Taxation in Canada
Encyclopedia
The level of Taxation in Canada is average among Organisation for Economic Co-operation and Development
(OECD) countries.
(CRA), formerly known as "Revenue Canada" or the "Canada Customs and Revenue Agency".
Under "Tax Collection Agreements", CRA collects and remits to the provinces:
The Ministère du revenu du Québec collects the GST in Quebec on behalf of the federal government, and remits it to Ottawa.
The provincial governments of British Columbia, Nova Scotia, New Brunswick, Newfoundland and Labrador, and Ontario no longer impose a separate provincial sales tax and in those provinces the federal government collects goods and services tax at a rate higher than in the other provinces. The additional revenue from this Harmonized Sales Tax
is paid by the federal government to the five harmonizing provinces.
For the early part of Canadian history most federal government revenue came from tariff
s on trade with excise taxes making up the rest of the government's funding. The largest source of provincial funding was licenses, permits, and transfers of funds from the federal government. The first corporate taxes were introduced at the end of the nineteenth century.
A crisis developed during the Great Depression
because the provinces were responsible for skyrocketing welfare costs, but could not raise enough revenue since the taxes permitted to the provinces were so dependent on the health of the economy. The federal government still had considerable revenues, however, which resulted in a system of transfer payments between the two levels of government. The transfer payments are still in place today.
The First World War
had mostly been financed by traditional means, but in 1917, a tax on income was introduced as a temporary measure to fund the war. The income tax has since become a permanent feature of the Canadian tax system. The Second World War
led to dramatic change in the tax system. The percentage of Canadian government revenue from indirect taxes fell from 90% in 1913 to less than 40% by 1946. Instead, Canadians began to pay income taxes and direct taxes has since provided the greatest bulk of government funding.
es on individuals, and these are the most significant sources of revenue for those levels of government accounting for over 40% of tax revenue. The federal government charges the bulk of income taxes with the provinces charging a somewhat lower percentage, except in Quebec. Income taxes throughout Canada are progressive with the high income residents paying a higher percentage than the low income residents. However, a study conducted by Canadian Centre for Policy Alternatives
, and released on November 8, 2007, found that the richest pay the lowest rates of all income groups.
Where income is earned in the form of a capital gain
, only half of the gain is included in income for tax purposes; the other half is not taxed.
Federal and provincial income tax rates are shown at Canada Revenue Agency's website.
Personal income tax can be deferred in a Registered Retirement Savings Plan
(RRSP) and tax sheltered savings accounts (which may include mutual funds and other financial instruments) that are intended to help individuals save for their retirement.
. These make up a relatively small portion of total tax revenue. Tax is paid on corporate income at the corporate level before it is distributed to individual shareholders as dividend
s. A tax credit is provided to individuals who receive dividend to reflect the tax paid at the corporate level. This credit does not eliminate double taxation of this income completely, however, resulting in a higher level of tax on dividend income than other types of income. (Where income is earned in the form of a capital gain
, only half of the gain is included in income for tax purposes; the other half is not taxed.) Corporations may deduct the cost of capital following capital cost allowance
regulations.
Starting in 2002, several large companies converted into "income trusts" in order to reduce or eliminate their income tax payments, making the trust sector the fastest-growing in Canada . Conversions were largely halted on October 31, 2006, when Finance Minister Jim Flaherty
announced that new income trusts would be subject to a tax system similar to that of corporations, and that these rules would apply to existing income trusts after 2011.
Capital Tax is a tax charged on a corporation's taxable capital. Taxable capital is the amount determined under Part 1.3 of the Income Tax Act (Canada) plus accumulated other comprehensive income.
Effective January 1, 2006, capital tax was eliminated at the Federal level, however some Provinces continued to charge corporate capital taxes. In Ontario the corporate capital tax was eliminated July 1, 2010, though it was eliminated effective January 1, 2007, for Ontario corporations primarily engaged in manufacturing or resource activities. In British Columbia the corporate capital tax was eliminated as of April 1, 2010.
