An intro guide to Canadian taxes
Taxes are an inevitable part of life in Canada. With distinct laws and regulations for different types of taxation, paying taxes is sometimes confusing and overwhelming. Keep reading to learn a little bit about different taxes in Canada to avoid undue stress.
What are taxes?
Taxes are mandatory payments that individuals or businesses make to the Canadian government. These payments support governmental programs and services such as education and health care. Tax payments also contribute towards social programs like employment insurance (EI) and the Canada Pension Plan (CPP).
In Canada, all three levels of government — federal, provincial or territorial and municipal (local) — collect taxes.
Income tax
Individuals and businesses are required to pay taxes based on their annual income. During tax season, usually sometime within the first four months of every year, Canadians determine how much they owe on an income tax and benefit return. By completing the return, they can also receive federal and provincial or territorial benefits and credits.
Tax credits help to reduce the amount of income tax owed. Some reduce tax to zero while others can be refunded to the individual. There are several tax credits available to claim based on specific requirements. For example, the Canada Child Benefit (CCB) is a monthly payment for eligible families with children under 18 years old. There is also the GST/HST credit, which is a quarterly payment for individuals or families with lower incomes.
The process of filing a tax return can vary based on an individual’s residency status in Canada. There are those living in Canada permanently (like Canadian residents), those leaving Canada temporarily or permanently (e.g., those working abroad), and those living in Canada temporarily (e.g., international students).
Sales tax
There are three kinds of sales tax in Canada. First is the goods and services tax (GST), a federal tax added to most goods and services purchased in Canada. Second is the provincial sales tax (PST), an extra tax paid in certain provinces. Third is the harmonized sales tax (HST), active in certain provinces where GST and PST are combined.
The current tax rates are as follows:
- Five per cent GST in Alta., B.C., Man., N.W.T., Nunavut, Que., Sask. and Yukon
- 13 per cent HST in Ont.
- 15 per cent HST in N.B., N.L., N.S. and P.E.I.
PST is currently seven per cent in B.C. and Manitoba, 9.975 per cent in Quebec. and six per cent in Saskatchewan. In other provinces and territories that do not use HST, the PST is currently at zero per cent.
Property tax
Municipal governments determine property tax rates based on the value of land and buildings. Property tax is generally paid annually, but rules may vary across municipalities. For example, some charge monthly or biannual payments.
In 2022, property tax rates were 0.67 per cent in Toronto and 0.28 per cent in Vancouver. This means that for a home valued at $500,000, an individual would pay $3,350 in property taxes in Toronto and $1,400 in Vancouver.
Rates may change annually based on each municipality’s discretion. As of 2024, Toronto’s property tax rate has risen to 0.72 per cent while Vancouver’s remains at 0.28 per cent.
Customs duties or tariffs
Duty is a tariff charged on certain goods imported to Canada. Rates depend on what the product is, where it is coming from, and how much it costs. Most imported goods are also subject to sales tax. More information on duties and rates for all types of goods imported to Canada can be found in the Canadian Customs Tariff.
The Canadian Border Services Agency has provided a tool to calculate duty and tax estimates. This tool only applies to goods imported to Canada for personal use.
Health services tax
A portion of the money collected from income tax funds health care services. Rates vary per province or territory. The annual tax rate based on personal income is known as a premium. In Ontario, those with an income of $20,000 or less have a $0 premium, while those with an income of more than $200,600 have a $900 premium.
While they are sometimes frustrating, taxes are an integral part of Canada’s economy as they help fund important services. Remember that taxes are mandatory payments that cannot be avoided. Failing to pay taxes accordingly can lead to fines or other punishments, so make sure to stay on top of all necessary payments.
Kyle Quilatan
Kyle is a reporter for Business Hub. He enjoys art, music and reading, and is prepared to take a nap at any given time.