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TAXATION SYSTEM IN CANADA
Taxes Quiz
Check your answers below.
1. Easy Question:
All provinces and territories charge the same amount of sales tax.
a) True b) False
2. Easy Question:
Provincial sales tax in Alberta is…
a) 0% b) 5% c) 8%
3. More Difficult:
How much federal income tax would you pay if you earn between $11,809 and $46,605 annually?
a) 5% b) 10% c) 15%
4. More Difficult:
In Ontario, you don’t need to pay sales tax on
a) books b) children’s clothing and footwear c) children’s diapers d) some food e) all of the above
5. Difficult:
If your income is around $40,000, you will pay about __________ in income tax.
a) $3,000 b) $4,500 c) $6,000 d) $8,000
6. Difficult:
If you salary is $40,000 per year, your net pay after taxes and CPP and EI deductions will be around ________ in Ontario.
a) $32,000 b) $34,000 c) $36,000
Check your answers below.
Taxes in Canada
Most new immigrants to Canada struggle to understand the Canadian taxation system. Below is an easy explanation of the Sales Taxes and Income Taxes you will have to pay in your new home country as an individual.
1. Sales Taxes in Canada
In most provinces you will have to pay two types of sales taxes: GST and PST.
GST stands for Goods and Services Tax and it is collected by the federal government.
PST stands for Provincial Sales Tax and it is collected by provincial and territorial governments.
Some provinces combine GST and PST together and use the term HST (Harmonized Sales Tax).
Below is the list of provinces and territories and their taxes (2018):
| PROVINCE | PROVINCIAL | FEDERAL | TOTAL |
|---|---|---|---|
| Ontario | 8% | 5% | 13% |
| British Columbia | 7% | 5% | 12% |
| Alberta | 0% | 5% | 5% |
| Saskatchewan | 6% | 5% | 11% |
| Quebec | 9.975% | 5% | 14.975% |
| Yukon | 0% | 5% | 5% |
| Nunavut | 0% | 5% | 5% |
| Northwest Territories | 0% | 5% | 5% |
| Nova Scotia | 10% | 5% | 15% |
| Manitoba | 8% | 5% | 13% |
| New Brunswick | 10% | 5% | 15% |
| Prince Edward Island | 10% | 5% | 15% |
| Newfoundland and Labrador | 10% | 5% | 15% |
As you can see, GST collected by federal government is always 5%. The province of Alberta is the only province that doesn’t collect sales tax. All three territories don’t collect the sales tax either. In fact, they receive additional tax breaks because of the high cost of living in the north.
In Ontario, you don’t need to pay sales tax on books, children’s clothing and footwear, children’s car seats and car booster seats, diapers, feminine hygiene products, qualifying food and beverages, and newspapers.
2. Income Taxes
Income taxes are collected by both federal and provincial governments. They depend on how much money you are earning. The more you earn, the more taxes you will have to pay. This is called Progressive Tax System.
Let’s look at federal taxes first.
| Your Income | Federal Income Tax |
|---|---|
| $0 – $11, 809 | 0% |
| $11,809 – $46,605 | 15% |
| $46,605 – $93,208 | 20.5% |
| $93,208 – $144,489 | 26% |
| $144,489 – $205,842 | 29% |
| $205,842 – more | 33% |
To give an example, if your income is around $40,000, you will pay about $6,000 in income tax.
_________
Now, let’s look at Provincial Income Taxes. Every province is different so you will need to research the income tax rates for the place you’re immigrating to. Here is an example of how it works in Ontario.
| Your Income | Provincial Income Tax (Ontario) |
|---|---|
| $0 – $10,354 | 0% |
| $10,354 – $42,960 | 5.05% |
| $42,960 – $85,923 | 9.15% |
| $85,923 – $150,000 | 11.16% |
| $150,000 – $220,000 | 12.16% |
| $220,000 – more | 13.16% |
How to reduce your income tax
You can reduce the amount of income tax you pay in the following ways:
RRSP
Open an RRSP account in a bank and contribute to it every year. The money will be sheltered from taxes until your retirement but when you withdraw that money from your account, you will still need to pay taxes on them. RRSP is a good idea if you have high income. If your income is below $40,000, you will not benefit from RRSP as much.
Child Expenses
You can claim expenses for a nanny, daycare and more. Talk to your accountant to see which expenses you can claim.
Marriage
If you are married, you might be able to do income splitting and spousal RRSP. If you own your business, you can hire your spouse and your children as your employees.
Charity
Donating to charity is another way to reduce your taxes. The money you donate will not be taxed. However, this only works if it’s a registered charity and they are able to give you a tax receipt.
To learn about more ways to lessen your income taxes, talk to your accountant. You can also find relevant information online and read books on Canadian taxes.
Deadline for submitting your income tax is April 30 every year.
Other Deductions from your Pay Cheque
Other deductions include but are not limited to CPP (Canada Pension Plan) and EI (Employment Insurance). For example, if you salary is $40,000 per year, your net pay after taxes and CPP and EI deductions will be around $32,000 in Ontario.
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