Income Taxes in Canada

8/8/2019 Income Taxes in Canada

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[GholamhosseinDavani]

2009

I

ncometaxesinCanada

Canada has special tax as base self assessment

Dayarayan

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Income taxes in Canada

Income taxes in Canada constitute the majority of the annual revenues of the

Government of Canada, and of the governments of the Provinces of Canada. In the lastfiscal year, the government collected roughly three times more personal income taxesthan it did corporate income taxes.

[citation needed

Tax collection agreements enable different governments to levy taxes through a singleadministration and collection agency. The federal government collects personal incometaxes on behalf of all provinces and territories except

]

Quebec and collects corporateincome taxes on behalf of all provinces and territories except Alberta, Ontario andQuebec. Canada's federal income tax system is administered by the Canada RevenueAgency (CRA). Quebec's income tax system is administered by Revenu Qubec,formally Ministre du Revenu du Qubec.

Canadian federal income taxes, both personal and corporate are levied under theprovisions of the Income Tax Act[1]. Provincial and territorial income taxes are leviedunder various provincial statutes.

The Canadian income tax system is a self-assessment regime. Taxpayers assess their taxliability by filing a return with the CRA by the required filing deadline. CRA will thenassess the return based on the return filed and on information it has obtained fromemployers and financial companies, correcting it for obvious errors. A taxpayer whodisagrees with CRA's assessment of a particular return may appeal the assessment. Theappeal process starts when a taxpayer formally objects to the CRA assessment. The

objection must explain, in writing, the reasons for the appeal along with all the relatedfacts. The objection is then reviewed by the appeals branch of CRA. An appealedassessment may either be confirmed, vacated or varied by the CRA. If the assessment isconfirmed or varied, the taxpayer may appeal the decision to the Tax Court of Canadaand then to the Federal Court of Appeal.

Contents

[hide]

History Personal income taxes

o Basic calculationo Provincial and territorial personal income taxes

Quebeco Personal federal marginal tax rateso Income not taxed

Corporate income taxeso Provincial/territorial corporate income taxes
http://en.wikipedia.org/wiki/Government_of_Canadahttp://en.wikipedia.org/wiki/Provinces_of_Canadahttp://en.wikipedia.org/wiki/Fiscal_yearhttp://en.wikipedia.org/wiki/Personal_income_taxeshttp://en.wikipedia.org/wiki/Corporate_income_taxeshttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Quebechttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Quebechttp://en.wikipedia.org/wiki/Albertahttp://en.wikipedia.org/wiki/Ontariohttp://en.wikipedia.org/wiki/Canada_Revenue_Agencyhttp://en.wikipedia.org/wiki/Canada_Revenue_Agencyhttp://en.wikipedia.org/wiki/Revenu_Qu%C3%A9bechttp://en.wikipedia.org/wiki/Minist%C3%A8re_du_Revenu_du_Qu%C3%A9bechttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-0#cite_note-0http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-0#cite_note-0http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-0#cite_note-0http://toggletoc%28%29/http://en.wikipedia.org/wiki/Income_taxes_in_Canada#History#Historyhttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Personal_income_taxes#Personal_income_taxeshttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Basic_calculation#Basic_calculationhttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Provincial_and_territorial_personal_income_taxes#Provincial_and_territorial_personal_income_taxeshttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Quebec#Quebechttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Personal_federal_marginal_tax_rates#Personal_federal_marginal_tax_rateshttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Income_not_taxed#Income_not_taxedhttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Corporate_income_taxes#Corporate_income_taxeshttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Provincial.2Fterritorial_corporate_income_taxes#Provincial.2Fterritorial_corporate_income_taxeshttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Provincial.2Fterritorial_corporate_income_taxes#Provincial.2Fterritorial_corporate_income_taxeshttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Corporate_income_taxes#Corporate_income_taxeshttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Income_not_taxed#Income_not_taxedhttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Personal_federal_marginal_tax_rates#Personal_federal_marginal_tax_rateshttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Quebec#Quebechttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Provincial_and_territorial_personal_income_taxes#Provincial_and_territorial_personal_income_taxeshttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Basic_calculation#Basic_calculationhttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Personal_income_taxes#Personal_income_taxeshttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#History#Historyhttp://toggletoc%28%29/http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-0#cite_note-0http://en.wikipedia.org/wiki/Minist%C3%A8re_du_Revenu_du_Qu%C3%A9bechttp://en.wikipedia.org/wiki/Revenu_Qu%C3%A9bechttp://en.wikipedia.org/wiki/Canada_Revenue_Agencyhttp://en.wikipedia.org/wiki/Canada_Revenue_Agencyhttp://en.wikipedia.org/wiki/Ontariohttp://en.wikipedia.org/wiki/Albertahttp://en.wikipedia.org/wiki/Quebechttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Corporate_income_taxeshttp://en.wikipedia.org/wiki/Personal_income_taxeshttp://en.wikipedia.org/wiki/Fiscal_yearhttp://en.wikipedia.org/wiki/Provinces_of_Canadahttp://en.wikipedia.org/wiki/Government_of_Canada


