Sales tax and income tax. How do they work?

The income tax that individuals and businesses pay helps fund public services and social programs provided by the government.

For most people, income tax is deducted from their pay throughout the year.

If you’re self-employed, however, you sometimes have to pay your income tax and your contributions and premiums in quarterly instalments. Instalments are partial payments made periodically in the current year.

Québec’s tax system is based on the idea of self-assessment, which means that you are responsible for reporting your income and paying any amounts you owe the government. To do so, you must file a yearly tax return in order to:

• report your income;
• determine whether you’re eligible for any tax credits or deductions;
• calculate your income tax payable for the year;
• determine whether you get a refund or have a balance due.

Even if you don’t have any income to report, you should still file an income tax return to benefit from tax credits and social programs.

Deductions are amounts you can subtract from your income to reduce the income tax you have to pay. Some are for employment expenses (such as working from home), while others are for retirement savings (such as RRSP contributions). They all have their own eligibility requirements.

There are two kinds of tax credits:

• Non-refundable tax credits reduce or cancel your income tax payable, based on your situation.
• Refundable tax credits are paid to you even if you don’t have any income tax to pay.

For more information, see the lists of deductions and tax credits.

You can claim deductions and tax credits in your tax return.

Like income tax, sales tax provides funding for public services and social programs offered by the government.

Most of the goods and services we pay for are taxable.

Businesses charge sales tax for the government on the goods and services they sell, then remit the tax they collected to the government.

Sales tax includes the Québec sales tax (QST) and the federal goods and services tax (GST).

Taxable goods and services include:

• clothing
• gas
• haircuts
• cars (purchase or lease)
• meals at a restaurant
• cellphone plans

Not at all. Some are zero-rated or tax-exempt, which means you don’t have to pay tax on them.

Most food and beverage items are zero-rated. But be careful, some conditions apply.

For example, cakes, muffins, cookies and other pastries are taxable when sold in packages of less than six individual servings, but zero-rated when sold in packages of more than five individual servings.

To learn more, click Taxable, Zero-Rated or Tax-Exempt Goods and Services.