2023-06-23 15:42:19
In its most recent budget, the Government of Quebec announced measures to promote work for people aged 65 and over. (Photo: 123RF)
GUEST EXPERT. For several years, many households that have increased their income have suffered a significant tax burden on this increase, if we consider the compulsory social security contributions as well as the loss of socio-fiscal measures. Last spring, the Government of Quebec announced in its budget measures to encourage the work of people aged 65 and over. This article will make it possible to quantify the gain made thanks to these measures by demonstrating the effective marginal tax rate (METR) of two households.
Let us first recall that the METR measures the tax burden on additional income and includes additional tax and social security contributions to be paid, also taking into account the impact on socio-fiscal measures.
Here is also a brief reminder of what was announced by the Government of Quebec:
• From 2023, a drop in tax rates of one percentage point is effective for the first two tax brackets for all taxpayers.
• The possibility of ceasing contributions to the QPP (Quebec Pension Plan) for beneficiaries of a retirement pension aged 65 or over, provided that they receive the retirement pension from the QPP. This choice remains in force at the latest until the worker is over 72, because there is a new obligation to stop contributing.
Two scenarios will be analyzed in this article: a retiree living alone, Mr. Solo, and a retired couple, the Farnientes.
We take for granted the following assumptions:
– The members of the households studied turned 65 this year.
– Mrs Farnienté has an annuity from a pension fund. The pension fund annuity was used by slightly rounding the average market income of people aged 65 and over in 2020 in Quebec, according to the Institut de la statistique du Québec.
– All are currently entitled to 70% of the maximum QPP pension in 2023 and they requested it this year, when they turned 65.
– They are entitled to full PSV.
– They are not yet withdrawing from their RRSPs.
– They want to measure the tax impact of employment income of $15,000.
– In 6 months, i.e. on January 1, 2024, they would choose to stop contributing to the QPP.
We arrive at the following income table:
Couple the Idleness
M. Solo
Madame
Sir
RRQ
11 000$
11 000$
11 000$
PSV
8 429$
8 429$
8 429$
Pension funds
20 000$
40 000$
0$
Total without employment income
39 429$
59 429$
19 429$
employment income
15 000$
15 000$
15 000$
Total with employment income
54 429$
74 429$
34 429$
In order to find the METR for employment income of $15,000 for Mr. Solo and $30,000 for the Farniente couple, we will measure disposable income before and after employment income. Our calculations include the tax to be paid according to the new tax rates in addition to all the following tax measures, insofar as these apply, of course.
Deductions
• Additional QPP
Federal credits (taking into account the abatement)
• Basic personal credit
• Basic credit increase
• GST credit
• Canada employment amount
• Pension income credit
• Age Credit
• QPP credit
• Employment insurance credit
• QPIP credit
Credits in Quebec
• Basic personal credit
• Age Credit
• Credit for solidarity
• Credit Age/pension/person living alone
• Credit for career extension
Payroll taxes payable on employment income
• RAMQ
• RRQ
• Employment Insurance
• RQAP
• FSS
RESULTS
M. Solo
Couple The Idleness
METR in 2023 (with QPP contribution)
36%
38%
METR in 2024 (if they choose to stop contributing to the QPP)
32%
34%
For Mr. Solo, we note that his employment income of $15,000 would be subject to total taxation of 36% in 2023 (including tax payable, mandatory contributions and the impact on socio-fiscal measures), but his METR would drop to 32% in 2024 by choosing to stop contributing to the QPP.
For the Farniente couple, the METR on their $30,000 would be 38% in 2023, after pension income splitting. By choosing to stop contributing to the QPP in 2024, the METR is lowered to 34%. For both households, we note that the choice to stop contributing to the QPP in 2024 leads to a drop of four percentage points in the METR.
In short, we are far from the myth that additional income is taxed at 50%, especially since the rates in our example include contributions and socio-fiscal measures, so “all, all, all”!
Will this encourage Quebecers aged 65 and over to be tempted by a part-time job to fill their retirement days and at the same time obtain additional income? A financial planner can help you in your decision by doing your own personalized analysis!
Charles Hunter-Villeneuve, M. Fisc., Pl. Fin., TEP
1687538075
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