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Integration of corporate and personal income taxes See also References External links

Unlike the

History

United Kingdom and the United States, Canada avoided charging an incometax prior to World War I. The lack of income tax was seen as a key component inCanada's efforts to attract immigrants as Canada offered a lower tax regime compared toalmost every other country. Prior to the war Canadian federal governments relied ontariffs and customs income under the auspices of the National Policy for most of theirrevenue, while the provincial governments sustained themselves primarily through theirmanagement of natural resources (the Prairie provinces being paid subsidies by thefederal government as Ottawa retained control of natural resources for the time beingthere). The federal Liberal Party considered the probable need to introduce an income taxshould their negotiation of a free trade agreement with the United States in the early 20thcentury succeed, but the Conservatives defeated the Liberals in 1911 over their support offree trade.

The Conservatives opposed income tax as they wanted to attract immigrants primarilyfrom the United Kingdom and the United States, as opposed to Eastern Europe, and theywanted to give their preferred choice of newcomers some incentive to come to Canada.Wartime expenses forced the Tories to re-consider their options and in 1917 the wartimegovernment imposed a "temporary" income tax to cover expenses. Despite the new taxthe Canadian government ran up considerable debts during the war and were unable toforego income tax revenue after the war ended. With the election of the Mackenzie King-led Liberal government, much of the National Policy was dismantled and income tax hasremained in place ever since.

Canada levies personal income tax on the worldwide income of individuals resident inCanada and on certain types of Canadian-source income earned by non-residentindividuals.

Personal income taxes

After the calendar year, Canadian residents file a T1 Tax and Benefit Return[2]

forindividuals. It is due April 30, or June 15 for self-employed individuals and their spouses,or common-law partners. It is important to note, however, that any balance owing is dueon or before April 30. Outstanding balances remitted after April 30 may be subject tointerest charges, regardless of whether the taxpayer's filing due date is April 30 or June15.
http://en.wikipedia.org/wiki/Income_taxes_in_Canada#Integration_of_corporate_and_personal_income_taxes#Integration_of_corporate_and_personal_income_taxeshttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#See_also#See_alsohttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#References#Referenceshttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#External_links#External_linkshttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/World_War_Ihttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Customshttp://en.wikipedia.org/wiki/National_Policyhttp://en.wikipedia.org/wiki/Prairie_provinceshttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Mackenzie_Kinghttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-1#cite_note-1http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-1#cite_note-1http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-1#cite_note-1http://en.wikipedia.org/wiki/Mackenzie_Kinghttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Prairie_provinceshttp://en.wikipedia.org/wiki/National_Policyhttp://en.wikipedia.org/wiki/Customshttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/World_War_Ihttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#External_links#External_linkshttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#References#Referenceshttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#See_also#See_alsohttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#Integration_of_corporate_and_personal_income_taxes#Integration_of_corporate_and_personal_income_taxes


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The amount of income tax that an individual must pay is based on the amount of theirtaxable income (income earned less allowed expenses) for the tax year. Personal incometax may be collected through various means:

deduction at source - where income tax is deducted directly from an individual'spay and sent to the CRA. installment payments - where an individual must pay his or her estimated taxesduring the year instead of waiting to settle up at the end of the year.

payment on filing - payments made with the income tax return arrears payments - payments made after the return is filed

Employers may also deduct Canada Pension Plan/Quebec Pension Plan (CPP/QPP)contributions, Employment Insurance (EI) and Provincial Parental Insurance (PPIP)premiums from their employees' gross pay. Employers then send these deductions to thetaxing authority.