(GST), and, in some provinces, the Harmonized Sales Tax
(HST). The GST/HST is a value-added tax.
All provincial governments except Alberta
levy sales taxes as well. The provincial sales taxes for the provinces of British Columbia
, Nova Scotia
, New Brunswick
, Newfoundland and Labrador
, and Ontario
are harmonized with the GST, that is they have a combined tax instead of separate GST and PST. The provinces of Quebec
and Prince Edward Island
apply provincial sales tax to the sum of price and GST. The territories of Nunavut
, Yukon
and Northwest Territories
charge GST only.
Provincial and federal sales tax rates at the retail level on goods and some services are as follows:
es on residential, industrial and commercial properties. These account for about ten percent of total taxation in Canada.
goods such as cigarette
s, gasoline
, alcohol
, and for vehicle air conditioners. A great bulk of the retail price of cigarettes and alcohol are excise taxes. The vehicle air conditioner tax is currently set at $100 per air conditioning unit. Canada has some of the highest rates of taxes on cigarettes and alcohol in the world. These are sometimes referred to as sin tax
es.
Quebec levies a similar tax called the "Health Services Fund". For those who are employees, the amount is paid by employers as part of payroll. For those who are not employees such as pensioners and self-employed individuals, the amount is paid by the taxpayer.
Premiums for the Employment Insurance system and the Canada Pension Plan
are paid by employees and employers. Premiums for Workers' Compensation
are paid by employers. These premiums account for 12% of government revenues. These premiums are not considered to be taxes because they create entitlements for employees to receive payments from the programs, unlike taxes, which are used to fund government activities. The funds collected by the Canada Pension Plan and by the Employment Insurance are in theory separated from the general fund. It should be noted that Unemployment Insurance was renamed to Employment Insurance to reflect the increased scope of the plan from its original intended purpose.
Employment Insurance is unlike private insurance because the individual's yearly income impacts the received benefit. Unlike private insurance, the benefits are treated as taxable earnings and if the individual had a mid to high income for the year, they could have to repay up to the full benefit received.
Quebec also requires residents to obtain prescription insurance. When an individual does not have insurance, they must pay an income-derived premium. As these are income related, they are considered to be a tax on income under the law in Canada.
Other provinces, such as British Columbia, charge premiums collected outside of the tax system for the provincial medicare systems. These are usually reduced or eliminated for low-income people.
Alberta does not levy a premium for its provincial medicare.
repealed Canada's inheritance tax
in 1972, estates have been treated as sales (a "deemed disposition") upon death, except where the estate is inherited by a surviving spouse or common law partner. Tax owing is paid by the estate, and not by the beneficiaries. Registered Retirement Savings Plan
s and Registered Retirement Income Fund
s are wound down, and the assets distributed to beneficiaries are treated as withdrawals, i.e., they are taxed as part of the income of the estate at the normal applicable personal income tax rates with no reduction for capital gains. Non-registered capital assets are treated as having been sold, and are taxed at the applicable capital gains tax rates. Interest or other income from non-registered non-capital assets that is accrued up to the date of death is taxed on the final tax return
of the deceased as the normal tax rates, and is not included on the tax return of the estate.
Organisation for Economic Co-operation and Development
The Organisation for Economic Co-operation and Development is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade...
(OECD) countries.
Administration
Federal taxes are collected by the Canada Revenue AgencyCanada Revenue Agency
The Canada Revenue Agency is a federal agency that administers tax laws for the Government of Canada and for most provinces and territories, international trade legislation, and various social and economic benefit and incentive programs delivered through the tax system...
(CRA), formerly known as "Revenue Canada" or the "Canada Customs and Revenue Agency".
Under "Tax Collection Agreements", CRA collects and remits to the provinces:
- Provincial personal income taxes on behalf of all provinces except Quebec, so that individuals outside of Quebec file only one set of tax forms each year for their federal and provincial income taxes.
- Corporate taxes on behalf of all provinces except Quebec and Alberta.
The Ministère du revenu du Québec collects the GST in Quebec on behalf of the federal government, and remits it to Ottawa.
