An Overview of Tax Compliance Services in Canada

Canadian tax system taxes companies and individuals. GST, income tax, and capital gains are some of the taxes levied by Canada. Personal tax is charged at 15-33%. The corporate tax rate is around 38%. GST, which is very similar to VAT, is levied at 5%. Other taxes include social contributions, property tax, and land transaction tax. There is no stamp duty in Canada. Canada has entered into several international tax agreements, which come to around 96 Double Tax Treaties and 12 Tax Information Exchange Agreements (TIEA). The Canadian Revenue Agency (CRA) is the body that administers tax laws on behalf of the Government of Canada.

Different Types of Taxes in Canada

1. Individual Tax

Canadian residents pay income tax on their global income, whereas non-residents pay income tax on their source income in Canada. Income tax is levied at the federal, provincial, and territorial levels. The federal tax is levied as follows:

The provinces and territories have their own tax rates. Even their rates are progressive rates and usually range from 4% to 26% depending on the income, and province or territory. Apart from this, a minimum alternative tax (MAT) is levied if it exceeds the regular tax. MAT can be credited against the ordinary tax in the future if the ordinary tax exceeds the MAT. Half of the capital gains arising from the sale of assets are included in the income tax at ordinary tax rates.

2. Corporate Income Tax

Canadian companies pay tax on their global income whereas non-resident companies pay tax on source income in Canada. The basic federal tax is levied at 38% which has been reduced to 28% for income generated within the province or territory of Canada. Further, there are reduced rates for small companies, manufacturing companies, etc. There is also a regional income tax for income generated in the province or territory which generally ranges from 2% to 16% depending on the profit and the province or territory. Half of the capital gains from the sale of assets are included in the income taxes at ordinary tax rates. There are special accounting rules applicable for tax purposes on gains from the sale of shares and dividends. As a general rule, dividends arising from Canadian companies are not taxable to a Canadian company.

3. Withholding tax on income

Tax on dividends and royalties is withheld at the rate of 25%. However, interest paid to unrelated parties is not subject to withholding tax. For other types of incomes, tax may be withheld and tax rates may be reduced depending upon the double taxation avoidance agreements (DTAAs).

4. Value-Added Tax or Goods and Services Tax (GST)

GST which is similar to VAT is levied at 5% at the federal level. GST can also be levied at the provincial level. Provinces charge Harmonized sales tax (HST) which is similar to GST. It is charged at the rate of 13% to 15%. In Quebec, a similar tax is levied at the rate of 10% whereas some other provinces have imposed provincial retail sales tax with their own rules and rates.

5. Property Tax

Property tax is levied at the municipal and provincial or territorial levels. Property tax ranges from 0.5% to 2.5%. The size of the property and income level are factors that determine the amount of property tax required to be paid.

6. Land Transaction Tax

The Land Transaction Tax is levied at the provincial and territorial levels. The tax rate generally ranges from 0.02% to 3%. Land Transaction Tax is generally higher for non-residents and an additional tax may be charged. 

Tax Period in Canada

The tax period in Canada is the calendar year i.e., from 1^st January to 31^st December. The tax return should be filed by 30^th April of the year succeeding the reporting year.

Tax Filing in Canada

The CRA does not require annual filing from most citizens. However, there are exceptions. Let’s have a look at who should file a tax return:

1. If you owe tax to the CRA.
2. If you’re self-employed and have to pay your Canada Pension Plan (CPP) Premiums or Employment Insurance (EI) premiums.
3. If you and your spouse want to split your pension.
4. If you have participated in Home Buyer’s Plan (HBP) or Lifelong Learning Plan (LLP)
5. If you have disposed of capital property.
6. If you have to repay Old Age Security or Employment Insurance Benefits.
7. If you have received Canada Workers Benefit advance payments in a tax year.
8. If the CRA has requested you to file.
9. If CRA has sent a Demand for you to file you tax return.

Can I voluntarily file a tax return?

Yes, you can voluntarily file a tax return even if you’re not required to do so. You can voluntarily file a tax return in the following cases:

1. If you want to claim a refund
2. If your tax return will determine your eligibility for certain federal and provincial benefits programs.
3. If you want to claim Canada Workers Benefit or want to receive Canada Child Benefit.
4. If you attend school and have eligible tuition fees then you must declare tax return even if you aren’t using them.

If you and your spouse want to receive a Guaranteed Income Supplement on your Old Age Security payments.