The Taxation System In Canada

Canada has a progressive tax system, which in basic terms means, the more you earn the more tax you are liable to pay.

If you are moving to Canada, it is best that you know how the finance and taxation systems work. In Canada, the government which is federal, provincial and municipal, collect money from Canadians to help run the country in the form of its programs and services. The government uses the money for roads, schools, public utilities, healthcare and economic development for the country. There are various tax types in Canada such as Income Tax, Sales Tax, Property Tax and Business Tax.

Income Tax

If you are working in Canada, the Canada Revenue Agency (CRA) collects income tax from individuals each year. Each year, you will need to complete an income tax return where you must list your finances to calculate how much tax you owe. Income tax is the majority income of the annual revenue collected by the government of Canada. It is also important to keep in mind the fact that you need to keep records of all receipts and expenses incurred, be it your transport pass or tuition fees receipts. This comes in handy when preparing and supporting income reported and to be eligible to claim for deductions from the CRA and provincial governments.

Sales Tax

Sales taxes are levied by the Canadian Government through the following 3 basic types; Goods and Services tax (GST), Provincial Sales Tax (PST), and Harmonized Sales Tax (HST). The GST is levied by the provincial government, on the other hand, the PST being a value-added tax is levied by the federal government, whereas the and commonly used HST is, while also being a value-added tax is a harmonized (as the name suggests) a combination of the PST and GST.

The HST is commonly used in Ontario and four other Atlantic provinces; Prince Edward Islands, Newfoundland, New Brunswick, Nova Scotia and Labrador. As of 2015, the HST rate in Ontario is %13, taxed on any goods and or services purchased at the sales counter. However, in Ontario HST is exempted on restaurant meals under 4 Dollars, be it a dine-in, takeout including fast food or.

Property tax

Usually, property tax laws are complex and often difficult to understand, and Canada’s property tax laws are no exception. To put in simple layman's terms, property tax is levied on property that the owner is required to pay.

With property tax the government goes through a process of appraisal on each property to find the monetary value of that particular property and tax is assessed in proportion to that value. Properties are classed differently and taxed differently too, property classes include; residential, commercial, industrial, and vacant real property.

How much tax do you pay?

The amount of tax you pay will depend on how much income you receive per year minus any deductions and credit. Below is an example of federal tax rates for the year of 2016. Federal tax rates for the 2016 tax year

  • 15% on taxable income up to $45,282
  • 20.5% on taxable income between $45,282 and $90,563
  • 26% on taxable income between $90,563 and $140,388
  • 29% on taxable income between $140,388 and $200,000
  • 33% on taxable income over $200,000

Ontario (provincial) tax rates for the 2016 tax year

  • 5.05% on taxable income up to $41,536
  • 9.15% on taxable income between $41,537 and $83,075
  • 11% on taxable income between $83,076 and $150,000
  • 12.16% on taxable income between $150,001 and $220,000
  • 13.16% on taxable income over $220,000

Income that you are taxed on can be employment income and rental income, as well as the money received from the government. Tax credits and deductions help to lower the amount of tax you need to pay and if you get over taxed you will be refunded and if you do not pay you will need to pay in the difference.