The provincial governments of British Columbia, Nova Scotia, New Brunswick, Newfoundland and Labrador, and Ontario no longer impose a separate provincial sales tax and in those provinces the federal government collects goods and services tax at a rate higher than in the other provinces. The additional revenue from this Harmonized Sales Tax
Harmonized Sales Tax
The Harmonized Sales Tax is the name used in Canada to describe the combination of the federal Goods and Services Tax and the regional Provincial Sales Tax into a single value added sales tax in five of the ten Canadian provinces: Ontario, New Brunswick, Newfoundland and Labrador, British...
is paid by the federal government to the five harmonizing provinces.
History
When the Canadian federation was formed in 1867, section 91(3)of the British North America Act attempted to create a federal government with virtually unlimited revenue gathering abilities. The federal government was entrusted with the high cost programs of the time, most notably defence and the building of railways. The provinces were given limited taxation power as they could only impose direct taxation such as property taxes and income taxes (although they also maintained control over most resource revenues as well). At the time, it was believed that the provinces had adequate revenue sources as major areas of provincial government spending today were generally not funded by the government (such as social assistance and medical care).For the early part of Canadian history most federal government revenue came from tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
s on trade with excise taxes making up the rest of the government's funding. The largest source of provincial funding was licenses, permits, and transfers of funds from the federal government. The first corporate taxes were introduced at the end of the nineteenth century.
A crisis developed during the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
because the provinces were responsible for skyrocketing welfare costs, but could not raise enough revenue since the taxes permitted to the provinces were so dependent on the health of the economy. The federal government still had considerable revenues, however, which resulted in a system of transfer payments between the two levels of government. The transfer payments are still in place today.
The First World War
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
had mostly been financed by traditional means, but in 1917, a tax on income was introduced as a temporary measure to fund the war. The income tax has since become a permanent feature of the Canadian tax system. The Second World War
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
led to dramatic change in the tax system. The percentage of Canadian government revenue from indirect taxes fell from 90% in 1913 to less than 40% by 1946. Instead, Canadians began to pay income taxes and direct taxes has since provided the greatest bulk of government funding.
Personal income taxes
Both the federal and provincial governments have imposed income taxIncome tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
es on individuals, and these are the most significant sources of revenue for those levels of government accounting for over 40% of tax revenue. The federal government charges the bulk of income taxes with the provinces charging a somewhat lower percentage, except in Quebec. Income taxes throughout Canada are progressive with the high income residents paying a higher percentage than the low income residents. However, a study conducted by Canadian Centre for Policy Alternatives
Canadian Centre for Policy Alternatives
The Canadian Centre for Policy Alternatives is an independent, non-partisan, policy research institute in Canada that leans to the political left. It concentrates on economic policy, international trade, environmental justice and social policy. It is especially known for publishing an alternative...
, and released on November 8, 2007, found that the richest pay the lowest rates of all income groups.
Where income is earned in the form of a capital gain
Capital gain
A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price. It is the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the investor...
, only half of the gain is included in income for tax purposes; the other half is not taxed.
Federal and provincial income tax rates are shown at Canada Revenue Agency's website.
Personal income tax can be deferred in a Registered Retirement Savings Plan
Registered Retirement Savings Plan
A Registered Retirement Savings Plan or RRSP is a type of Canadian account for holding savings and investment assets. Introduced in 1957, the RRSP's purpose is to promote savings for retirement by employees. It must comply with a variety of restrictions stipulated in the Canadian Income Tax Act...
(RRSP) and tax sheltered savings accounts (which may include mutual funds and other financial instruments) that are intended to help individuals save for their retirement.
Corporate taxes
Companies and corporations pay tax on profit income and on capitalCapital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
. These make up a relatively small portion of total tax revenue. Tax is paid on corporate income at the corporate level before it is distributed to individual shareholders as dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s. A tax credit is provided to individuals who receive dividend to reflect the tax paid at the corporate level. This credit does not eliminate double taxation of this income completely, however, resulting in a higher level of tax on dividend income than other types of income. (Where income is earned in the form of a capital gain
Capital gain
A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price. It is the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the investor...
