Taxes in Canada are high. According to the Organization for Economic Cooperation and Development, Canada is one of the top 5 countries by tax revenue as a percentage of GDP. It also has one of the highest maximum combined marginal personal income and social security tax rates (53.5%) among the OECD countries.
Tax Residency in Canada
There is a crucial difference between the taxation of residents and nonresidents of the country.
Nonresidents in Canada are taxed only on Canadian-source income including on gains from the disposition of taxable Canadian property.
Canadian residents are taxed at the federal or territorial levels on their worldwide income. Even if you do not have a permanent resident card, you can be deemed to have been resident in Canada if you spend at least 183 days in Canada in a calendar year. And in this case, you will be responsible for paying taxes on any gains received in Canada and other countries including salaries, pensions, and gains on the sale of real estate within or outside Canada. Although there are double tax treaties, you may have to pay a lot as tax rates in Canada may be higher than in many other countries.
In the year that you become a Canadian resident, you are considered a part-year resident and are subject to Canadian taxes on worldwide income for the portion of the year you were resident in the country and on any Canadian-source income received during the nonresident period.
Likewise, resident companies are subject to federal tax on their worldwide income. In general, a company is deemed to be resident in Canada if it is incorporated in Canada or has its headquarters and management located there. Nonresident corporations are taxed only on certain types of Canadian-source income.
Individuals and companies pay different income taxes.
Personal Income Tax
Taxpayers with employment income in Canada pay both federal and provincial taxes on their earnings. Taxable income also includes certain investment income (e. g., rental income) and 50% of capital gains.
Federal tax is mandatory for all Canadians, regardless of the province or territory where they live. Its rates are progressive up to 33%:
- 15% on the first C$47,630 of taxable income, plus
- 20.5% on the portion of taxable income over C$47,630 up to C$95,259, plus
- 26% on the portion of taxable income over C$95,259 up to C$147,667, plus
- 29% on the portion of taxable income over C$147,667 up to C$210,371, plus
- 33% of taxable income over C$210,371
All taxpayers are entitled to a tax-free allowance: you can earn up to C$11,809 without paying federal tax on your income. There are also tax credits and reliefs for certain categories of individuals.
Provincial tax rates are also progressive, with the minimum rate in the range of 4–10.8% and the maximum rate in the range of 11.5–25.75%. Provincial tax rates can be found on the Government of Canada’s website.
Ontario and Prince Edward Island have a surtax system. Ontario surtax of 20% applies to the provincial income tax in excess of C$4,638 and surtax of 36% applies to the tax in excess of C$5,936. Prince Edward Island applies surtax of 10% to the provincial income tax in excess of C$12,500.
You can use a tax calculator (e. g., Neuvoo) to find out how much taxes you should pay. For instance, if your annual income is C$40,000 and you live in Ontario, you’ll pay almost 20% as taxes — C$7,972 in total, including federal and provincial taxes, CPP (Canada Pension Plan) and EI (Employment Insurance) deductions.
If you own a company in Canada, you should pay corporation tax. It is imposed on the company’s business or trading income, investment income, and 50% of capital gains (less capital losses).
The federal corporate rate is 15%, and provincial and territorial corporate tax rates range from 11.5% to 16%. The highest combined (federal and provincial or territorial) corporate rate is 31% in Nova Scotia and Prince Edward Island, and the lowest is 26% in British Columbia.
There are two main property-related taxes in Canada — the Land Transfer Tax and annual property tax.
Land Transfer Tax
The Land Transfer Tax (LTT) is paid by the buyers of houses and condos. There is no land transfer tax in Alberta, Newfoundland and Labrador, Northwest Territories, Nunavut, Saskatchewan, and Yukon. In other provinces, LTT rates range from 0.5% to 2.5% of the taxable transaction’s fair market value or of the property’s assessed value.
In British Columbia, there is an additional 20% tax on transfers to foreign entities of residential property located in several regional districts (Central Okanagan, Fraser Valley, Greater Vancouver, Nanaimo).
In Ontario, an additional 15% tax is levied on transfers to foreign entities of residential property located in the Golden Horseshoe Region of Southern Ontario. Toronto also levies a municipal land transfer tax at the same rates as the province’s LTT.
Annual Property Tax
The annual property tax is levied by municipal authorities, is calculated individually and averages 1–2% of the assessed value. This tax is around C$3,000 a year for houses and about C$2,500 for apartments.