Individuals who have overpaid taxes or had excess tax deducted at source will receive arefund from the CRA upon filing their annual tax return.

Generally, personal income tax returns for a particular year must be filed with CRA on orbefore April 30 of the following year.

An individual taxpayer must report his or her total income for the year. Certaindeductions are allowed in determining net income, such as deductions for contributionsto

Basic calculation

Registered Retirement Savings Plans, union and professional dues, child care

expenses, and business investment losses. Net income is used for determining severalincome-tested social benefits provided by the federal and provincial/territorialgovernments. Further deductions are allowed in determining taxable income, such ascapital losses, half of capital gains included in income, and a special deduction forresidents of northern Canada. Deductions permit certain amounts to be excluded fromtaxation altogether.

Tax payable before credits is determined using four tax brackets and tax rates. Non-refundable tax credits are then deducted from tax payable before credits for various itemssuch as a basic personal amount, dependents, Canada/Quebec Pension Plan contributions,Employment Insurance premiums, disabilities, tuition and education and medical

expenses. These credits are calculated by multiplying the credit amount (e.g., the basicpersonal amount of $10,320 in 2009) by the lowest tax rate. This mechanism is designedto provide equal benefit to taxpayers regardless of the rate at which they pay tax.

A non-refundable tax credit for charitable donations is calculated at the lowest tax rate forthe first $200 in a year, and at the highest tax rate for the portion in excess of $200. Thistax credit is designed to encourage more generous charitable giving.
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Certain other tax credits are provided to recognize tax already paid so that the income isnot taxed twice:

the dividend tax credit provides recognition of tax paid at the corporate level onincome distributed from a Canadian corporation to individual shareholders; and

the foreign tax credit recognizes tax paid to a foreign government on incomeearned in a foreign country.

Provinces and territories that have entered into tax collection agreements with the federalgovernment for collection of personal income taxes ("agreeing provinces", i.e., allprovinces and territories except Quebec) must use the federal definition of "taxableincome" as the basis for their taxation. This means that they are not allowed to provide orignore federal deductions in calculating the income on which provincial tax is based.

Provincial and territorial personal income taxes

Provincial and territorial governments provide both non-refundable tax credits andrefundable tax credits to taxpayers for certain expenses. They may also apply surtaxesand offer low-income tax reductions.

Canada Revenue Agency collects personal income taxes for agreeing provinces/territoriesand remits the revenues to the respective governments. The provincial/territorial taxforms are distributed with the federal tax forms, and the taxpayer need make only onepayment -- to CRA -- for both types of tax. Similarly, if a taxpayer is to receive a refund,he or she receives one cheque or bank transfer for the combined federal andprovincial/territorial tax refund. Information on provincial rates can be found on theCanada Revenue Agency's site.

Quebec administers its own personal income tax system, and therefore is free todetermine its own definition of taxable income. To maintain simplicity for taxpayers,however, Quebec parallels many aspects of and uses many definitions found in thefederal tax system.

