The Quebec Abatement consists of a reduction of 16.5 percentage points of federal personal income tax for all tax filers in Quebec.
The 16.5 percentage points are the sum of the 13.5 percentage points of federal income tax abated under the Alternative Payments for Standing Programs plus an additional 3 percentage points abated for the discontinued Youth Allowances Program.
The Quebec Abatement is explicitly shown and calculated on the federal personal income tax forms used in Quebec.
Alternative Payments for Standing Programs
- During the 1960s, the Government of Canada offered provinces opting-out arrangements for certain federal-provincial programs, such as hospital care and social welfare. Only Quebec chose to use these arrangements.
- Under the arrangements, the Government of Canada reduced, or "abated", personal income tax by 13.5 percentage points while Quebec increased its personal income taxes by an equivalent amount.
- Quebec continues to receive the value of these extra tax points through its own income tax system, in lieu of cash, while other provinces receive the corresponding amounts in cash.
- Transfers to Quebec for the Canada Health Transfer, Canada Social Transfer and Equalization are shown in the budget on the same basis as transfers to other provinces. However, since part of the Quebec transfer is made through lower federal taxes, it is necessary to net this amount out of transfer program spending.
- This arrangement has no net impact on federal transfers, Quebec’s receipts or other provinces’ receipts.
Youth Allowances Recovery
- In 1961, Quebec had a youth allowance program ($10 per month for youths aged 16 and 17 attending a recognized school). In 1964, the federal government introduced the same program in all provinces and provided to Quebec an abatement equal to 3 per cent of Basic Federal Tax in order to treat Quebec fairly vis-à-vis the other provinces. This abatement was incorporated into Quebec's income tax structure and the difference between the real cost of the Youth Allowances Program and the value of the abatement was adjusted annually.
- In 1972, the federal Youth Allowances Program was expanded to include children of all ages. Quebec then agreed to allow the federal government to transfer the benefit directly to parents, but the value of its 3 per cent abatement was to be reimbursed annually – the Youth Allowances Recovery.