In Vancouver, there is also the Empty Homes Tax, which is paid at a rate of 1% of the assessed taxable value by owners of properties that stand vacant for more than 6 months a year. All owners in Vancouver must file a declaration, even if they are not required to pay this tax.
Inheritance and Gift Taxes
There is no formal inheritance or gift tax in Canada. However, a deemed disposition of all capital property owned by an individual can take place at the fair market value immediately prior to his death. In this case, the Land Transfer Tax may be levied. There are exceptions for transfers to spouses and transfers of farm and fishing properties to children.
Other Taxes and Fees
There are plenty of other taxes in Canada, including consumers’ tax on goods and services. Canada also has a strong tipping culture: even though tips are not taxes, they are worth mentioning.
Goods and Services Tax
Consumers in Canada pay the Goods and Services Tax (GST) on top of the price of purchased goods and services and is remitted to the government by businesses. The federal government levies a 5% tax and some provinces also levy a provincial tax.
In Quebec, there is the Quebec Sales Tax (QST) at a rate of 9.975%. In New Brunswick, Newfoundland, Nova Scotia, Ontario, and Prince Edward Island, there is Harmonized Sales Tax (HST) at a rate of 13–15% that already includes the federal tax rate. British Columbia, Manitoba, and Saskatchewan levy Provincial Sales Tax (PST) at a rate of 6–8%.
Total sales tax rates by provinces and territories:
- Alberta : 5%
- British Columbia: 12%
- Manitoba: 13%
- New Brunswick: 15%
- Newfoundland and Labrador: 15%
- Northwest Territories: 5%
- Nova Scotia: 15%
- Nunavut: 5%
- Ontario: 13%
- Prince Edward Island: 15%
- Quebec: 15%
- Saskatchewan : 11%
- Yukon: 5%
This tax is not levied on basic groceries, prescription drugs, medical devices, long-term residential rents, health and dental care, day-care and educational services, legal aid and financial services.
Although tips are not taxes, Canada has a strong culture of tipping, and they will be an important item of expense once you come to this country. The amount of tips you are expected to pay depends on the type of services:
- Hotels: C$1–2 per bag for the porter, C$2–3 per day for the housekeeper, C$10–20 for the concierge
- Restaurants: 15–20% of the bill before tax, C$0.50–2 per drink at bars, 5–12% for food delivery services
- Taxi driver: 10–15%
- Hairdresser: 10–15%
A tax return is a report that you should send to the government about the money you have earned and the taxes that you paid in one year.
All residents should file a tax return every year, even if no tax is payable. Each family member should file his tax returns separately. You may have to file it even if you lived in Canada for only part of the year. However, your tax liability depends on your employment and residency:
- Employees in Canada usually have personal taxes automatically deducted from their wages for each pay period
- Those who are self-employed (or those with significant income not subject to employer withholding) usually must make quarterly payments based on estimated income. It is advisable to set aside 25–30% of your earnings in order to pay your tax bill
- Nonresidents must file Canadian income tax returns if they earn employment or business income in Canada or if they have capital gains from dispositions of taxable Canadian property
The first day you can file your personal taxes online is February 18. The deadline to file a tax return and pay the outstanding tax liability is April 30. The filing due date is extended to 15 June for those earning self-employment or business income (but they must still pay their taxes by April 30). The corporate tax return must be filed within 6 months of the end of the taxation year (the fiscal period for which business accounts are prepared).
You can file your tax return with the help of an accountant or tax-filing agent whose services cost around C$25 or you can buy a special program for C$15–20 and file a tax return yourself. After that, you send the declaration to the Canada Revenue Agency (CRA) in paper or online. If you live in Quebec, you must also send additional forms to Revenu Québec.
If you have a modest income, simple tax situation and need help filing your tax return, visit the CRA’s Community Volunteer Income Tax Program to find the nearest tax clinic or volunteer service to help you for free.
Keep in mind that if you file returns late or if there are missed payments, you will pay penalties:
- Late-filing: 5% of your balance owing, plus 1% for each full month your return is late, to a maximum of 12 months
- Repeated failure to report income (if you did not report an amount of income of C$500 or more): equal to the lesser of 10% of the amount you failed to report or 50% of the difference between the understated tax and the amount of tax withheld
- False statements or omissions: equal to the greater of C$100 or 50% of the understated tax or the overstated credits related to the false statement or omission