Here in Quebec, the newly elected Marois government caused quite a stir this fall with the announcement of proposed changes to the Quebec tax code. As part of its election platform, the PQ had promised to do away with the $200 health tax. In order to recoup those lost revenues, the plan was to increase taxes to the “rich”. So in September, a number of measures were announced including the introduction of two new tax brackets for higher income earners, an increase in the capital gains inclusion rate from 50% to 75%, plus an increase to the overall tax rate applicable to dividend income.

Of course, the real bombshell was the proposal to make some of these changes retroactive to January 1, 2012! That’s when many a Quebecer, rich or not, put in a call to their real estate agent with plans to move to Ontario. With only a minority mandate, the PQ had to back down.

To compromise, the Marois government has gone back on its commitment to abolish the $200 health tax. Instead, the tax is to become progressive. Starting in 2013, Quebecers will pay based on income. For those earning $150,000 and more, the health tax will rise to $1,000 per tax-payer.

Fortunately, there will be no changes to the treatment of investment income. And although, the maximum marginal rate for higher income earners will go up, it will not be to the same extent as originally proposed.

Currently, the highest marginal tax rate in Quebec is 24% and applies to taxable income in excess of $80,200. Starting in 2013, income exceeding $100,000 which will be subject to provincial tax of 25.75%. Remember that we are talking about an increase to one’s marginal rate of tax. That means only the additional dollars earned over the $100,000 threshold will be taxed at a higher rate.