- It is a criminal offence not to file your tax returns.
- CRA is not always right when it comes to the tax you owe. In fact, they can get it very wrong a lot of the time.
- CRA Collections officers are not your friends and cannot be ignored (especially if it is a GST/HST debt)
- Tax law does not care about the morals of businesses or if they are illegal or not. You owe taxes on your illicit income!
The Canadian tax system is very complex. Only the most sophisticated tax lawyers in Canada truly understand how the whole system works. The majority of Canadians have a very vague idea of how tax law in Canada works, while some Canadians have no idea at all. Below are a few of the more important concepts to know with respect to Canada’s tax system.
Firstly, it is important to know why Canadians are taxed. The Canadian government collects taxes as a way to pay for things such as infrastructure, education, health care, highways and other social benefits. Tax laws in Canada are set by both the Federal and Provincial governments, however, tax is typically governed at the Federal level through the CRA. The Federal government is responsible for collecting personal income tax, as well as personal income taxes on behalf of all provinces and territories, with the exception of Quebec.
The ITA is the Federal statute for taxing income. The ITA sets out tax rules for individuals as well as Canadian businesses. Provincial tax rules, on the other hand, are governed by statutes that vary from province to province. In Ontario for instance, there are different Acts that govern different areas of tax law, such as the Corporations Tax Act or the Retail Sales Tax Act. These laws are provincially bound and are different depending on what province you are in.
It is also important to know that Canada operates under a self-assessment system. This means that each individual taxpayer in Canada is obligated to complete a tax return each year to report annual income and calculate whether they owe tax or are eligible to receive a tax refund. This system is considered to be a very efficient way to collect income tax. The CRA is responsible for enforcing and cracking down on people who attempt to lie and cheat on their taxes and will apply the appropriate consequence(s).
Lastly, it is important to know how Canadian tax brackets work. Tax brackets in Canada are based on taxable income, meaning your gross income from all sources, minus any tax deductions an individual may qualify for. Once you have determined what your taxable income is, you can apply to the relevant Federal and Provincial tax rates. Canada’s current Federal tax bracket is as follows:
- 15% on the first $49,020 of taxable income; and
- 20% on the portion of taxable income over $49,020 up to $98,040; and
- 26% on the portion of taxable income over $98,040 up to $151, 978; and
- 29% on the portion of taxable income over $151,978 up to $216, 511; and
- 33% of taxable income over $216,511