Income Tax in Canada first made its appearance in the year 1917. The tax was collected by the Federal government. Income tax in Canada was introduced for corporate bodies as well as individuals. The state as well as federal governments in Canada impose tax on the people through Canada Revenue Agency, which is Canada's collection agency for taxes. Income tax in Canada forms the major portion of revenues earned by the Canadian Government and also the Provincial governments. It was observed last year (2006) that the taxes collected from personal income were thrice the taxes collected from corporates. Income tax in Canada, both categories corporates as well as personal are imposed as per norms of the Income Tax Act whereas income taxes pertaining to territorial as well as provincial are imposed under statutes.
I)Personal income tax in Canada:
Income tax in Canada is imposed on worldwide income pertaining to people who are residing in Canada. The Canadian government also imposes tax on individuals who are currently not residing in Canada but they have income from Canadian sources. The fiscal year in Canada is from 30th April to 15th June for individuals who are self employed. Imposition of income tax in Canada depends on the taxable income of the individuals.
Method of collecting personal income tax in Canada:
Collection of personal income tax in Canada is carried out in the following manner-
- TDS or deductions at sources: In this case the tax is deducted from the salary of the individuals and forwarded to the Canada Revenue Agency or the CRA.
- Through installments: In this case, the tax payee is required to make payments throughout the year instead of making the payments at the end of the year.
- Tax payments with Income tax return (payment and filing).
- Payments in arrear: In this method, tax payments are made once filing of return is done.
In the event when an individual pays more tax than he is required to(in case more tax has been deducted at sources) , the same is returned by the Canada Revenue Agency after filing the yearly tax return.
II) Corporate income tax in Canada:
The Canadian government imposes tax on corporate income. The various corporate tax in Canada include the following:
- Insurance premium taxes
- Capital premium taxes
- Property taxes
- Taxes on excise and sales
- Payroll taxes, which may include Worker's Compensation and Pension plans, insurance for employees, Canada Pension Plan.
- Goods and services tax or GST
Corporate tax is imposed on corporations present in Canada and their worldwide income. Corporate tax in Canada is also levied on non resident corporates.
III) Territorial or Provincial corporate income tax:
Similar to personal income tax, corporate income tax in Canada is collected by the Canada Revenue Agency or the CRA. However, Quebec, Ontario and Alberta do not fall within his purview.
Collection of corporate income tax in Alberta, Quebec and Ontario are done as per their own tax definitions. However, the above mentioned three provinces follow the federal government collection norms. This has been maintained specifically for the tax payers so that a uniformity is maintained and a lot if confusion can be avoided. Tax credits, which are refundable as well as non refundable are provided by the provincial and territorial governments.
Non taxable income:
The government in Canada does not levy tax for the following purposes:
- Inheritance as well as gifts
- If one wins a lottery
- Money earned from betting
- Compensation paid to individuals as a result of accidents
- Civil services pensions (certain types)
- Military services pensions (certain types)
- Income earned from United nations,its agencies and any international organization having Canada as one of its members.
- Pensions paid by the Canadian government for disabilities caused by war.
The list given above include only some of the instances. There are other circumstances when the government does not impose tax on individuals.