How much are taxes in Canada?

Are you considering Vancouver, Montreal or any other canadian city as your next residence? In that case, you’re interested in this article. Knowing the tax system of the country you’re moving to is important, as it’ll directly affect your purchasing power and standard of living. In the case of Canadian taxes, also indirectly, through the quality of and access to public services.

Maple Country’s tax system is progressive and decentralised, with taxes levied at federal, provincial/territorial and municipal levels. Although they may be somewhat high in some provinces and sectors, for most Canadians and residents the level of public services compensates for these contributions. Let’s see what tax rates we’re talking about so that you can decide whether it’s worth moving or starting a business in Canada.

Taxes for individuals or natural persons in Canada

Before going into detail about the different taxes payable in Canada, it’s important to clarify how the Canadian tax system works. Fiscal responsibility in maple country is shared between federal, provincial/territorial and municipal governments. What does this mean exactly? It means that, as a taxpayer, you could be subject to several levels of taxation. Moreover, the system is progressive: fees increase as your income increases. This is to ensure that those who earn more, contribute more.

Another thing to bear in mind is the distinction between tax residents and non-residents. Tax residents are taxed on their global income, i.e. everything they earn inside and outside Canada. Non-residents, on the other hand, are only taxed on income generated within the country, but usually face higher rates. With that said, we can now move on to the main taxes you’ll face if you decide to move to Toronto or any other corner of this interesting country.

1. Income tax

Income tax is one of the pillars of the Canadian tax system. It applies to income generated by wages, investments, rents and other economic activities. It’s progressive and rates vary according to income level and the province or territory where you live. Part of this revenue funds key services, such as Canada’s healthcare system.

Federal rates for 2024:

• Up to $53,359 C ($39,520 US): 15 %.
• Between $53,360 and $106,717 C ($39,521-79,040 US): 20.5 %.
• Between $106,718 and $165,430 C ($79,041-122,720 US): 26 %.
• Between $165,431 and $235,675 C ($122,721-174,750 US): 29 %.
• More than $235,675 C ($174,751 US): 33 %.

For example, imagine you earn $80,000 C ($59,200 US) a year. You’ll pay 15 % on the first $53,359 C ($37,322.22 US) and 20.5 % on the rest. This equates to about $13,215 C ($9,882 US) in federal taxes, to which provincial taxes will be added.

What are the provincial taxes? Each province has its own rates which are added to the federal rates. For example, in Ontario, provincial rates range from 5.05% to 13.16% (depending on your income). You can consult the fees on the official websites of the tax agencies of each province or territory.

2. Goods and Services Tax (GST)

VAT is an indirect tax levied on most goods and services in Mexico. However, in some provinces, this tax is combined with the provincial tax to create the Harmonised Sales Tax (HST), the rate of which can be as high as 15%. This harmonised system simplifies collection, but means that the final percentage varies from province to province.

That is, if you buy something in Quebec, where the HST is 15 %, a product with a base price of $100 C ($74 US) will cost you about $115 C ($85 US) when taxes are included.

It should be noted that some essential goods and services are exempt from GST. For example, basic foodstuffs, prescription drugs and some medical services. It’s a way of ensuring that basic necessities are more accessible to the population.

3. Capital Gains Tax (CGT)

This tax is paid when you sell assets, such as property or investments. Only 50% of the net gain is taxable and is added to your income for the year. The amount you pay will depend on how much you earn in total.

Let’s look at an example. Suppose you buy a property for $400,000 C ($296,000 US) and sell it for $600,000 C ($444,000 US), the gain will be $200,000 C ($148,000 US). Only $100,000 C ($74,000 US) will be taxed at your income bracket rates.

Important: If you’re a frequent traveller and want to stay connected without worrying about costly roaming or looking for a new SIM at every destination, Holafly’s subcription plans from Holafly subscription plans are for you. With a single eSIM, enjoy internet in more than 170 countries for one fixed price and no bill surprises. Travel without limits and connect easily and safely! 🚀🌍

4. Tax on rent

Rental income is subject to income tax. However, you can deduct expenses related to the maintenance of the property, such as repairs, insurance or mortgage interest.

Example: If you rent a property for $20,000 C ($14,800 US) per year and you have $5,000 C ($3,700 US) in deductible expenses, you’ll be taxed on $15,000 C ($11,100 US).

5. Payroll Tax

When you work as an employee in Canada, your salary isn’t only subject to income tax, but there are also mandatory deductions to fund key social programmes. These deductions are applied directly to your payroll and are mandatory for both residents and non-residents working in the country. Among the main deductions are:

• Employment Insurance (EI) contributions: 1.66% of your annual earnings up to a maximum of $1,002 C ($741 US). This insurance provides temporary financial support to those who lose their job or take maternity, paternity or parental leave.
• Canada Pension Plan (CPP) contributions: 5.95% of your annual income up to a maximum of $3,166 C ($2,342 US). This plan ensures a pension at retirement and also covers disability and death benefits for contributors and their families.

6. Other specific taxes for individuals in Canada

So far, the most relevant taxes in Canada for individuals. Are they the only ones? No, there are other taxes which, although less common, should be taken into account:

• Luxury tax: Levied on items such as high-end vehicles, yachts and private jets at 20 % on the value over $100,000 C ($74,000 US).
• Property transfer tax: Varies by province and is levied when purchasing real estate. For example, in Ontario, rates range from 0.5% to 2.5%, depending on the value of the property.
• Fringe benefits tax: This is levied on non-monetary benefits provided by employers, such as company cars or accommodation.

These taxes may vary depending on your personal situation and geographical location in Canada. It’s a complex issue, don’t rule out hiring an expert to advise you. And don’t forget to get your Holafly eSIM to stay connected at all times!

