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Taxation in Canada

Canada has a comprehensive taxation system in order to pay for the many publicly-funded health and social services that Canadians across the country enjoy. While you may hear talk of the high taxes Canadians pay compared to Americans, Canada actually falls below average in a tax study of OECD countries. So, Canadians are taxed less than their French, German, New Zealand, UK, counterparts and others.

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There are different types of taxes in Canada including income, sales, property, and corporate tax. Income tax in Canada makes up the largest portion of the federal government’s revenue. In fact, it generally funds almost half of the federal government’s budget. Both Corporate tax and Sales tax each account for about fifteen percent of the federal government’s revenue.

Income Tax System

Canadian taxation is based on your residency and runs from January 1st to December 31st. If you are residing in Canada you should file a tax return each year by the deadline of April 30th. You are required to include income earned both inside and outside of Canada.

If you are living outside of Quebec you must file one tax return which will include provincial and federal taxes. If you are living in Quebec you will file two returns separately for federal and provincial taxes.

Similar to other countries, income taxes in Canada are progressive. This means that the more you earn, the more taxes you will pay.

Property Tax System

Property tax is a tax on an asset. If you own a home in Canada, you will need to pay property tax on it. Similar to other tax programs in Canada, the amount you pay will vary by location. Property tax is collected on a local level.

Although no one enjoys paying taxes, property taxes cover several services including water, snow removal, garbage collection, policing, and fire protection.

Corporate Tax System

Corporations in Canada, including non-profits and inactive corporations, pay tax on both profits and on capital. Corporate taxes are levied at the federal level, as well as the provincial level. The corporate tax rate therefore varies not only by the type and size of the corporation, but also by its province of operation.

Sales Tax System

Canadians are also taxed on the consumption of most consumer goods and services. The federal government’s Goods and Services Tax (GST) and provincial governments’ Provincial Sales Tax (PST) are both applied to the majority of goods and services consumed in Canada.

In some provinces, the GST and PST are combined to form a Harmonized Sales Tax (HST). In other provinces, there is no PST. Because both the federal and provincial governments levy sales taxes, the tax rate on any consumer good or service may vary by province.

One thing many people find shocking or confusing when they arrive in Canada for the first time is the price of an item at checkout. This is because in Canada, unlike many other countries, sales tax is usually not included in the advertised price. Depending on the province and type of good or service, consumers can end up paying around five to fifteen percent more than the listed price in taxes.

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