Common taxes in Canada

Taxes are mandatory payments made to a government. This means that it is not a choice, but an obligation. The government uses taxes to support the programs and services it offers, like education or health care.

In Canada, the federal, provincial or territorial, and municipal (local) levels of government all collect taxes.

There are many common types of taxes you pay in Canada.

Income taxes

Individuals and businesses pay taxes on their income. Individuals calculate the income tax they owe on an income tax and benefit return every year.

Income tax and benefit return

Income tax and benefit return

The amount of income tax you pay depends on your income and the tax credits you will claim. You calculate federal and provincial or territorial tax when you do your taxes.

Tax credits

Tax credits

Sales taxes

3 different kinds of sales taxes exist in Canada:

• goods and services tax (GST)
  A federal tax you pay on most goods and services you purchase in Canada. The rate is the same across the country.
• provincial sales tax (PST)
  A tax some provinces charge. The rate and the items they tax are different between provinces.
  Residents of Quebec

  In Quebec, the PST is called the Quebec sales tax (QST).

• harmonized sales tax (HST)
  A tax some provinces charge. These provinces combine the GST with the PST to form the HST.

Property taxes

Municipal (local) governments calculate these taxes based on the value of land and buildings.

Customs duties or tariffs

The federal government charges these amounts on certain imported and exported products.

Health services taxes

Provinces and territories are responsible for managing their own health care system. Some may charge additional amounts to access these services.

Public programs and services

The government uses the taxes it collects to pay for the public facilities, programs, and services we enjoy every day in Canada.

Taxes help pay for:

• education and schools
• health care and hospitals
• roads and bridges
• police, ambulance, and fire services
• libraries
• parks and playgrounds
• arenas
• swimming pools
• garbage and recycling collection
• economic development
• wildlife conservation
• national defence

Paying for social programs and benefits

The taxes you pay also help:

• families with low or modest incomes
• students
• adults 65 years and older
• persons with disabilities

If you are an employee, through the contributions deducted directly from the money you earn, you also contribute towards social programs, like:

• employment insurance (EI)
• the Canada Pension Plan (CPP)
• the Quebec Pension Plan (QPP)
• the Quebec parental insurance plan (QPIP)

Your employer will deduct these contributions automatically and will also make contributions to these programs in your name.

Note: If you are self-employed, you pay both the employee and employer contributions when you do your taxes.

Self-employed

Self-employed

Social programs and benefits

Your taxes and contributions help pay for social programs and benefits like:

• the goods and services tax / harmonized sales tax (GST/HST) credit
  A tax-free payment that eligible individuals get every three months. It helps individuals and families with low or modest incomes offset the GST or HST they pay.
• the Canada child benefit (CCB)
  A tax-free monthly payment that helps eligible families with the cost of raising children under 18 years of age.
• employment insurance (EI)
  This program provides benefits to individuals who lose their jobs through no fault of their own and are available for and able to work but can’t find a job. This program also offers benefits related to parental, sickness, and caregiving leave.
  Residents of Quebec

  Residents of Quebec receive maternity, paternity, parental, and adoption benefits from the Quebec parental insurance plan (QPIP).

• the old age security (OAS) pension
  A public pension you could receive monthly if you are 65 and older.
• the Canada Pension Plan (CPP)
  A retirement pension you could receive if you are least 60 years old and have made at least one valid contribution to the CPP, usually through employment. This program also offers additional payments related to disability.
• the Quebec Pension Plan (QPP)
  A retirement pension you could receive if you at least 60 years old and have contributed to the QPP for at least one year. This program also offers additional payments related to health and disability.
• social assistance
  Payments made to individuals who need them most to help pay for food, clothing, and shelter.

Reasons to file a tax return

Income tax is one of the most common taxes you pay in Canada. It helps pay for the many different programs and services the government offers.

In Canada, individuals file an income tax and benefit return every year to report their income for the year. They do their taxes to calculate the income tax they actually owe and to find out if they are entitled to a refund or if they have a balance owing.