, only half of the gain is included in income for tax purposes; the other half is not taxed.) Corporations may deduct the cost of capital following capital cost allowance
Capital Cost Allowance
Capital Cost Allowance is effectively the means by which Canadian businesses may claim depreciation expense. Depreciable items are deemed to belong to different classes which depreciate at different rates and are subject to different rules...
regulations.
Starting in 2002, several large companies converted into "income trusts" in order to reduce or eliminate their income tax payments, making the trust sector the fastest-growing in Canada . Conversions were largely halted on October 31, 2006, when Finance Minister Jim Flaherty
Jim Flaherty
James Michael "Jim" Flaherty, PC, MP is Canada's Minister of Finance and he has also served as Ontario's Minister of Finance. From 1995 until 2005, he was the Member of Provincial Parliament for Whitby—Ajax, and a member of the Progressive Conservative Party caucus...
announced that new income trusts would be subject to a tax system similar to that of corporations, and that these rules would apply to existing income trusts after 2011.
Capital Tax is a tax charged on a corporation's taxable capital. Taxable capital is the amount determined under Part 1.3 of the Income Tax Act (Canada) plus accumulated other comprehensive income.
Effective January 1, 2006, capital tax was eliminated at the Federal level, however some Provinces continued to charge corporate capital taxes. In Ontario the corporate capital tax was eliminated July 1, 2010, though it was eliminated effective January 1, 2007, for Ontario corporations primarily engaged in manufacturing or resource activities. In British Columbia the corporate capital tax was eliminated as of April 1, 2010.
Sales taxes
The federal government levies a multi-stage sales tax of 5% (6% prior to January 1, 2008, and 7% before July 1, 2006), that is called the Goods and Services TaxGoods and Services Tax (Canada)
The Goods and Services Tax is a multi-level value added tax introduced in Canada on January 1, 1991, by then Prime Minister Brian Mulroney and his finance minister Michael Wilson. The GST replaced a hidden 13.5% Manufacturers' Sales Tax ; Mulroney claimed the GST was implemented because the MST...
(GST), and, in some provinces, the Harmonized Sales Tax
Harmonized Sales Tax
The Harmonized Sales Tax is the name used in Canada to describe the combination of the federal Goods and Services Tax and the regional Provincial Sales Tax into a single value added sales tax in five of the ten Canadian provinces: Ontario, New Brunswick, Newfoundland and Labrador, British...
(HST). The GST/HST is a value-added tax.
All provincial governments except Alberta
Alberta
Alberta is a province of Canada. It had an estimated population of 3.7 million in 2010 making it the most populous of Canada's three prairie provinces...
levy sales taxes as well. The provincial sales taxes for the provinces of British Columbia
British Columbia
British Columbia is the westernmost of Canada's provinces and is known for its natural beauty, as reflected in its Latin motto, Splendor sine occasu . Its name was chosen by Queen Victoria in 1858...
, Nova Scotia
Nova Scotia
Nova Scotia is one of Canada's three Maritime provinces and is the most populous province in Atlantic Canada. The name of the province is Latin for "New Scotland," but "Nova Scotia" is the recognized, English-language name of the province. The provincial capital is Halifax. Nova Scotia is the...
, New Brunswick
New Brunswick
New Brunswick is one of Canada's three Maritime provinces and is the only province in the federation that is constitutionally bilingual . The provincial capital is Fredericton and Saint John is the most populous city. Greater Moncton is the largest Census Metropolitan Area...
, Newfoundland and Labrador
Newfoundland and Labrador
Newfoundland and Labrador is the easternmost province of Canada. Situated in the country's Atlantic region, it incorporates the island of Newfoundland and mainland Labrador with a combined area of . As of April 2011, the province's estimated population is 508,400...
