Area of Law: Tax Law
Answer Number: 169
Overview of the Canadian tax systemRegion: Ontario Answer Number: 169
The Canadian government collects taxes as a source of revenue to pay for social and economic programs. Tax laws are set by both the federal and provincial governments, although tax collection is generally controlled by the federal government through Canada Revenue Agency (CRA). The federal government collects all federal personal income taxes, as well as personal income taxes on behalf of all provinces and territories except Quebec.
CRA also collects corporate income taxes on behalf of all provinces and territories except Alberta and Quebec. In Quebec, the provincial government has its own income tax collection process through Revenu Québec. After CRA has collected all federal, provincial and territorial taxes it then remits the provincial or territorial revenues to the relevant participating province or territory.
Income Tax Act
Income is taxed at both the federal and provincial (or territorial) level. The federal law for taxing income is the Income Tax Act, which sets out rules for both individuals and businesses. The Income Tax Act usually undergoes important changes every year when the federal government sets its annual budget. These changes will affect how much tax you pay from year-to-year. Provincial tax is calculated based on the laws found in the various provincial and territorial statutes. Together, the federal and provincial income tax rate is called the combined tax rate.
Types of tax
In addition to the Income Tax Act, there are also other laws that cover the taxation of importing, exporting, sale of goods and services, and property. Canada is also a signatory to a host of international treaties with other countries that govern the taxation of individuals and businesses doing business or earning income internationally.
Self-assessment tax system
The Canadian tax system relies on self-assessment by tax payers. Each tax payer is responsible for reporting their total income and determining their total tax owing.
CRA enforces the tax law by performing a number of audits on individuals and businesses each year. If CRA finds that someone made an error in calculating or reporting the tax they owe, they are reassessed, and if the error was deliberate, a penalty is levied. If someone is found to be evading the law, they may be prosecuted by the Department of Justice for tax evasion or a criminal offence.
For general information, contact Canada Revenue Agency.
For help filing your tax returns, contact H&R Block.
For legal advice and assistance with tax planning, a CRA tax dispute, or other tax issues, contact our preferred Tax lawyers and see who’s right for you:
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