Taxpayers are essential to the proper operation of the Canadian government. The individual income tax is one of the pillars of the Canadian revenue system. While taxes in Canada are relatively high compared to other countries, Canadians’ wide array of services in exchange for their tax dollars makes the tradeoff worthwhile.
Wasseem Dirani, a financial professional from Hamilton, Ontario, explains how the Canadian government collects individual and corporate taxes and uses them to promote the common good.
How Does the Canadian Government’s Revenue Break Down?
Canada collects taxes at the federal, provincial, and local levels. Each tax is important to the proper functioning of the government. When breaking down the Canadian government’s overall revenue sources, the personal income tax accounts for 50 percent of its total funding. The corporate income tax accounts for 15 percent. Non-resident income tax covers 2.8 percent and the GST sales tax accounts for 11.2 percent of government revenues. It is clear that the individual Canadian taxpayer is the backbone of the government.
What Types of Tax Does the Canadian Government Collect?
The following are the major types of taxes collected by the federal, provincial, and local governments in Canada as stated by Wasseem Dirani:
Personal Income Tax
As stated above, the largest portion of the Canadian government revenue comes from the personal income tax. The Canadian tax system is a progressive system where high-income taxpayers pay a higher percentage of their income than lower-income taxpayers.
The tax is paid in a progressive system where each level of income is taxed separately. The lowest level of income ($49,020 and below) is taxed at 15 percent. The highest level of income ($216,512 and over) pays 33 percent. Capital gains taxes are charged on half of the gain in income.
Corporate Income Tax
Corporate income tax forms a relatively small part of the Canadian revenue system. Canada requires that corporate taxes be paid before the profits are passed along to shareholders as a dividend. In Canada, firms with operations in more than one country pay Canadian income taxes on their total global income.
Payroll taxes provide an important source of support for the Canadian worker. Many worker support programs like pension plans and unemployment insurance are paid by these taxes.
At the federal level, the primary payroll taxes are Employment Insurance and the Canada Pension Plan. Every province collects Workers’ Compensation premiums which can help workers injured on the job recover part of their income.
Several provinces also collect their pension, insurance, and health tax funds. In Quebec, employers pay into the Quebec Parental Insurance Plan, the Quebec Pension Plan, the Compensation Tax, and the Workforce Skills Development and Recognition Fund. In British Columbia, employers must pay an Employers’ Health Tax.
Sales tax in Canada varies a great deal by province, notes Wasseem Dirani. The federal government collects a tax of 5 percent on all goods and many services. Several provinces charge a Harmonized Sales Tax. Taxes range from the federal sales tax only in Alberta (5 percent) to a high of 15 percent in New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador.
Provincial governments and the federal government charge excise taxes. Some of the items taxed under excise taxes include vehicle air conditioners, cigarettes, alcohol, and gasoline. Canada charges one of the highest excise taxes globally on alcohol and tobacco. The logic behind this tax is that it is thought to reduce the healthcare expenditures of the Canadian government.