In Canada, both the federal and provincial governments collect taxes from its citizens and residents which are used to pay for the services provided to the people, including health care, education, Old Age Security and maintaining roads and highways. If you are a newcomer to Canada or are paying taxes for the first time, the following information will help you to learn about the Canadian tax system.
The two types of taxes levied by the federal and provincial governments are income taxes and consumption or sales taxes. Each province has either the Goods and Services Tax (GST) or the Harmonized Sales Tax (HST). The consumption tax is a sales tax on items that you purchase, such as clothes, restaurant meals and even certain services. Some items are exempt from the sales tax, such as basic groceries, rent and prescription drugs. The income tax, however, is simply a tax on the income that you earn each year and is calculated on a graduated scale, with higher earners paying more in taxes than those with low incomes.
Every resident of Canada must file an income tax return by April 30 each year. The Canada Revenue Agency considers you to be a Canadian resident if you have established significant ties in Canada. This could include having a permanent home in Canada, a spouse or dependents living in Canada or spending 183 or more days in the country in a given year. Residents must pay income tax on their worldwide income, not only income earned inside Canada.
It is important to note that Canada does not allow spouses to file a joint tax return. Each person must file their own tax return. However, there are various tax credits that can be claimed to reduce your tax owing. For example, if you are supporting a spouse, you can claim a spousal benefit for them on your tax return. There are also tax credits available for child care, medical supplies and other essential items.
Many people rely on the services of a professional accountant to file their tax return. If you are feeling confident enough, you can prepare your own tax return using any of the available tax return software packages available.