Taxation in Canada

The level of taxation in Canada is higher than in United States, but among Organization for Economics Co-operation and Development countries, it is average.

Approximately 70% of the Canadian Government’s income comes from taxation.

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The most significant source of revenue for the government comes from the income tax. High income residents normally pay high percentage of income tax than the low income residents.

Companies and corporations pay tax on profit income and capital. Before distributing tax to shareholders as dividends, tax is paid on corporate income at corporate level. The individual receives a tax credit to reflect the tax paid at the corporate level.

Several large companies in the year 2002, converted into “income trusts” in order to eliminate or reduce their income tax payments. However, later in 2006, the finance minister announced that new income trusts would be subject to tax system, similar to that of corporations and this rule will be applied to existing income trusts after 2011.

A multi-stage tax of 6% on goods and services is levied by the Federal government, that is called Goods And Service Tax, and in some provinces, the Harmonized Sales Tax. In 2006 there was a proposal to reduce the sales tax to 5% and the HST to 13%.

About 10% of total taxation in Canada comes from Property Tax, from residential, industrial and commercial properties that go to the municipal government.

Ontario levies a payroll tax on employers; the “Employer’s Health Tax”.Qubec leaves a similar tax called the “Health Service Fund”. For employees, the amount is paid by the employer as part of the payroll, and for those who are not employees, like pensioners and self-employed individuals; the amount is paid by the tax payer.

Tax on income for the health system is charged in Ontario, through the income tax system. Quebec also requires residents to obtain prescription insurances.Since 1980 Canada has had no Inheritance Tax.

Canadian individuals and corporations pay income tax based on their world-wide income. They are protected against double taxation through foreign tax credit. A citizen who is currently not a resident of Canada may petition the CRA to change his status so that income from outside Canada is not taxed.

Federal taxes are collected by the ‘Canada Revenue Agency’ {CRA}