Taxes for individuals in Canada

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Taxpayers in Canada

Taxpayers in Canada are residents, as well as other individuals who work and have income there. The important thing is that the status of a tax resident can be determined individually.

The stay of a person in a country for 183 days makes the person a resident of that country for that period. Also, the presence of real estate for living, membership in various clubs and other important factors of connection with Canada can affect the status of a taxpayer.

Income tax

Personal income tax is the main type of direct taxes. It is calculated as a percentage of the total income of individuals, minus documented expenses, in accordance with applicable law. The tax is levied on a progressive scale at two levels: federal and provincial, and therefore has a combined rate.

Federal tax rate on annual income:

• 15% – for the first $49,020;
• 20.5% – from $49,021 to $98,040;
• 26% – from $98,041 to $151,978;
• 29% – from $151,979 to $216,511; 33% is above $216,511.

Provincial tax varies by location. There are 10 provinces and 3 territories in Canada, each with its own rates. So, in Ontario, income over $150,000 a year is taxed at a rate of 12.16%, and in Quebec – 25.75%.

Here is a great example to understand how tax is calculated. For example, you work in Ontario and earn $60,000 a year. Let’s calculate the federal part first:

49,020 x 15% + 10,980 x 20.5% = $7,353 + 2,250.9 = $9,604

And provincial for Ontario:

45,142 x 5.05% + 14,858 x 9.15% = $2,280 + 1,360 = $3,640

It’s simple, in total you will pay a tax of $13,244. That is, your combined rate will be 22%.

Compensation

Despite high tax rates, Canada has quite a lot of federal and provincial exemptions and deductions that allow you to pay less taxes.

Individuals with an income of less than $7,500 per year are completely exempt from tax. Tax deductions are available for low incomes: up to a maximum of $1,381 for single people with an income of $24,573 or less, up to $2,379 for families with an income of $37,173 or less.

Compensation is also provided to the following categories of individuals:

• containing disabled people or pensioners;
• families with children (in the calculator you can calculate what benefits you are entitled to);
• with a non-working spouse;
• first home buyers;
• with spending on medicine more than 3% of income.

For some taxpayers, there is a VAT deduction. Including for new residents who have recently emigrated to Canada. Newcomers can only claim the deduction in the first tax year.

For example, for 2020 (the payment period is from July 2021 to June 2022), you can get:

• up to $456 for one person;
• up to $598 for a family;
• up to $157 for each child under 19.

Also, there are an infinite number of opportunities in the country to optimize tax liabilities depending on the status or business arrangements of the taxpayer.

For example, a special savings account in which invested tax-free income will be blocked until a person retires or withdraws savings for another reason.

For example, if a person earned $100,000 in 2021, but put $10,000 in such an account, then he will pay income tax on $90,000, and not on $100,000 of income (saves approximately $3,400 in taxes).

Importance

The country’s tax system is designed to create favorable conditions for increasing production efficiency, eliminating disproportions in the economy, enhancing the role of small and medium-sized businesses in generating budget revenues, and promoting the growth of the living standards of the population. And Canada’s tax system for individuals confirms this.

Read more: https://taxtaxation.com/french-tax-authorities/