Tax in Canada: an overview

Taxation is a vast and complex subject, but it is also one of the most important aspects of life in your new country of which you need to be aware. This article aims to provide a general overview of the tax system in Canada.

Who handles tax in Canada?

The Canada Revenue Agency (CRA) is responsible for handling taxation issues for individuals, families, businesses, employers, not-for-profit groups, non-residents and visitors in Canada. Québec, however, has its own income tax system, separate to that of the CRA, which is administered by the Revenu Québec.

Income tax

The federal government and provincial governments all charge a personal income tax in Canada and, as in most countries, taxes vary in relation to the size of a person’s income. Federal government taxes are, in general, a lot higher than what the smaller, provincial governments collect.

You may opt to defer a portion of your personal income tax to a Registered Retirement Savings Plan (RRSP) and/or tax-sheltered savings accounts in order to save for your retirement. If you’re paying income tax you must file a return with the CRA (or Revenu Québec) at the end of each tax year.

Current federal income tax rates in Canada:

  • 15% on the first $40,970 of taxable income
  • 22% on the next $40,971 of taxable income (on the portion of taxable income between $40,726 and $81,452)
  • 26% on the next $45,080 of taxable income (on the portion of taxable income between $81,941 and $127,021
  • 29% on taxable income over $127,021

Sales tax

The Canadian federal government levies a 5% Goods and Services Tax (GST) on most goods and services sold or provided in Canada. General groceries and medication drugs are ‘zero-rated’ and therefore taxable at 0%.

All the provincial governments (except Alberta) also charge a Provincial Sales Tax (PST). Harmonized Sales Tax combines GST and PST and is charged in most provinces.

Corporate tax

Canadian businesses must pay tax on capital and profit income, although corporate tax makes up a small portion of tax revenue in total. GST registration is compulsory for all businesses in Canada.

Property tax

Personal property tax in Canada is also known as millage tax or mill levy. This tax is based on the value of the property and on the property tax rate, both of which are determined by local authorities.