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Membership Number: R515301 

Amro Hayek, RCIC

Knowing how the taxation system works, both across Canada and in the various provinces and territories, is an important part of settling in Canada successfully.

Federal taxes are collected by the Canada Revenue Agency (CRA). Under tax collection agreements, the CRA collects and remits to the provinces:

provincial personal income taxes on behalf of all provinces except Quebec, through a system of unified tax returns;

corporate taxes on behalf of all provinces except Quebec and Alberta; and

that portion of the Harmonized Sales Tax (HST) that is in excess of the federal Goods and Services Tax (GST) rate, with respect to the provinces that have implemented it.

The Agence du Revenu du Québec collects the GST in Quebec on behalf of the federal government, and remits it to the federal government. 

Both the federal and provincial/territorial governments impose income taxes on individuals. The federal government charges the bulk of income taxes, with the provinces and territories charging a somewhat lower percentage, except in Quebec. Income taxes throughout Canada are typically progressive, with the high income residents paying a higher percentage than the low income residents, though Alberta has a flat-rate provincial income tax.

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.

Canadian employers are required to remit various types of payroll taxes to the different jurisdictions in which they operate. 

Companies and corporations pay tax on profit income and on capital. Tax is paid on corporate income at the corporate level before it is distributed to individual shareholders as dividends. A tax credit is provided to individuals who receive dividend to reflect the tax paid at the corporate level.

Corporate taxes are levied at the federal and provincial/territorial level. Moreover, corportate taxes are levied at varying rates depening on the size and/or type of business. In Alberta, for example, the combined federal/provincial corporate income tax rate is 25% for general businesses and 14% for small businesses.

Canada's corporate tax rate is viewed internationally as competitive and business-friendly; businesses in Canada generally pay a lower rate of corporate tax than businesses operating in the United States.

The federal government levies a value-added tax of 5%, called the Goods and Services Tax (GST), and, in five provinces, the Harmonized Sales Tax (HST). The HST is a combination of the GST and Provincial Sales Taxes (PST).

The provinces of British Columbia, Saskatchewan and Manitoba levy a retail sales tax, and Quebec levies its own value-added tax, which is called the Quebec Sales Tax. The province of Alberta and the territories of Nunavut, Yukon and Northwest Territories do not levy sales taxes of their own.

For many newcomers to Canada, the method of applying consumption/sales taxes at the point of sale can appear confusing. For example, an individual may enter a retail store in Ontario and wish to purchase an item that is priced at $10.00. When he or she pays for the item, the invoice total after taxes have been added will be $11.30; this is the total amount that he or she will pay for the item.

An excise tax (sometimes called a special excise duty) is an inland tax on the sale, or production for sale, of specific goods or a tax on a good produced for sale, or sold, within a country or licenses for specific activities.

Both the federal and provincial/territorial governments impose excise taxes on certain items such as cigarettes, gasoline (petrol), alcohol, and vehicle air conditioners. A great bulk of the retail price of cigarettes and alcohol, for example, are excise taxes. Canada has some of the highest rates of taxes on cigarettes and alcohol in the world. It is generally accepted that higher prices deter consumption of these items, which have been deemed to increase public health care costs stemming from those who use them. Excise taxes are seen as both a deterrent from initial consumption and as a means for the government(s) to pay for the public costs of individuals' consumption of these goods.


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