Types of Taxes in Canada: A Comprehensive Guide for 2020

Canada, like many countries, has a complex tax system with various types of taxes that citizens and businesses must pay. Understanding the different taxes can be overwhelming, but we break down the most common ones here based on the details available in 2020.

Federal Taxes in Canada

Canada's federal tax system primarily includes Income Tax and the Goods and Services Tax (GST).

Income Tax

The Income Tax in Canada is levied on an annual basis and is based on the individual's or entity's earnings, profits, and capital gains. The Canadian government imposes a progressive tax system, which means that individuals pay a higher percentage of their income as taxes, the more they earn. The tax rates vary based on the taxpayer's income bracket. For the 2020 tax year, the following federal income tax brackets were in effect:

Income BracketTax Rates $0 - $47,630 15% $47,631 - $95,260 20.5% $95,261 - $142,549 26% $142,550 - $190,449 29% $190,450 or more 33%

It is important to note that there are deductions and credits available to reduce the tax burden, which can significantly lower the taxes owed. Common deductions and credits include residential materials, home office expenses, and charitable donations.

Goods and Services Tax (GST)

The Goods and Services Tax (GST) is a value-added tax applied to most goods and services, both domestically and internationally. The GST rate in Canada has been consistently set at 5% from 2010 to 2020, and there is no plan to change it in the near future.

Furthermore, there are several exemptions to the GST, such as basic food items, prescription medications, and essential services. Additionally, there is a harmonized sales tax (HST) in some provinces, which combines provincial and federal taxes into a single rate. The combined HST rate varies by province, ranging from 13% (Nova Scotia) to 15% (Ontario).

Provincial Taxes in Canada

In addition to federal taxes, provinces in Canada have their own tax systems, commonly referred to as provincial taxes. These include personal income tax, sales tax, and property tax.

Personal Income Tax

While the federal government levies Income Tax, each province also has its own Income Tax rates. However, in 2020, the federal government and the provinces agreed to a "federally determined" tax system, meaning that provinces could only increase or decrease their rates by a maximum of 1%. This ensures that tax rates are more uniform across the country.

Sales Tax

Some provinces in Canada, such as Ontario and Nova Scotia, have a harmonized sales tax (HST) that combines the provincial sales tax (PST) and the federal GST. The combined rate for HST in these provinces ranges from 10% to 15%. Other provinces, such as Quebec and Saskatchewan, charge a separate provincial sales tax (PST) in addition to the federal GST.

Property Tax

Property tax, also known as municipal tax, is a type of ad valorem tax imposed on real estate. The tax rate varies widely depending on the region and the assessors. In general, property owners in urban areas pay higher property taxes due to the higher assessed value of their homes and greater public services.

Employment and Related Taxes

Employment taxes in Canada include employment insurance premiums and Canada Pension Plan (CPP) and Canada Benefits Premiums (CB). These taxes are taken directly from employees' paychecks and contributed to by employers. In 2020, the employment insurance premiums for employees were 1.88% of insurable earnings, while the mandatory CPP contribution for both employees and employers was 5.65% of insurable earnings.

Other Types of Taxes in Canada

In addition to the taxes described above, there are several other types of taxes in Canada that businesses and individuals may encounter. These include:

Consumption taxes: like the GST and PST, which apply to the sale of goods and services. Property tax (municipal tax): levied on real estate based on its value. Transaction taxes: such as stamp duties on property transfers or legal fees. Status taxes: imposed on certain financially significant activities, such as entering into a lease or agreement for services.

It is important for businesses and individuals to be aware of these taxes and to keep accurate records to ensure compliance and correct tax filings.

Conclusion

Canada's tax system is diverse, incorporating federal and provincial taxes, as well as employment and status taxes. Understanding the various taxes and their impacts is crucial for individuals and businesses. While the system may seem complex, it can be simplified by breaking down the different types of taxes and their rates.

Frequently Asked Questions (FAQs)

What is the GST in Canada?

The Goods and Services Tax (GST) is a value-added tax applied to most goods and services purchased in Canada. As of 2020, the GST rate was 5%.

What are the tax exemptions under GST?

There are several exemptions to the GST, including basic food items, prescription medications, and essential services.

Do provinces in Canada have their own taxes?

Yes, provinces in Canada have their own tax systems, including personal income tax, sales tax, and property tax. Some provinces also have a harmonized sales tax (HST) that combines the provincial sales tax (PST) and the federal GST.

How do federal and provincial taxes interact?

The federal and provincial tax systems in Canada often work together with the federal government setting general guidelines, and provinces implementing their own specific rates. In 2020, there was a "federally determined" tax system, which standardized the personal income tax rates across provinces.

References

For further information on Canadian taxation, visit the Canada Revenue Agency (CRA) website.