Alternative Payments for Standing Programs and the Quebec Abatement

What are the Alternative Payments for Standing Programs?

• Alternative payments for standing programs represent recoveries from Quebec of an additional tax point transfer above and beyond the tax point transfer under the Canada Health Transfer (CHT) and the Canada Social Transfer (CST).
• 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 CHT/CST 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 receipts or other provinces’ receipts.

What is the Quebec Abatement?

• The Quebec Abatement consists of a reduction of 16.5 percentage points of federal personal income tax for all tax filers in Quebec, representing approximately $3.6 billion in 2010–11.
• The 16.5 percentage points are the total of both the 13.5 percentage points ($2.9 billion) of federal income tax abated under the Alternative Payments for Standing Programs, referred to above, plus an additional 3 percentage points ($650 million) abated for the discontinued Youth Allowance Program.
• Similarly to the adjustments made for the Alternative Payments for Standing Programs, the value of the Youth Allowance abatement is recovered to put Quebec on the same net basis as other provinces.
• The Quebec abatement is distinct from the tax point transfers under the CHT/CST in that the basic federal tax reduction of 16.5 tax points is explicitly shown and calculated on the federal personal income tax forms used in Quebec.

- Major Federal Transfers -