, and Ontario
Ontario
Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....
are harmonized with the GST, that is they have a combined tax instead of separate GST and PST. The provinces of Quebec
Quebec
Quebec or is a province in east-central Canada. It is the only Canadian province with a predominantly French-speaking population and the only one whose sole official language is French at the provincial level....
and Prince Edward Island
Prince Edward Island
Prince Edward Island is a Canadian province consisting of an island of the same name, as well as other islands. The maritime province is the smallest in the nation in both land area and population...
apply provincial sales tax to the sum of price and GST. The territories of Nunavut
Nunavut
Nunavut is the largest and newest federal territory of Canada; it was separated officially from the Northwest Territories on April 1, 1999, via the Nunavut Act and the Nunavut Land Claims Agreement Act, though the actual boundaries had been established in 1993...
, Yukon
Yukon
Yukon is the westernmost and smallest of Canada's three federal territories. It was named after the Yukon River. The word Yukon means "Great River" in Gwich’in....
and Northwest Territories
Northwest Territories
The Northwest Territories is a federal territory of Canada.Located in northern Canada, the territory borders Canada's two other territories, Yukon to the west and Nunavut to the east, and three provinces: British Columbia to the southwest, and Alberta and Saskatchewan to the south...
charge GST only.
Provincial and federal sales tax rates at the retail level on goods and some services are as follows:
| Province | HST | GST | PST | Total Tax |
|---|---|---|---|---|
| Alberta Alberta Alberta is a province of Canada. It had an estimated population of 3.7 million in 2010 making it the most populous of Canada's three prairie provinces... |
5% | 5% | ||
| British Columbia British Columbia British Columbia is the westernmost of Canada's provinces and is known for its natural beauty, as reflected in its Latin motto, Splendor sine occasu . Its name was chosen by Queen Victoria in 1858... |
12%In British Columbia and Ontario, the PST and GST was integrated into a federally-administered HST on July 1, 2010. However, a public referendum has now overturned the HST, and BC will transition to the previous system. http://www.cbc.ca/news/politics/story/2011/08/26/bc-hst-referendum-results.html | 12% | ||
| Manitoba Manitoba Manitoba is a Canadian prairie province with an area of . The province has over 110,000 lakes and has a largely continental climate because of its flat topography. Agriculture, mostly concentrated in the fertile southern and western parts of the province, is vital to the province's economy; other... |
5% | 7% | 12% | |
| New Brunswick New Brunswick New Brunswick is one of Canada's three Maritime provinces and is the only province in the federation that is constitutionally bilingual . The provincial capital is Fredericton and Saint John is the most populous city. Greater Moncton is the largest Census Metropolitan Area... |
13% | 13% | ||
| Newfoundland and Labrador Newfoundland and Labrador Newfoundland and Labrador is the easternmost province of Canada. Situated in the country's Atlantic region, it incorporates the island of Newfoundland and mainland Labrador with a combined area of . As of April 2011, the province's estimated population is 508,400... |
13% | 13% | ||
| Nova Scotia Nova Scotia Nova Scotia is one of Canada's three Maritime provinces and is the most populous province in Atlantic Canada. The name of the province is Latin for "New Scotland," but "Nova Scotia" is the recognized, English-language name of the province. The provincial capital is Halifax. Nova Scotia is the... |
15%In Nova Scotia, the HST was increased to 15% on July 1, 2010. | 15% | ||
| Ontario Ontario Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa.... |
13% | 13% | ||
| Prince Edward Island Prince Edward Island Prince Edward Island is a Canadian province consisting of an island of the same name, as well as other islands. The maritime province is the smallest in the nation in both land area and population... |
5% | 10% | 15.5%In Québec and PEI, PST is calculated on the total price including GST.Since the GST is applied first, then the PST to the subsequent amount, the GST is also being taxed. This results in a tax being taxed which calculates to more than the Total Tax amount indicated in the table above, depending on the amount being taxed. | |
| Québec Quebec Quebec or is a province in east-central Canada. It is the only Canadian province with a predominantly French-speaking population and the only one whose sole official language is French at the provincial level.... |
5% | 8.5%In Québec the PST was increased to 8.5% on 1 January 2011 and will increase to 9.5% on January 1, 2012. | 13.925% | |
| Saskatchewan Saskatchewan Saskatchewan is a prairie province in Canada, which has an area of . Saskatchewan is bordered on the west by Alberta, on the north by the Northwest Territories, on the east by Manitoba, and on the south by the U.S. states of Montana and North Dakota.... |
5% | 5% | 10% |
Property taxes
The municipal level of government is funded largely by property taxProperty tax
A property tax is an ad valorem levy on the value of property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state or a municipality...