Income tax and benefit return

Income tax and benefit return

Refund

Refund

Balance owing

Balance owing

Doing your taxes has benefits. You should do your taxes every year if you want to take advantage of these benefits.

You should do your taxes if you want to:

• get a refund
• begin or continue to receive payments like the goods and services tax / harmonized sales tax (GST/HST) credit or the Canada child benefit (CCB)
• carry forward or transfer unused tuition credits, which will help you or the other person pay less tax
• earn registered retirement savings plan (RRSP) contribution room, which means you can save more money in your RRSP account

Goods and services tax / harmonized sales tax (GST/HST) credit

Goods and services tax / harmonized sales tax (GST/HST) credit

Canada child benefit (CCB)

Canada child benefit (CCB)

Registered retirement savings plan (RRSP)

Registered retirement savings plan (RRSP)

When you must do a tax return

There are several situations when you must do your taxes, including if:

• you have to pay tax for the year
• the Canada Revenue Agency (CRA) sent you a request to file a return

Getting a refund

A tax refund is an amount the CRA owes you when you do your taxes. You get a refund when you have more credits than amounts owing. This could happen if you paid more tax during the year than you actually owe. For example, your employer may have deducted too much tax from your pay during the year. It could also happen if you are entitled to any refundable tax credits.

Refundable tax credits

Refundable tax credits

The only way to claim and receive a refund you are entitled to is to do your taxes.

Receiving benefit payments

The CRA calculates many benefit payments using information from your tax return, such as:

• the GST/HST credit
• the CCB

You calculate other benefits directly on your tax return, like the Canada workers benefit (CWB).

Canada workers benefit (CWB)

Canada workers benefit (CWB)

Once you start receiving your benefit payments, you must do your taxes every year if you want to continue to receive them. This is true even if you had no income during the year or if your income was tax-exempt. If you have a spouse or a common-law partner, they must also do their taxes every year. You should do your taxes on time to avoid delays in receiving your payments.

The only way to receive the payments you are entitled to is to do your taxes.

Carrying forward or transferring unused tuition credits

You can claim a tax credit for eligible tuition fees paid to a recognized educational institution. Generally, this includes post‑secondary institutions, like universities or colleges. It can also include other educational institutions where you gain skills to develop your career, like a trade school.

Tax credits

Tax credits

The tuition tax credit can help reduce the taxes you owe on your income. If you had low income or no tax to pay in the tax year you paid your tuition, you may not need to use all your tuition tax credits.

Tax year

Tax year

If you don’t need to use all your tuition credits, you may be able to transfer unused credits to:

• your spouse or common-law partner
• your parent or grandparent
• your spouse’s or common-law partner’s parent or grandparent

Whether or not you choose to transfer your unused tuition credits, you can carry forward any unused credits until they are used up. This will help you pay less tax in the future when you have a higher income.

Carry forward

Carry forward

The only way to update your account with your tuition tax credit information is to do your taxes.

Earning RRSP contribution room

An RRSP is a retirement savings and investment plan that you can open an account for and contribute to. This can help you save money for your future. Deductible RRSP contributions can be used to reduce your income tax.

The amount you can contribute to your RRSP is your deduction limit, often called your contribution room. This is also the maximum you can claim as a deduction on your tax return.

Deductions

Deduction

The CRA calculates your contribution room using a few different amounts, including the money you earned, when you do your taxes.

Even if you don’t owe any tax, you could earn more contribution room by doing your taxes every year. This means that you could save more money in your RRSP.

If you don’t contribute the full amount of your contribution room to your RRSP, you don’t lose the unused contribution room. The CRA adds this amount to your contribution room for the next year when you do your taxes. This means you could contribute more to your RRSP in the future.

The only way to earn your contribution room is to do your taxes and report your income to the CRA.

If you don’t file a tax return

If you don’t file your taxes every year, you may miss out on certain benefits and credits. You must file your taxes to:

• get a refund you may be entitled to receive
• receive benefit and credit payments you may be entitled to, like the goods and services tax/harmonized sales tax (GST/HST) credit or the Canada child benefit (CCB)
• carry forward or transfer unused tuition credits
• earn registered retirement savings plan (RRSP) contribution room

The CRA identifies individuals who have not filed a tax return by the due date and may have a balance owing. This is done based on information available to the CRA.