Quebec

The following historical federal

Personal federal marginal tax rates

marginal tax rates of the Government of Canada come

from the website of the Canada Revenue Agency. They do not include applicableprovincial income taxes. Data on marginal tax rates from 1998 to 2006 are publiclyavailable.[3]Data on basic personal amounts (personal exemption taxed at 0%) can befound on a year by year basis is also available.[4]Their values are contained on line 300of either the document "Schedule 1 - Federal Tax", or "General Income Tax and BenefitGuide", of each year by year General Income Tax and Benefit Package listed.
http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.htmlhttp://en.wikipedia.org/wiki/Marginal_tax_ratehttp://en.wikipedia.org/wiki/Marginal_tax_ratehttp://en.wikipedia.org/wiki/Canada_Revenue_Agencyhttp://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-2#cite_note-2http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-2#cite_note-2http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-2#cite_note-2http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-3#cite_note-3http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-3#cite_note-3http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-3#cite_note-3http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-3#cite_note-3http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-2#cite_note-2http://en.wikipedia.org/wiki/Canada_Revenue_Agencyhttp://en.wikipedia.org/wiki/Marginal_tax_ratehttp://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html


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Canadian federal marginal tax rates of taxable income

2009

(est.)[5]

$0 -

$10,320

$10,321 -

$40,726

$40,727 -

$81,452

$81,453 -

$126,264

over

$126,264

0% 15% 22% 26%29%

2008

$0 - $9,600$9,601 -$37,885

$37,886 -$75,769

$75,770 -$123,184

over$123,184

0% 15% 22% 26%

29%

2007$0 - $9,600

$9,600 -$37,178

$37,178 -$74,357

$74,357 -$120,887

over$120,887

0% 15% 22% 26% 29%

2006$0 - $8,839

$8,839 -$36,378

$36,378 -$72,756

$72,756 -$118,285

over$118,285

0% 15.25% 22% 26% 29%

2005$0 - $8,648

$8,648 -$35,595

$35,595 -$71,190

$71,190 -$115,739

over$115,739

0% 15% 22% 26% 29%

2004$0 - $8,012

$8,012 -$35,000

$35,000 -$70,000

$70,000 -$113,804

over$113,804

0% 16% 22% 26% 29%

2003$0 - $7,756

$7,756 -$32,183

$32,183 -$64,368

$64,368 -$104,648

over$104,648

0% 16% 22% 26% 29%

2002$0 - $7,634

$7,634 -$31,677

$31,677 -$63,354

$63,354 -$103,000

over$103,000

0% 16% 22% 26% 29%

2001$0 - $7,412

$7,412 -$30,754

$30,754 -$61,509

$61,509 -$100,000

over$100,000

0% 16% 22% 26% 29%

2000 $0 - $7,231$7,231 -$30,004

$30,004 -$60,009

over $60,009
http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-4#cite_note-4http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-4#cite_note-4http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-4#cite_note-4http://en.wikipedia.org/wiki/Income_taxes_in_Canada#cite_note-4#cite_note-4


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0% 17% 25% 29%

1999$0 - $6,794

$6,794 -$29,590

$29,590 -$59,180

over $59,180

0% 17% 26% 29%

1998$0 - $6,794 $6,794 -

$29,590$29,590 -$59,180

over $59,180

0% 17% 26% 29%

The following types of income are not taxed in Canada (this list is not exhaustive):

Income not taxed

gifts and inheritances; lottery winnings; winnings from betting or gambling for simple recreation or enjoyment; strike pay; compensation paid by a province or territory to a victim of a criminal act or a

motor vehicle accident*; certain civil and military service pensions; income from certain international organizations of which Canada is a member,

such as the United Nations and its agencies; war disability pensions; RCMP pensions or compensation paid in respect of injury, disability, or death*; income ofFirst Nations, if situated on a reserve; capital gain on the sale of a taxpayers principal residence; provincial child tax credits or benefits and Qubec family allowances; Working income tax benefit; the Goods and Services Tax or Harmonized Sales Tax credit (GST/HST credit) or

Quebec Sales Tax credit; and the Canada Child Tax Benefit.

Note that the method by which these forms of income are not taxed can varysignificantly, which may have tax and other implications; some forms of income are notdeclared, while others are declared and then immediately deducted in full. In certaincases, the deduction may require off-setting income, while in other cases, the deductionmay be used without corresponding income. Income which is declared and then deducted,

for example, may create room for future Registered Retirement Savings Plan deductions.But then the RRSP contribution room may be reduced with a pension adjustment if youare part of another plan, reducing the ability to use RRSP contributions as a deduction.

