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Canadian Income Tax

     Canadian income taxes can be split up into two types: personal income taxes and corporate income taxes. Both of these are governed by the Income Tax Act at the federal level. The provincial and territorial level have their own statutes that apply. Canada's Canadian Revenue Agency (CRA) is the government agency responsible for administering the tax law. Canadian income taxes follow a progressive system whereby higher income Canadians pay higher average tax rates. Below is the tax schedule for federal income taxes in 2013:

  • 15% on the first $43,561 of taxable income, +

  • 22% on the next $43,562 of taxable income (on the portion of taxable income over $43,561 up to $87,123), +

  • 26% on the next $47,931 of taxable income (on the portion of taxable income over $87,123 up to $135,054), +

  • 29% of taxable income over $135,054. (1)

     In the simplest form, income taxes are calculated by first reporting total income and then subtracting the allowed deductions. These deductions can include RRSP contributions, child care expenses, business investment losses, etc. There are also certain types of incomes that are not taxed in Canada such as lottery winnings, strike pay, First Nations' income while on reserve, etc.

     Corporation income taxes include taxes such as goods and services taxes, payroll levies, property taxes, and insurance premium taxes. The net federal corporate income tax rate in Canada is 15%. If a business qualifies as a small business it will only have to pay 11%. Corporations must also pay any relevant provincial taxes on top of that.

 

1. Canadian Revenue Agency. http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html