Immigration. Travel. Living.

Expat’s guide on Canada tax system

(individual taxes, expatriate taxation, corporate taxes)

The number of expats coming to Canada is increasing every year. It is because Canada is a developed country with a good social security system and a high standard of living. Also, Canada belongs to the group of countries with an average level of the tax burden.

Taxes in Canada are characterized by the following main features:

  • the priority of collecting payments from individuals, not legal entities – such a system is used so that enterprises have more opportunities for growth and higher wages of employees, already from whose wages a relatively large amount of taxes will be withdrawn;
  • a relatively small number of fiscal payments, but at the same time each of them is detailed. Therefore, if you wish, you can significantly reduce the tax burden using completely legal methods.
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Individual taxes

For a person to be required to pay income tax in Canada, they must:

  • be a Canadian citizen or reside in the country for at least 183 days a year;
  • receive cash income during the year above the established minimum – 11,327 Canadian dollars.

For citizens of Canada, it does not matter in which country they received income. In any case, they will pay taxes on the entire amount. While for foreign citizens, the object of taxation is only funds received in Canada: salary, entrepreneurial income, capital gains income, and so on.

The main tax payment for individuals is income tax, which in this country is called the federal tax, which already testifies to its significant role in the structure of fiscal revenues to the state budget. As in other developed countries, income tax in Canada has a progressive scale of payment at the following rates in 2017:

  • from 11 300 to 45 900 $ – 15%;
  • from $ 45,900 to $ 92,000 – 20.5%;
  • from $ 92,000 to $ 142,300 – 26%;
  • from 142 300 to 202 800 $ – 29%
  • from $ 202,800 – 33%.

It is important that the regional income tax rate can vary significantly from province to province. For example, in the largest province, Ontario, the maximum rate is 13.16% for incomes over $ 220 thousand, while in Quebec, it is 25.75% for incomes over $ 103 thousand (similar income in Ontario would be taxed at the rate of 9.15%).

It may seem that the tax burden in Canada on a working or self-employed person is no less and even more than in Western European countries. It is because, for an individual who earns more than 220 thousand per year and lives in the province of Quebec, the total income tax rate is 58.75% (33% + 25.75%). Moreover, it is excluding contributions to pension funds (4.95%, but not more than 2.5 thousand per year) and social insurance (1.88%, but not more than 0.9 thousand per year), which are also included in income tax in Canada.

Tax deductions

However, there are many tax deductions in Canada:

  • family people pay less than single people since the former have a higher level of inevitable costs: expenses for kindergarten, school, college for a child;
  • if the husband or wife is an unemployed person, regardless of the reason;
  • when the payer supports disabled relatives or persons of retirement age;
  • if the family’s total expenditures on medicine are more than 3% of the income of the member who earns the least;
  • when buying your first home;
  • when paying bills for renting real estate or tax payments on it.

As a result, it is possible to significantly reduce the tax burden for an individual in Canada, if you are aware of all possible fiscal credits. The easiest way to do this for a person with a low income – without significant effort, the real rate (federal + local part – tax deductions) will be about 10-15%, and most average Canadians give the state 20-25% of their annual income.

Basic nuances of corporate taxation in Canada

The main type of fiscal levy for businesses in Canada is income tax, which is called corporate income tax. As well as for individuals, this tax has federal and local components, and its scale is not increasing but decreasing, which should stimulate constant business growth.

The base rate at which income tax is calculated in Canada is 38%. There are many tax deductions from this rate. Therefore, by contacting a tax lawyer, you can significantly reduce the burden of payments. The real rate ranges from 10 to 25%, which is generally below the level of other developed countries.

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