Deductions which are not directly linked to non-taxable income exist, which reduceoverall taxable income. A key example is Registered Retirement Savings Plan (RRSP)contributions, which is a form of tax-deferred savings account (income tax is paid only atwithdrawal, and no interim tax is payable on account earnings).
http://en.wikipedia.org/wiki/First_Nationshttp://en.wikipedia.org/wiki/Goods_and_Services_Tax_(Canada)http://en.wikipedia.org/wiki/Harmonized_Sales_Taxhttp://en.wikipedia.org/wiki/Canada_Child_Tax_Benefithttp://en.wikipedia.org/wiki/Canada_Child_Tax_Benefithttp://en.wikipedia.org/wiki/Harmonized_Sales_Taxhttp://en.wikipedia.org/wiki/Goods_and_Services_Tax_(Canada)http://en.wikipedia.org/wiki/First_Nations


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*Quebec has changed its rules in 2004 and, legally, this may be taxed or may not Courts have yet to rule.

Corporate taxes include taxes on corporate income in Canada and other taxes and leviespaid by corporations to the various levels of government in Canada. These include capitaland insurance premium taxes; payroll levies (e.g., employment insurance, CanadaPension Plan, Quebec Pension Plan and Workers' Compensation); property taxes; andindirect taxes, such as goods and services tax (GST), and sales and excise taxes, levied onbusiness inputs.

Corporate income taxes

Corporations are subject to tax in Canada on their worldwide income if they are residentin Canada for Canadian tax purposes. Corporations not resident in Canada are subject toCanadian tax on certain types of Canadian source income (Section 115 of the CanadianIncome Tax Act).

The taxes payable by a Canadian resident corporation may be impacted by the type ofcorporation that it is:

A Canadian-controlled private corporation, which is defined as a corporation thatis:

resident in Canada and either incorporated in Canada or resident inCanada from June 18, 1971, to the end of the taxation year;

not controlled directly or indirectly by one or more non-resident persons; not controlled directly or indirectly by one or more public corporations

(other than a prescribed venture capital corporation, as defined inRegulation 6700);

not controlled by a Canadian resident corporation that lists its shares on aprescribed stock exchange outside of Canada;

not controlled directly or indirectly by any combination of personsdescribed in the three preceding conditions; if all of its shares that areowned by a non-resident person, by a public corporation (other than aprescribed venture capital corporation), or by a corporation with a class ofshares listed on a prescribed stock exchange, were owned by one person,that person would not own sufficient shares to control the corporation; and

no class of its shares of capital stock is listed on a prescribed stockexchange.

A private corporation, which is defined as a corporation that is: resident in Canada; not a public corporation; not controlled by one or more public corporations (other than a prescribed

venture capital corporation, as defined in Regulation 6700);


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not controlled by one or more prescribed federal Crown corporations (asdefined in Regulation 7100); and

not controlled by any combination of corporations described in the twopreceding conditions.

A public corporation, defined as a corporation that is resident in Canada andmeets either of the following requirements at the end of the taxation year:

it has a class of shares listed on a prescribed Canadian stock exchange; or it has elected, or the Minister of National Revenue has designated it, to be

a public corporation and the corporation has complied with prescribedconditions under Regulation 4800(1) on the number of its shareholders,the dispersing of the ownership of its shares, the public trading of itsshares, and the size of the corporation.

If a public corporation has complied with certain prescribed conditions under Regulation

4800(2), it can elect, or the Minister of National Revenue can designate it, not to be apublic corporation. Other types of Canadian resident corporations include Canadiansubsidiaries of public corporations (which do not qualify as public corporations), generalinsurers and Crown corporations.

Corporate income taxes are collected by the CRA for all provinces and territories exceptOntario, Quebec and Alberta. Provinces and territories subject to a tax collectionagreement must use the federal definition of "taxable income," i.e., they are not allowedto provide deductions in calculating taxable income. These provincies and territories may

provide tax credits to companies, often in order to provide incentives for certain activitiessuch as mining exploration, film production, and job creation.