es on residential, industrial and commercial properties. These account for about ten percent of total taxation in Canada.
Excise taxes
Both the federal and provincial governments impose excise taxes on inelasticElasticity (economics)
In economics, elasticity is the measurement of how changing one economic variable affects others. For example:* "If I lower the price of my product, how much more will I sell?"* "If I raise the price, how much less will I sell?"...
goods such as cigarette
Cigarette
A cigarette is a small roll of finely cut tobacco leaves wrapped in a cylinder of thin paper for smoking. The cigarette is ignited at one end and allowed to smoulder; its smoke is inhaled from the other end, which is held in or to the mouth and in some cases a cigarette holder may be used as well...
s, gasoline
Gasoline
Gasoline , or petrol , is a toxic, translucent, petroleum-derived liquid that is primarily used as a fuel in internal combustion engines. It consists mostly of organic compounds obtained by the fractional distillation of petroleum, enhanced with a variety of additives. Some gasolines also contain...
, alcohol
Alcohol
In chemistry, an alcohol is an organic compound in which the hydroxy functional group is bound to a carbon atom. In particular, this carbon center should be saturated, having single bonds to three other atoms....
, and for vehicle air conditioners. A great bulk of the retail price of cigarettes and alcohol are excise taxes. The vehicle air conditioner tax is currently set at $100 per air conditioning unit. Canada has some of the highest rates of taxes on cigarettes and alcohol in the world. These are sometimes referred to as sin tax
Sin tax
A sin tax is a kind of sumptuary tax: a tax specifically levied on certain generally socially proscribed goods and services. These goods are usually alcohol and tobacco, but also include candies, soft drinks, fat foods and coffee, while services range from prostitution to...
es.
Payroll taxes
Ontario levies a payroll tax on employers, the "Employer Health Tax", of 1.95% of payroll. Eligible employers are exempt on the first $400,000 of payroll. This tax was designed to replace revenues lost when health insurance premiums, which were often paid by employers for their employees, were eliminated in 1989.Quebec levies a similar tax called the "Health Services Fund". For those who are employees, the amount is paid by employers as part of payroll. For those who are not employees such as pensioners and self-employed individuals, the amount is paid by the taxpayer.
Premiums for the Employment Insurance system and the Canada Pension Plan
Canada Pension Plan
The Canada Pension Plan is a contributory, earnings-related social insurance program. It forms one of the two major components of Canada's public retirement income system, the other component being Old Age Security...
are paid by employees and employers. Premiums for Workers' Compensation
Workers' compensation
Workers' compensation is a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence...
are paid by employers. These premiums account for 12% of government revenues. These premiums are not considered to be taxes because they create entitlements for employees to receive payments from the programs, unlike taxes, which are used to fund government activities. The funds collected by the Canada Pension Plan and by the Employment Insurance are in theory separated from the general fund. It should be noted that Unemployment Insurance was renamed to Employment Insurance to reflect the increased scope of the plan from its original intended purpose.
Employment Insurance is unlike private insurance because the individual's yearly income impacts the received benefit. Unlike private insurance, the benefits are treated as taxable earnings and if the individual had a mid to high income for the year, they could have to repay up to the full benefit received.
Health and Prescription Insurance Tax
Ontario charges a tax on income for the health system. These amounts are collected through the income tax system, and do not determine eligibility for public health care. The Ontario Health Premium is an additional amount charged on an individual's income tax that ranges from $300 for people with $20,000 of taxable income to $900 for high income earners. Individuals with less than $20,000 in taxable income are exempt.Quebec also requires residents to obtain prescription insurance. When an individual does not have insurance, they must pay an income-derived premium. As these are income related, they are considered to be a tax on income under the law in Canada.
