Canadaian Taxation System

Canadian Taxation System

Canadas comprehensive taxation system collects taxes as Goods and Services Tax (GST), Income Tax, and Harmonized Sales Tax (HST). Citizens and companies pay income tax, property tax, corporate tax, sales tax to supplement the federal government’s income.

Income tax contributes almost 50 percent to the federal budget. Taxes are collected by three levels of government, including municipal, territorial and provincial, and federal governments. Canadian citizens receive a broad spectrum of services in return, such as free healthcare, roads, education, and several other facilities.

Being a resident of Canada

Since every Canadian resident must file an annual income tax return, you need to assess whether you are a resident, non-resident, or a deemed resident from the taxation perspective. The Canada Revenue Agency considers an individual a resident if there are sufficient ties in Canada. These may include having:

  • A permanent residence,
  • A driving license showing a Canadian address,
  • Provincial health card
  • Social Insurance Number
  • Dependents or spouse in Canada

The Canadian Revenue Agency may consider an individual who spends a minimum of 183 days a year in Canada to be a resident.

The income tax system in Canada

The income tax system in Canada involves progressive taxes because an individual has to pay more taxes as the income level goes up. You should include your income from 1st January till 31st December by considering all sources within and outside Canada for tax computation. The deadline to file tax returns is 30th April. People living in Quebec need to file federal and provincial tax returns separately.

Everyone must file a tax return even if there is no income. By doing taxes, an individual will become eligible to tax benefits like Canada child benefit, GST/ HST tax benefit, and working income tax benefits. Following are the steps to file an income tax return:

  1. Arrange supportive documents
  2. Select the appropriate software for filling out returns online
  3. Intimate the CRA regarding any significant change in life
  4. Reporting your income from all sources
  5. Consider tax credits, deductions, and expenses
  6. Submit tax return to the CRA
  7. Preserve supportive documentation

Canadian sales tax system

Every resident of Canada needs to pay taxes on a majority of consumer goods and services. Federal governments levy these taxes as Goods and Services Taxes. The Canadian taxation system for sales tax exempts the following items from the sales tax:

  • Prescription medicine
  • Health and dental services
  • Child care
  • Rents
  • Basic grocery items

Provincial or territorial governments collect Provincial Sales Taxes (PST). Some provinces merge GST and PST in Harmonized Sales Taxes, while there is no PST in certain Canadian territories. The Canada Revenue Agency (CRA) collects the Harmonized Sales Tax (HST) and remits the respective amounts to provincial governments as applicable. Print prices of consumer goods in Canada do not include all taxes, unlike in other countries. Some northern territories like Nunavut, Yukon, and Northwest territories, are exempt from territorial taxes and HST because of a significantly higher cost of living.

The corporate tax system in Canada

All corporations in Canada irrespective, of inactive or non-profits, must pay taxes on capital and profits. These taxes include federal and provincial taxes. Corporations pay different taxes according to the province of operation.

The property tax system in Canada

Property taxes are local taxes collected by municipal corporations. These taxes cover essential utility services like:

  • Sewage
  • Snow removal
  • Water
  • Fire safety
  • Garbage disposal

Property owners in Canada must pay property tax on their assets. The taxes on properties in Canada vary as per the property location.

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