Provincial/territorial corporate income taxes

Ontario, Quebec and Alberta collect their own corporate income taxes, and therefore maydevelop their own definitions of taxable income. In practice, these provinces rarelydeviate from the federal tax base in order to maintain simplicity for taxpayers.

Ontario has concluded negotiations with the federal government on a tax collection

agreement under which its corporate income taxes would be collected on its behalf by the

CRA starting in 2009.

In Canada, corporate income is subject to corporate income tax and, on distribution asdividends to individuals, personal income tax. The personal income tax system, throughthe gross-up and dividend tax credit (DTC) mechanisms, currently provides recognitionfor corporate taxes, based on a 20 per cent notional federal-provincial rate, to taxableindividuals resident in Canada.

Integration of corporate and personal income taxes


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according to a formula. All other provinces continue to impose a separate sales tax at theretail level only, with the exception ofAlberta, which does not have a provincial salestax. Ontario proposed in its 2009 Budget to harmonize its 8% retail sales tax with theGST effective July 1, 2010.[2][3]In July, 2009, the province ofBritish Columbiaannounced plans to also merge the PST and GST effective July 1, 2010.[4]In PEI and

Quebec, the provincial taxes include the GST in their base. The three territories ofCanada (Yukon, Northwest Territories and Nunavut) do not have territorial sales taxes.The government of Quebec administers both the federal GST and the provincial QuebecSales Tax (QST). It is the only province to administer the federal tax.

The tax is a 5% tax imposed on the supply of goods and services that are made inCanada, except certain items that are either "exempt" or "zero-rated":

Untaxed items

For tax-free i.e., "zero-rated" sales, GST is charged by suppliers at a rate of0% so effectively there is no GST collected. However when a supplier makes azero-rated supply, it is eligible to recover any GST paid on purchases used inmaking the particular supply. This effectively removes the cascading tax from theparticular goods and services.

o Common zero-rated items include basic groceries, prescription drugs,inward/outbound transportation and medical devices (GST/HSTMemoranda Series ME-04-02-9801-E 4.2 Medical and Assistive Devices).Certain exports of goods and services are also zero-rated.

For tax-exempt supplies, the supply is not subject to GST and suppliers do notcharge tax on their exempt supplies. Furthermore, suppliers that make exemptsupplies are not entitled to recover GST paid on inputs acquired for the purposes

of making the exempt good or service. Tax-exempt items include long termresidential rents, health and dental care, educational services, day-care services,legal aid services, and financial services.

In 1989, the

Background

Progressive Conservative government ofPrime Minister Brian Mulroneyproposed the creation of a national sales tax of 9%. At this time, every province inCanada except Alberta already had its own provincial sales tax imposed at the retail level.

The purpose of the national sales tax was to replace the 13.5% Manufacturers' Sales Tax

(MST) that the federal government imposed at the wholesale level on manufacturedgoods. Manufacturers were concerned that the tax hurt their internationalcompetitiveness. The GST also replaced the Federal Telecommunications Tax of 11%.

The proposal was an instant controversy: a large proportion of the Canadian populationwas irritated and disapproved of the tax. Although the GST was promoted as revenue-neutral in relation to the MST, the shifting of the tax away from exported manufacturedgoods would make life more costly for Canadians. The other parties in Parliament also
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attacked the idea as did three Progressive Conservative Members of Parliament, DavidKilgour, Pat Nowlan, and Alex Kindy, who ended up leaving the ProgressiveConservative caucus as a result.

The Liberal-dominated Senate refused to pass the tax into law. In an unprecedented move

to break the deadlock, Mulroney used a little-known constitutional provision to increasethe number of senators by eight temporarily, thus giving the Progressive Conservatives amajority in the upper chamber. In response, the Opposition launched a filibuster andfurther delayed the legislation.

Despite the tax being lowered to 7% by the time it became enacted, it remainedcontroversial. What the tax covered also caused anger. The Government defended the taxas a replacement for a tax unseen by consumers because it was placed on manufacturers,and in the long run it was posited that removing the MST would make Canada morecompetitive. Once the MST was replaced with the GST prices did not initially fall by thelevel some thought appropriate immediately, however proponents have argued that in

Canada's market economy the MST's replacement could only be expected to influenceprices over time and not on a stroke.

