How to Pay Income Tax in Canada

The income taxes in Canada comprise the largest portion of states annual revenues and the revenues of the provincial governments. Taxes are levied by single collection agencies and administrations at the provincial level. The federal government levies corporate income tax on behalf of the provincial authorities, with the exception of Alberta, Quebec, and Ontario, and personal income tax, except for the province of Quebec. The Canada Revenue Agency is responsible for the overall administration of the income tax system at the federal level. Territorial and provincial income taxes are collected under provincial statutes, with federal income taxes levied under the Income Tax Act.

In 2010, the federal income taxes on taxable income of up to $40,970 are at 15 percent. Individuals who have a taxable income over $127,021 have to pay 29 percent in income taxes. The territorial and provincial tax rates vary, with a flat 10 percent income tax in Alberta and just 4 percent on a taxable income of up to $39,065 in Nunavut. Quebec runs a separate income tax system. Although free to determine the regulations for taxable income, the province uses a definition of taxable income that is similar to the ones found in the federal system. Revenue Quebec may be contacted for information on tax rates valid for the territory of the province.

Income tax is collected in a number of ways. First, taxes may be deducted from one’s paycheck and sent to Canada Revenue Agency. Second, payment can be carried out on filing one’s income tax return. Arrear payments refer to the payment of income taxes after the income tax return has been filed. Installment payments are paid during the year rather than at the end of the tax year. In addition, employers may deduct from the gross pay of employees their contributions toward Employment Insurance, Canada Pension Plan, and Personal Parental Insurance. These deductions are sent by employers to the taxing authorities. Persons who have paid taxes in excess to what they owe get a refund from Canada Revenue Agency. In general, deductions are allowed for contributions to professional and union duties, RRSPs, investment losses, and child care expenses, among others. Deductions are also allowed for half the amount of capital gains, capital losses as well as special deductions for the citizens residing in northern Canada.

Canadian citizens pay their income taxes on a self-assessment basis. Tax liability is assessed by the taxpayers on filing returns with the Canada Revenue Agency. CRA assesses all returns on the basis of the information provided by financial companies and employers and the return itself. Taxpayers who disagree with the assessment of the Agency may initiate an appeal. The appeal process is formally started with an objection to the assessment, which is then reviewed by the CRA. Appeal assessments are varied, vacated or confirmed by the Canada Revenue Agency. If the taxpayer disagrees with the decision of the CRA, he or she may take it to the Tax Court of Canada.



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