plan in which an employee is a member. Budget documents state that the Quebec government would continue to work with the federal government and other provinces to implement the plans as soon as possible.
Federal-provincial consultations are currently underway. Once they are complete and a framework for implementing the plans has been drafted, the budget notes that the Quebec government would hold its own consultations on the specific features VRSPs would have in Quebec.
Changes to QPP adjustment factors
The budget proposes to change the adjustment factors used to reduce the monthly QPP pension for individuals who retire before age 65 and to increase the monthly pension for those who retire after age 65. Currently, if an individual retires between ages 60 and 65, the adjustment factor results in their pension being reduced by 0.5 per cent per month for each month before age 65. For late retirement, the adjustment increases the pension by 0.5 per cent per month for each month that the pension is taken after age 65.
The budget proposes to gradually change the adjustment factor for early retirement, starting Jan. 1, 2014. As a result, the monthly maximum pension would be reduced by 0.53 per cent in 2014, 0.56 per cent in 2015 and 0.60 in 2016.
The budget would increase the adjustment factor for delayed retirement from 0.5 per cent to 0.7 per cent, effective Jan. 1, 2013.
The proposed changes to the adjustment factors are not identical to the federal government’s proposed Canada Pension Plan changes, which are as follows:
Reduction (retirement before age 65)
Increase (retirement after age 65)
Tax credit for older workers proposed
The budget proposes to implement a non-refundable tax credit for workers aged 65 and over who choose to remain in the workforce. The budget states that the purpose of the tax credit is to encourage older workers to continue working to help combat a shrinking labour pool due to an aging population. To be eligible for the tax credit, individuals would have to be at least 65 years old and have a minimum of $5,000 of eligible work income (such as salaries, wages, and other remuneration from an office or employment). The tax credit would be equal to 16 per cent of every dollar of work income over $5,000, up to a maximum of $10,000 of work income once fully implemented. The government plans to phase in the tax credit over five years, beginning Jan. 1, 2012. As a result, the maximum amount of work income in excess of $5,000 would $3,000 in 2012; $4,000 in 2013; $5,000 in 2014; $8,000 in 2015; and $10,000 in 2016. Once fully implemented, the maximum amount of the tax credit would be $1,504. The tax credit would take into account the deduction for workers that already exists. The tax credit would apply against the amount of income tax owing, although eligible workers would be allowed to receive the tax credit in advance by requesting that their deductions at source be reduced. Individuals would not be allowed to carry forward or transfer to their spouse any unused part of the tax credit.
No changes to payroll-related tax rates
The budget does not contain any payroll-related tax rate changes.
More information on the Quebec budget is available at www.budget.finances.gouv.qc.ca//budget/2011-2012/index_en.asp.
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