Despite the opposition, the tax came into force on January 1, 1991.

A strong Liberal Party majority was elected under the leadership of

Reactions

Jean Chrtien in the1993 election. The Progressive Conservative Party fared very poorly in that election,winning only two seats. Although the party recovered somewhat in subsequent elections,it remained the smallest party in the House of Commons until it disbanded itself

permanently in 2004, and merged with the Canadian Alliance to form the ConservativeParty of Canada.

During the election campaign, Chrtien promised to repeal the GST, which the Liberalshad denounced so vociferously while they were the Official Opposition, and replace itwith a different tax. Instead of repeal, the Chrtien government attempted to restructurethe tax and merge it with the provincial sales taxes in each province. They intended tocall it the "Blended Sales Tax", but opponents quickly came to derisively call thisproposal the "B.S. Tax", and the name was changed to Harmonized Sales Tax before itsintroduction. Only three Atlantic provinces agreed to go along with this plan, however.Nova Scotia, New Brunswickand Newfoundland and Labrador now have the 13%

Harmonized Sales Tax instead of separate GST and PST.

The decision not to abolish or replace the GST caused great controversy, both within theparty and without. Liberal Member of Parliament (MP) John Nunziata voted against theLiberal government's first budget and was expelled from the party. Heritage MinisterSheila Copps, who had personally promised to oppose the tax, resigned and sought re-election. She was re-elected with ease in the subsequent by-election, however, as was theLiberal government in the 1997 election.
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Many also argue that a switch towards heavier

Current situation

consumption taxes on the European modelhas helped the Canadian economy become more efficient and competitive with lower-priced goods for the international market. However, the effects of the GST in this realm

are quite modest, and are regularly swamped by large changes in the exchange rate.[citationneeded]

The GST once again became an issue, as the

It can also be claimed that the transparent nature of the GST has kept Canadiansacutely aware of their taxation.

Conservative Party of Canada reduced thetax by 1% (to 6%) on July 1, 2006 as part of an election promise. They again lowered itto 5%, effective January 1, 2008. This reduction was included in the Final 2007 BudgetImplementation Bill (Bill C-28),[5]which received Royal Assent on December 14, 2007.

Much of the reason for the notoriety of the GST in Canada is for reasons of an obscureConstitutional provision. Other countries with a Value Added Tax legislate that posted

prices include the tax; thus, consumers are vaguely aware of it but "what they see is whatthey pay". Canada cannot do this because jurisdiction over most advertising and price-posting is in the domain of the provinces under the Constitution Act, 1867. The provinceshave chosen not to require prices to include the GST, similar to their provincial salestaxes. As a result, virtually all prices (except for gas pump prices, taxi meters and a fewother things) are shown "pre-GST", at the merchant's choice.

For purchases before April 1, 2007, visitors to Canada could request a tax refund when

they left Canada by filling out a form at a Canadian airport or some duty free stores atborder crossings.

Tax-free shopping for visitors

[6]Under that regime, the visitor sent in original receipts with a stamp byCanadian Customs. Cheques are mailed to the visitor within a few weeks. This refundwas eliminated, except for business purchases, as announced September 25, 2006, ineffect April 1, 2007. Legislation implementing the change (Bill C-52) received RoyalAssent on June 22, 2007 (S.C. 2007, c. 29). The rebate remains available for purchasers"other than consumers" who export the goods within 60 days of purchasing them inCanada.
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Harmonized Sales Tax

In Canada, the Harmonized Sales Tax (HST) combines the Goods and Services Tax(GST) and Provincial Sales Tax (PST) into a single sales tax.[1]This changes the PSTfrom a cascading tax system, which has been abandoned by most economies throughoutthe world, to a value added tax like the GST.

Like the GST and PST, the Harmonized Sales Tax is a regressive tax. To maintain theprogressive nature of total taxes on individuals, Canada and other countries haveaccompanied the change with a reduction in income taxes, as well as instituted directtransfer payments to lower-income groups, resulting in lower tax burdens on the poor.