Other provinces, such as British Columbia, charge premiums collected outside of the tax system for the provincial medicare systems. These are usually reduced or eliminated for low-income people.
Alberta does not levy a premium for its provincial medicare.
Estate tax
Since the government of Pierre TrudeauPierre Trudeau
Joseph Philippe Pierre Yves Elliott Trudeau, , usually known as Pierre Trudeau or Pierre Elliott Trudeau, was the 15th Prime Minister of Canada from April 20, 1968 to June 4, 1979, and again from March 3, 1980 to June 30, 1984.Trudeau began his political career campaigning for socialist ideals,...
repealed Canada's inheritance tax
Inheritance tax
An inheritance tax or estate tax is a levy paid by a person who inherits money or property or a tax on the estate of a person who has died...
in 1972, estates have been treated as sales (a "deemed disposition") upon death, except where the estate is inherited by a surviving spouse or common law partner. Tax owing is paid by the estate, and not by the beneficiaries. Registered Retirement Savings Plan
Registered Retirement Savings Plan
A Registered Retirement Savings Plan or RRSP is a type of Canadian account for holding savings and investment assets. Introduced in 1957, the RRSP's purpose is to promote savings for retirement by employees. It must comply with a variety of restrictions stipulated in the Canadian Income Tax Act...
s and Registered Retirement Income Fund
Registered Retirement Income Fund
A Registered Retirement Income Fund or RRIF is a tax-deferred retirement plan under Canadian tax law. Individuals use an RRIF to generate income from the savings accumulated under their Registered Retirement Savings Plan...
s are wound down, and the assets distributed to beneficiaries are treated as withdrawals, i.e., they are taxed as part of the income of the estate at the normal applicable personal income tax rates with no reduction for capital gains. Non-registered capital assets are treated as having been sold, and are taxed at the applicable capital gains tax rates. Interest or other income from non-registered non-capital assets that is accrued up to the date of death is taxed on the final tax return
Tax return (Canada)
Normally, Canadian Individual tax returns for any specific year must be filedby April 30 of the following year. There is no provision for generally extending this deadline, but there are a few exceptions....
of the deceased as the normal tax rates, and is not included on the tax return of the estate.
International taxation
Canadian residents and corporations pay income taxes based on their world-wide income. Canadians are protected against double taxation receiving income from certain countries which gave agreements with Canada through the foreign tax credit, which allows taxpayers to deduct from their Canadian income tax otherwise payable from the income tax paid in other countries. A citizen who is currently not a resident of Canada may petition the CRA to change her or his status so that income from outside Canada is not taxed.International comparison (personal income tax)
| Comparison of taxes paid by a household earning the country's average wage (as of 2005), including social security contributions paid by employer | ||||||
|---|---|---|---|---|---|---|
| Country | Single no children |
Married 2 children |
Country | Single no children |
Married 2 children |
|
| Australia | 28.3% | 16.0% | Korea | 17.3% | 15.2% | |
| Austria | 47.4% | 35.5% | Luxembourg | 35.3% | 12.2% | |
| Belgium | 55.4% | 40.3% | Mexico | 18.2% | 18.2% | |
| Canada | 31.6% | 21.5% | Netherlands | 38.6% | 29.1% | |
| Czech Republic | 43.8% | 27.1% | New Zealand | 20.5% | 14.5% | |
| Denmark | 41.4% | 29.6% | Norway | 37.3% | 29.6% | |
| Finland | 44.6% | 38.4% | Poland | 43.6% | 42.1% | |
| France | 50.1% | 41.7% | Portugal | 36.2% | 26.6% | |
| Germany | 51.8% | 35.7% | Slovakia | 38.3% | 23.2% | |
| Greece | 38.8% | 39.2% | Spain | 39.0% | 33.4% | |
| Hungary | 50.5% | 39.9% | Sweden | 47.9% | 42.4% | |
| Iceland | 29.0% | 11.0% | Switzerland | 29.5% | 18.6% | |
| Ireland | 25.7% | 8.1% | Turkey | 42.7% | 42.7% | |
| Italy | 45.4% | 35.2% | United Kingdom | 33.5% | 27.1% | |
| Japan | 27.7% | 24.9% | United States | 29.1% | 11.9% | |
| Source: OECD, 2005 data http://replay.waybackmachine.org/20090301062001/http://moneycentral.msn.com/content/Taxes/P148855.asp | ||||||
See also
- Deposit Interest Retention TaxDeposit Interest Retention TaxDeposit Interest Retention Tax is a form of tax on interest earned on bank accounts in Republic of Ireland that was first introduced in the 1980s. In Ireland, income from any source is reckonable for taxation purposes...