If the CRA identifies you as a non-filer they may:

• send you a request by mail to file your tax return
• call you to request that you file your tax return
• send a representative to visit you

Non-filer

Non-filer

If the CRA does not receive your tax return by the due date in the request, the CRA may:

• create a tax return to assess your tax payable for you under subsection 152(7) of the Income Tax Act
• take legal action against you for not filing your taxes

Your responsibilities

In Canada, each person does their own taxes every year. This involves reporting their income on an income tax and benefit return to determine if they have a balance owing or will receive a refund. This type of tax system is based on the self-assessment principle.

Income tax and benefit return

Income tax and benefit return

Balance owing

Balance owing

Refund

Refund

In this tax system, you have specific responsibilities.

Doing your taxes by the deadline

Generally, you have to do your taxes by April 30. If you do your taxes late and have a balance owing, you will be charged a late-filing penalty. You can avoid the penalty by doing your taxes by the due date, even if you cannot pay your balance in full.

Giving the Canada Revenue Agency (CRA) accurate and complete information to assess your tax return

You must give the CRA the necessary information to process your tax return correctly. This includes submitting supporting documents, like receipts for medical or moving expenses, if the CRA reviews your tax return.

Correcting your taxes

If you make a mistake on your tax return or leave out details about your income, you have the chance to correct the situation. You can also change your tax return if you forgot to claim certain deductions or credits.

Paying your balance owing

If you have a balance owing when you do your taxes, it is also due on April 30. If you do not pay your balance by the payment due date, the CRA will start charging you compound daily interest as of May 1. The CRA will charge interest on your total balance, including amounts owing from previous years and penalties, until you pay it in full.

Compound daily interest

Compound daily interest

Notifying the CRA of any changes to your personal information, like a change to your address or marital status

This makes sure you keep receiving the benefit payments you are entitled to and important mail from the CRA.

The Canada Revenue Agency’s responsibilities

The CRA provides information about Canada’s tax laws so you can understand and follow them. The CRA uses different channels, like its website or social media, to regularly share information and updates with the public. This keeps the Canadian tax system fair and protects its integrity.

The CRA has specific responsibilities.

Reviewing tax returns

The CRA randomly reviews tax returns to ensure that you claimed or reported amounts, like tax credits or deductions, correctly and that you have the proper supporting documents. The CRA interprets and applies the Canadian tax law consistently and neutrally.

Tax credits

Tax credits

Deductions

Deductions

Reducing participation in the underground economy

The underground economy includes any activity that involves not properly reporting income tax or GST/HST (sales tax). The underground economy puts an unfair tax burden on all law-abiding Canadians.

Taking appropriate action

The CRA has several compliance programs in place to deal with suspected cases of tax evasion, fraud, and other tax offences. These programs ensure that individuals and businesses follow Canada’s tax laws, like reporting all their income, paying all taxes they owe, and updating information that could affect their benefit payments.

Your rights

The CRA believes that you are more likely to meet your obligations in Canada’s tax system if you have the information and services you might need to do so.

The Taxpayer Bill of Rights describes 16 rights and outlines the treatment you are entitled to when dealing with the CRA. It builds on the CRA’s values.

The Taxpayer Bill of Rights includes, among others, your right to:

• be treated professionally, courteously, and fairly
  When you deal with the CRA, you will be treated fairly under clear and set rules. You can expect high standards of accuracy, professionalism and courtesy.
• register a dispute or make a complaint
  You may disagree with the way your taxes were assessed or have a complaint about the service you received. You should first try and resolve the issue by talking with the CRA. If you are still unsatisfied, there are formal programs where you can ask to review the issue.

It is important to understand your rights and to know that you can apply them if needed.

The Office of the Taxpayers' Ombudsperson

The Office of the Taxpayers' Ombudsperson works independently from the CRA. They work to improve the service that the CRA provides to taxpayers by reviewing service-related complaints. They also look at issues that can affect more than one person, or a part of the population.