The Canada Revenue Agency (CRA) manages, imposes and collects taxes for the government of Canada. However, most jurisdictions in Canada have three levels of government and each are allowed to impose their own taxes. In addition to paying Canadian federal taxes, most Canadians also pay provincial taxes in the forms of income taxes, sales taxes and municipal property taxes.
Almost every person in Canada who earns income is required to pay federal income tax. Canadian income tax is a progressive tax, meaning that those who earn higher incomes also pay a higher tax rate. For most Canadians, federal income tax is deducted by employers and paid directly to the CRA. As of 2010, Canadians paid 15 percent on taxable income up to $40,970, 22 percent on taxable income between $40,970 and $81,941, 26 percent on taxable income between $81,941 and $127,021 and 29 percent on taxable income higher than $127,021. When filing an annual CRA tax return, Canadians can claim deductions for expenses such as education and medical bills.
Registered corporations in Canada are required to pay tax on their earnings. As of 2010, the net tax rate for Canadian corporations was 18 percent. This rate was scheduled to go down to 16.5 percent in 2011 and 15 percent in 2012. Canadian controlled corporations that are eligible to claim the small business deduction paid a rate of 11 percent. Like individuals, businesses can reduce their tax by claiming deductions such as losses and charitable donations.
Goods and Services Tax
The Goods and Services Tax (GST) is a sales tax that applies to most goods and services that consumers buy in Canada. There are a few products and services, such as medical services, child care and staple food items, to which the GST is not applied. As of 2010, the GST rate was 5 percent. Some provinces combine the GST with their own provincial sales taxes into a Harmonized Sales Tax (HST).
Canadian excise taxes are imposed on goods connected to automobiles and fuel consumption. These taxes are usually hidden inside the price of these goods and consumers usually do not see the tax that they have paid. As of 2010, excise tax on regular gasoline for cars was 10 cents per liter and four cents per liter for diesel fuel. Vehicles with a fuel consumption rating of more than 13 liters per 100 kilometers are also subject to excise taxes ranging from $1000 to $4000.
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