- Dividend taxDividend taxA dividend tax is an income tax on dividend payments to the stockholders of a company.-Collection:In many jurisdictions, the government requires the company to withhold at least the standard tax, paying this to the national revenue authorities and paying out only the balance to the...
- Fiscal neutrality
- Goods and Services Tax (Canada)Goods and Services Tax (Canada)The Goods and Services Tax is a multi-level value added tax introduced in Canada on January 1, 1991, by then Prime Minister Brian Mulroney and his finance minister Michael Wilson. The GST replaced a hidden 13.5% Manufacturers' Sales Tax ; Mulroney claimed the GST was implemented because the MST...
(GST) - International taxationInternational taxationInternational taxation is the study or determination of tax on a person or business subject to the tax laws of different countries or the international aspects of an individual country's tax laws. Governments usually limit the scope of their income taxation in some manner territorially or provide...
- Laffer curveLaffer curveIn economics, the Laffer curve is a theoretical representation of the relationship between government revenue raised by taxation and all possible rates of taxation. It is used to illustrate the concept of taxable income elasticity . The curve is constructed by thought experiment...
and the optimal tax rate argument - Registered Retirement Savings PlanRegistered Retirement Savings PlanA Registered Retirement Savings Plan or RRSP is a type of Canadian account for holding savings and investment assets. Introduced in 1957, the RRSP's purpose is to promote savings for retirement by employees. It must comply with a variety of restrictions stipulated in the Canadian Income Tax Act...
(RRSP) - Revenue On-Line ServiceRevenue On-Line ServiceThe Revenue On-Line Service , is a pioneer in European internet applications, and it is run by Revenue in the Republic of Ireland. The ROS system allows companies and other business concerns who are liable for tax in the Republic of Ireland to file certain Tax Returns online using a Secure Site...
- Surrogatum PrincipleSurrogatumSurrogatum is a thing put in the place of another or a substitute. The Surrogatum Principle pertains to a Canadian income tax principle involving a person who suffers harm caused by another and may seek compensation for loss of income, expenses incurred, property destroyed, or personal injury,...
- Tax incidenceTax incidenceIn economics, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. Tax incidence is said to "fall" upon the group that, at the end of the day, bears the burden of the tax...
- Tax avoidance/evasion
- Tax resistanceTax resistanceTax resistance is the refusal to pay tax because of opposition to the government that is imposing the tax or to government policy.Tax resistance is a form of civil disobedience and direct action...
- Tax havenTax havenA tax haven is a state or a country or territory where certain taxes are levied at a low rate or not at all while offering due process, good governance and a low corruption rate....
- Tax lawTax lawTax law is the codified system of laws that describes government levies on economic transactions, commonly called taxes.-Major issues:Primary taxation issues facing the governments world over include;* taxes on income and wealth...
External links
- Excise Tax Act
- The Department of Finance, Canada - responsible for Canadian tax policy
- Canada Revenue Agency - administers tax law for the federal and most provincial governments
- Amounts that are not taxed - Sources of income that are not subject to taxes in Canada.
- Canadian sales tax calculator - Sales tax calculator for Canadians.