Taxation in Canada
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Canada's taxation rate is about average among OECD countries, but it is significantly higher than the rate in the United States, the country with which Canada usually compares itself. In total, about 36.8% of Canada's GDP goes to taxes.
Today about over 70% of government income comes from taxation, the rest from tariffs, fees, and investments.
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Types of Taxes
Income taxes
Both the federal and provincial governments impose income taxes, and these are the most significant sources of revenue for those levels of government accounting for over 40% of tax revenue. The federal government charges the bulk of income taxes with the provinces charging a lower percentage. Income taxes throughout Canada taxes are progressive with the wealthy paying a higher percentage than the poor. Canadian income taxes are still less progressive than those of many nations.
Sales taxes
The federal government imposes a 7% sales tax on most purchases known as the GST. Every province except for Alberta also has a provincial sales tax of some sort.
Main article: Sales taxes in Canada
Property Taxes
The municipal level of government is funded largely by property taxes on both residential and commercial properties. These account for about ten percent of total taxation in Canada.
Excise taxes
Both the federal and provincial governments impose hefty excise taxes on inelastic goods such as cigarettes, gasoline, and alcohol. A great bulk of the costs of these items in Canada are taxes.
Employment Insurance and Canada Pension Plan
A levy for the Employment Insurance system and the Canada Pension Plan is paid by every worker and these along with smaller services like Workers' Compensation account for 12% of government taxes.
Corporate taxes
Companies and corporations pay tax on profit income and on capital gains. These make up a relatively small portion of total tax revenue. A withholding tax is levied on dividends paid - this is a tax credit to the account of the dividend recipient.
Inheritance tax
Since the government of Brian Mulroney in the 1980s Canada has had no inheritance taxes. Instead inheritance is treated as a disposal subject to the same capital gains taxation as, for example, the sale of the asset.
History
When Canada became independent in 1867 the British North America Act attempted to create a centralized federal government with unlimited revenue gathering abilities. The federal government was entrusted with the high cost programs, most notably defence and the building of railways. The provinces were given limited taxation power, they could only impose direct taxes such as sales and income tax. They were given responsibilities that were meant to be cheaper such as health care and education.
For the early part of Canadian history most federal government revenue came from tariffs on trade with excise taxes making up the rest of the government's funding. The largest source of provincial funding was license permits and transfers of funds from the federal government. The first corporate taxes were introduced at the end of the nineteenth century.
This resulted in a crisis during the Great Depression. The provincial governments were responsible for the skyrocketing welfare costs, but they could not raise enough taxes, especially since the taxes permitted the provinces were so dependent on the health of the economy. The federal government still had plenty of money, however. This resulted in the system of transfer payments between the two levels of government that continues to this day.
The First World War had mostly been financed by traditional means, but the Second World War led to dramatic change in the tax system. The percentage of Canadian government revenue from indirect taxes fell from 90% in 1913 to less than 40% by 1946. Instead Canadians began to pay income taxes and direct taxes has since provided the greatest bulk of government funding.fr:Fiscalité canadienne