Though economists support the change and studies have shown it will be revenue neutral,

polls show that 82% of British Columbians and 74% of Ontarians oppose it.

On December 16, 2009, the HST has legislation has passed 3rd reading on the proviniciallevel and received Royal Assent. Two days later, HST became a reality as Ottawafollowed suit.

[citation needed

]

Over 130 countries have moved to harmonized sales tax systems including four Canadianprovinces. Evidence from numerous studies shows that harmonization raises businessinvestment and that PST-type taxes slow down provincial growth. The HST is set toreplace the PST, a tax system which has been abandoned by most economies throughoutthe world.

Background

In 1996, three Atlantic provinces New Brunswick, Newfoundland and Labrador, andNova Scotia worked with the federal government to implement a Harmonized SalesTax and lower the sales tax portion to eight percent. The result was a 15% combined taxwhen the federal rate of seven percent was added. The new tax went into effect on April1, 1997. The HST is collected by the Canada Revenue Agency, which then remits theappropriate amounts to the participating provinces. On 1 July 2006, the GST was loweredto 6%, resulting in a combined HST of 14%, and again lowered on 1 January 2008 to 5%,resulting in a combined HST of 13%.

The implementation in eastern provinces demonstrated that consumer prices fall after thechange to a harmonized sales tax. The Martin task force found that in Atlantic Canadaprices on goods fell when they harmonized the sales tax.
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The tax attempts to build a more efficient tax system while not increasing sales taxrevenues. The tax allows Small business owners to claim the entire 13% of the HSTcompared to just the 5% GST before making them pay the remaining 8% PST on capital

costs.

Structure

[citation needed

On March 26, 2009 in its annual budget, the province of

]

Ontario announced its intentionto merge the PST and GST to take effect on July 1, 2010. On July 1, 2010, the sales taxesin British Columbia will also be reformed to merge the PST and GST.

GST was previously applied on Gasoline and diesel which will no longer be taxedunder the Harmonized Sales Tax. Items from haircuts to carpet cleaning thattoday include only the five per cent GST will see an increase in costs

Affected Items

. However,

the PST portion of the HST will be exempt on newspapers and fast food items notexceeding $4 per purchase.

In Ontario, a rebate compensating for the HST will leave the first $400,000 of anew home purchase unaffected whereas the portion of a home above $400,000will be charged the full HST.

Both provinces made such household goods as children's clothing and shoes, car

seats, diapers and feminine hygiene products HST exempt.

Exemptions

A study, conducted by the CD Howe Institute before announcements to exempt low valuepurchases, found the B.C. and Ontario HSTs likely revenue neutral. A separate reportfrom the Roger Martin task force on the economy found the HST would lower taxesoverall as increased revenue from the harmonized sales tax is matched by reductions incorporate and personal taxes and by tax credits. The effect is revenue loss. The Globeand Mail reporting on the study found that the "Ontario government will actually loserevenue." Public opinion however holds negative feelings towards the HST with an IpsosReid poll showing vast majority of British Columbians (82%) and Ontarians (74%)oppose their provincial governments plans to harmonize the sales tax.

Reception

Only 39% of the public believes the HST would be beneficial for businesses whereas theMartin task force found costs will decrease for small business as they recover sales taxesthey have to pay on goods and services they purchase and will lower their administrative

costs. Additionally, only 10% of the public agree that the move will help to create morejobs. Alternatively, a study by Jack Mintz of the University of Calgary School of PublicPolicy found that the HST will create almost 600,000 new jobs over the next ten years.[19]

Dividend

In Canada, there is taxation of dividends, but tax policy attempts to compensate for thisthrough the Dividend Tax Credit or DTC for personal income in dividends from
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Canadian corporations. An increase to the DTC was announced in the fall of 2005 byLiberal finance minister Ralph Goodalejust prior to the fall of the Liberal minoritygovernment, in conjunction with the announcement that Canadian income trusts wouldnot become subject to dividend taxation as had been feared. Effective tax rates ondividends will now range from as low as 3% to over 30% depending on income level and

different provincial tax rates and credits.

Source: Wikipedia
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Income Taxes in Canada

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