The federal government levies a multi-stage sales tax of 5% called the Goods and Services Tax (GST), and, in some provinces, the Harmonized Sales Tax (HST). The GST/HST is similar to a value-added tax.
All provincial governments, except Alberta, levy sales taxes, as well. The provincial sales taxes of Nova Scotia, New Brunswick and Newfoundland and Labrador are harmonized with the GST. That is, a rate of 13% HST is charged instead of separate PST and GST. Both Quebec and Prince Edward Island apply provincial sales tax to the sum of the price plus the GST. The territories of Nunavut, Yukon and Northwest Territories do not charge provincial sales tax.
Property taxes have long been the method the municipal levels of government use to support their infrastructure. Property taxes on residential, industrial and commercial properties account for about 10% of total taxation in Canada.
Both the federal and provincial governments impose excise taxes on goods such as cigarettes, gasoline, alcohol, and for vehicle air conditioners. A great bulk of the retail price of cigarettes and alcohol are excise taxes. The vehicle air conditioner tax is currently set at $100 per air conditioning unit.
Canada has some of the highest rates of taxes on cigarettes and alcohol in the world. These are often referred to as “sin taxes.”
Ontario levies a payroll tax on employers, the “Employer Health Tax”, of 1.95% of payroll. Eligible employers are exempt on the first $400,000 of payroll. This tax was designed to replace revenues lost when health insurance premiums, which were often paid by employers for their employees, were eliminated in 1989.
Quebec levies a similar tax called the “Health Services Fund”. For those who are employees, the amount is paid by employers as part of payroll. For those who are not employees such as pensioners and self-employed individuals, the amount is paid by the taxpayer.
Premiums for the Employment Insurance system and the Canada Pension Plan are paid by employees and employers. Premiums for Workers’ Compensation are paid by employers. These premiums account for 12% of government revenues. Technically, because they are insurance premiums, the government does not consider them taxes, but other than the name, there is no difference.
Employment Insurance is unlike private insurance because the taxpayer’s yearly income impacts the received benefit. Unlike private insurance, the benefits are treated as taxable earnings. The impact on taxpayers with a mid to high income for the year, is that they could have to repay up to the full benefit received. In other words, employment insurance is a premium we are all forced to pay, but only the poorest of taxpayers is allowed to collect.
Ontario charges Health and Prescription Insurance Tax on income for the health system. These amounts are collected through the income tax system, and do not determine eligibility for public health care. The Ontario Health Premium is an additional amount charged on an individual’s income tax that ranges from $300 for people with $20,000 of taxable income to $900 for high income earners. Individuals with less than $20,000 in taxable income are exempt.
Municipalities charge business tax on businesses that are located in their municipality.
Quebec also requires residents to obtain prescription insurance. When an individual does not have insurance, they must pay an income-derived premium. As these are income related, they are considered to be a tax on income under the law in Canada.
Other provinces, such as British Columbia, charge premiums collected outside of the tax system for the provincial Medicare systems. These are usually reduced or eliminated for low-income people.
Alberta does not levy any taxes or premiums for its provincial Medicare.
We tax the dead by way of Estate Taxes. Since the government of Pierre Trudeau repealed Canada’s inheritance tax in 1972, estates have been treated as sales (a “deemed disposition”) upon death, except where the estate is inherited by a surviving spouse or common law partner.
Estate Tax owing is paid by the estate, and not by the beneficiaries.
Registered Retirement Savings Plans and Registered Retirement Income Funds are wound down, and the assets are distributed to beneficiaries are treated as withdrawals, i.e., they are taxed as part of the income of the estate at the normal applicable personal income tax rates with no reduction for capital gains. (Dead people cannot complain.) Non-registered capital assets are treated as having been sold, and are taxed at the applicable capital gains tax rates. Interest or other income from non-registered non-capital assets that is accrued up to the date of death is taxed on the final tax return of the deceased as the normal tax rates, and is not included on the tax return of the estate.
Canadian individuals and corporations pay income taxes based on their world-wide income. Canadians are protected against double taxation through the foreign tax credit, which allows taxpayers to deduct from their Canadian income, tax otherwise payable from the income tax paid in other countries.
A citizen who is currently not a resident of Canada may petition the CRA to change his status so that income from outside Canada is not taxed, by becoming a “Non Resident.” One does not lose their citizenship by becoming non resident and can regain their residency.