Municipalities Share of Provincial Sales Tax

The draft regulation concerns the “Act Respecting the Ministère des Affaires municipales, des Régions et de l’Occupation du territoire” (chapter M-22.1) and the “Act to amend the Act respecting municipal taxation and other legislative provisions” (2023, chapter 33). Its main purpose is to outline how municipalities in Québec will share an increase in a portion of the Québec sales tax. This apportionment is intended to distribute the tax revenue equitably among municipalities based on criteria such as population size, economic health, and remoteness, ensuring a fair distribution of funds across local and regional authorities.
One of the regulation’s key components is identifying eligible municipalities. It applies to local municipalities and regional county municipalities (RCMs), excluding certain municipalities, like the Cree Villages, Naskapi Village, and specific parishes. Regional county municipalities will only receive apportioned funds if the unorganized territories within their boundaries are inhabited.
The draft regulation bases the apportionment of funds on three main criteria: population size, economic health, and remoteness. First, the population size determines the amount of funds allocated, with municipalities having larger populations receiving more. Population data is derived from government orders from the preceding fiscal year. Second, the economic health index, as published by the Institut de la statistique du Québec, measures the economic vitality of each municipality, with those having lower economic health receiving more funds to promote equity. Lastly, the remoteness index, published by Statistics Canada, measures a municipality’s geographical isolation, ensuring that more remote areas receive a greater share of funds to address potential challenges in service delivery.
The apportionment of funds is structured in two parts. The first part, constituting 90% of the total amount, is based on population and economic health. Municipalities without an economic health index are allocated funds based on population alone, using a formula. For those with an economic health index, the allocation is adjusted using a multiplication factor that reflects their economic standing. The second part, which constitutes 10% of the total amount, is apportioned using both the economic health and remoteness indices, assigning a multiplication factor based on each index. More remote municipalities with poorer economic health will receive larger allocations.
The regulation also includes a transition period between 2025 and 2029, during which the apportionment percentages will shift gradually. In the fiscal year 2025, 97.5% of the funds will be distributed through the first part, with 2.5% allocated through the second part. By 2029, these figures will be adjusted to 91% and 9%, respectively. This gradual shift will allow municipalities time to adapt to the new funding structure.
In 2028, the Minister of Municipal Affairs will conduct a review of the apportionment system to assess its impact, particularly regarding tax fairness and the capacity of municipalities to deliver services with the allocated funds. Based on this assessment, adjustments may be made to improve the system.
Quebec (Draft Regulation) August 21, 2024