Taxes for legal persons or companies in Canada

Now that we’re clear about the taxes we would pay if we move to Canada, let’s look at what happens if we decide to start a business. Here you’ll find economic stability, access to global markets and a tax system designed to encourage business growth. It isn’t a bad idea to open one. But how profitable is it from a fiscal point of view? The first thing to know is that the tax burden varies according to the size of the company, its turnover and the province where it operates. Let’s take a look at the most prominent tributes:

1. Corporate Income Tax (CIT)

Corporate income tax is one of the most relevant taxes for companies in this country. It taxes the net profits of companies. That is, the revenue generated after deducting operating expenses and other business-related costs. The CIT structure includes fees at federal and provincial level.

• General rate: 15 % of the company’s net profits.
• Reduced rate: 9 % for small businesses that qualify for the Small Business Deduction (SBD). Applicable to the first $500,000 C ($371,000 US) of annual income.
• Provincial taxes: Vary between 2% and 16% (depending on the province). For example, in Ontario, the provincial rate is 11.5%. In Alberta, 8%.

Say, for example, you have a business in Ontario with a net income of $1,000,000 C ($741,000 US). You’ll pay 15% at the federal level, $150,000 C ($104,918.25 US), and 11.5% at the provincial level, $115,000 C ($80,437.32 US). This totals $265,000 C ($196,500 US) in taxes.

2. Goods and Services Tax (GST)

If you’re setting up a business in Canada, you’ll have to deal with the GST. 5 % for most products and services. In certain provinces, this is combined with the provincial tax to form the Harmonized Sales Tax (HST), which can be as high as 15%.

In this system, companies act as fiscal intermediaries:

1. Collection of the tax: When a consumer purchases a good or service subject to GST or HST, the tax is included in the final price they pay.
2. Recording and accounting: Companies record the tax collected on their operations and separate it from their general revenue.
3. Reporting and Remittance: Every quarter or month (depending on the company’s revenue volume), companies must report how much GST/HST they have collected and send that amount to the Canada Revenue Agency (CRA). If the company has paid GST/HST on its own business-related purchases, it can deduct those amounts before making the remittance.

3. Payroll tax

When a company hires employees in Canada, it must make certain mandatory payroll-related contributions. These contributions fund essential programmes such as Employment Insurance and the Canada Pension Plan. The main ones are:

• Employment Insurance (EI) contributions: Companies pay 1.4% of each employee’s annual earnings, up to a maximum limit of $1,403 C ($1,039 US). This insurance allows employees to receive temporary income in case of unemployment or parental leave.
• Contributions to the Canada Pension Plan (CPP): Employers contribute 5.95% of each employee’s annual earnings, up to a maximum of $3,166 C (·$2,342 US) per employee. These contributions secure retirement and other pension-related benefits.

Let’s use a practical case to understand this better:

A company with 10 employees, each earning $60,000 C ($44,460 US) per year, will have the following tax obligations:

• Employment Insurance (EI): 1.4% on $60,000 C ($44,460 US) equals $840 ($622 US) per employee. Multiplied by 10 employees, this adds up to $8,400 C ($6,220 US).
• Canada Pension Plan (CPP): 5.95% on $60,000 C ($44,460 US) equals $3,166 C ($2,342 US) per employee, totalling $31,660 C ($23,420 US) for the 10 employees.

In total, this company will have to contribute $40,060 C ($29,640 US) per year in payroll taxes.

4. Other relevant taxes for businesses in Canada

In addition to the main taxes, companies in Canada may be subject to the following taxes:

• Commercial property tax: Businesses that own real estate must pay annual taxes based on the market value of their properties. Fees vary by province and municipality.
• Environmental taxes: Some provinces impose specific levies on carbon emissions and industrial waste.
• Dividend tax: Companies that distribute dividends to their shareholders are subject to withholding tax rates, which vary depending on the residence of the recipient and applicable tax treaties.

Tax benefits in Canada

If you’re considering moving to Canada or setting up a business in the country, you’ll be interested to know that the Canadian tax system offers a number of incentives designed to attract talent, encourage investment and promote innovation. These benefits can make a big difference to your tax planning. Here are some notable examples:

1. Scientific Research and Experimental Development (R&D) tax credit

This programme is one of the most important programmes for companies in Canada. It seeks to encourage innovation through tax deductions and tax credits on research and development-related expenses.

• Locally Controlled Canadian Private Companies (CCPCs): Can claim a refundable tax credit of up to 35 % on the first $3,000,000 ($2.200,000 US) in eligible expenditures.
• Other companies: Receive a non-refundable tax credit of 15 % on R&D expenditures.

For example, a tech start-up that spends $500,000 C ($370,000 US) on research could receive a tax credit of up to $175,000 C ($129,500 US), depending on its category.

2. Tax incentives for small businesses

Canada has several initiatives to support small and medium-sized enterprises, especially for the early stages.

• Reduced corporate tax rate: Small businesses with annual revenues of less than $500,000 C ($370,000 US) can benefit from a reduced federal tax rate of 9 % instead of the standard 15 %.
• Accelerated depreciation of assets: This allows companies to deduct a higher percentage of the cost of assets acquired in the first year, which helps to reduce the initial tax burden.

3. International tax treaties

The country has tax treaties with more than 90 countries. This allows for lower tax rates for foreigners in Canada and the avoidance of double taxation. They’re particularly beneficial for international investors and companies.

• Reduction in dividend taxes: Depending on the country of origin, dividend rates can drop from 25% to 15% or less.
• Capital gains tax benefits: Some foreign investments held on a long-term basis may benefit from discounts or exemptions.

Frequently Asked Questions about taxes in Canada

Plans that may interest you

Turkey

From

$6.90

USD

South Korea

From

$6.90

USD

Read full bio

Related reading