Understanding The Taxation System Of Canada


Individuals or legal entities in any country are bound to pay tax to the state or the functional equivalent of a state. Similarly, in Canada the federal, provincial and the municipal governments collect money to fund government programs and a range of civic expenditures like maintaining economic infrastructure, military, scientific research, culture and the arts, public works, public insurance etc.

The Common types of taxes applicable in Canada can be classified as

(a) Income Tax (b) Sales Tax (c) Property Tax (d) Business Tax (Only if one owns a business).


Canada Revenue Agency (CRA) collects the tax levied on the income of individuals and business entities, including corporations. Every year people who are considered residents (Canadian citizens, permanent residents, refugees and temporary residents.) for tax purposes file an income tax return.

The tax is imposed on the net profits from business, net gains and other income. In a layman’s language; it depends on the money earned by an individual minus any deductions and credits. Structure of the income tax in Canada is based on an amalgamation of federal and provincial tax rates.


The Ontario province in Canada levies 13% Harmonized Sales Tax (HST). HST is a consumption tax imposed in the provinces where both federal goods & services tax and regional provincial tax are combined into one single value added sales tax.

The 13% HST is generally added at the billing counter and is not on the price tag of the product. Out of the 13%, 8% is the provincial tax whereas rest 5% is the federal goods & services tax.

HST is not applicable on basic food products, child care services and drugs sold on prescription. Also the individuals or families that have low incomes receive HST credit.


Property tax is levied on any immovable property required to be paid by its owner. This tax is imposed by the municipal governments in which the property is. In Canada the property tax is calculated on the current use of the property and its value.  A common property assessment criterion is observed throughout the provincial legislation.

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