If you are a resident of Canada, your worldwide income is subject to taxation. This includes earnings from employment, business activities, and capital gains on property. For non-residents, the types of income that are taxable are specified in Chapter 9. Gifts and inheritances are not taxable, and lottery winnings are not taxed unless they are paid in lieu of other income. If your income originates from another country, Canada usually provides a tax credit to avoid double taxation.
All individuals, including part-time residents and non-residents, must pay federal tax if they meet the minimum income thresholds. These thresholds can vary depending on various factors such as province of residence, marital status, and dependents. Special deductions and credits are available to reduce the amount of taxable income. These can include amounts for dependents, certain provincial credits, and more.
For instance, a married or common-law couple with one earner and an income of up to $26,000 may qualify for federal tax exemptions on their combined income. Families may also benefit from programs like the Canada Pension Plan and Employment Insurance, which offer additional deductions and refundable tax credits for families with dependent children. These benefits are typically paid periodically by the government based on prior years' tax returns.
Not all income is treated equally under Canadian tax law. For example, only 50% of capital gains are considered taxable. Dividend income from Canadian corporations is grossed-up and receives a dividend tax credit, which reduces the effective tax rate. Employment benefits, such as stock options, may also have specific tax treatments that can provide further tax relief.
Special rules apply to contributions to the Canada Pension Plan, especially for self-employed individuals, who have a lower income threshold of $3,500 for these contributions.
Federal income tax rates in Canada for individuals range from 15% to 33%, depending on the amount of taxable income. These rates are progressive, meaning they increase as your income increases. Specific rates for different income brackets are updated periodically to reflect economic changes.
In addition to federal taxes, provinces and territories impose their own income taxes. These rates vary by province, adding to the total tax payable. For example, Quebec residents must pay a separate provincial tax and receive a 16.5% abatement on their federal tax. Combined federal and provincial tax rates depend on your province of residence and your income level.
In certain cases, residents and non-residents must also pay a federal surtax of 48% on specific types of income not considered standard taxable income. This includes certain income earned abroad, detailed under special rules and regulations.
By April 30 each year, residents are required to calculate their income and tax owed for the previous year and submit this information to the Canada Revenue Agency (CRA). This self-reporting system ensures that individuals are responsible for accurately reporting their income. Late payments are subject to interest charges from the due date to the payment date.
Exceptions to the April 30 deadline exist for individuals with income from a business or partnership, who have until June 15 to file, though interest on any tax owing is still calculated from April 30. The CRA administers and enforces federal income tax laws, while the Department of Finance is responsible for drafting and amending tax legislation as part of the federal budget process.
In cases of federal tax disputes, the Department of Justice represents the CRA in court. Initial cases are heard in the Tax Court of Canada, with appeals potentially reaching the Federal Court of Appeal and, in some cases, the Supreme Court of Canada.
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