Taxation in Canada

Updated on Monday 15th April 2019

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Canada is a federal state and it is divided into provinces. This is why taxation in Canada implies the collection of the taxes by the Canadian Revenue Agency on behalf of the federal and provincial governments and which then distributes the collected amounts of money to the federal and local authorities.

Below, our company formation specialists in Canada explain how the taxation system is organized. We also offer accounting services and we can help those who want to open companies registered at federal or provincial levels.

What are the main taxes in Canada?

The taxation system in Canada is made of direct and indirect taxes. These are:
  •           the personal income tax which is applied to individuals deriving income from employment and self-employment;
  •           the corporate tax which is the tax applied to companies registered in Canada and foreign companies operating here through branches and subsidiaries;
  •           the consumption taxes which are represented by the value added tax at a federal level, and the sales or retail tax at the provincial level;
  •           the payroll taxes which are represented by employment insurance, health, and pension fund taxes;
  •           the excise tax which is levied at federal and territorial levels on the sale of specific products, such as alcohol and tobacco.

The distribution of the taxes by the Canadian Revenue Agency is made based on tax collection agreements between the federal government and the provincial ones.

If you are interested in starting a business in Canada and need information on the taxes which need to be paid in a specific province, our company registration advisors can answer your questions.

The federal income tax in Canada

The Canadian taxation system is represented by the federal income tax primarily which implies the levy of this tax at the following rates:
  •           a 15% rate for the first 47,630 CAD;
  •           a 20.5% rate for the next 47,629 CAD;
  •           a 26% rate for the next 52,408 CAD;
  •           a 29% rate for the next 62,704 CAD;
  •           a 33% rate for income of more than 210,371 CAD per year.

It must be noted that the amounts of money will be slightly different from year to year, which is why we invite you to ask for specialized accounting services in accordance with your needs.

The federal corporate tax, on the other hand, is levied at a flat rate of 15% on Canadian companies. There is also a 10% tax rate for private companies which qualify to claim the small business deduction.

Our Canadian company formation agents can explain how companies are taxed at a federal level.

The provincial income taxes in Canada

Canada is divided into 10 provinces with 3 territories in the north-western part of the country. Each province imposes its own income taxes on the earnings of Canadian citizens and residents and on the profits generated by companies.

The following tax rates apply in the Canadian provinces and territories:
  1.           in the province of Alberta, the lowest tax rate is set at 10%, while the highest is set at 15%;
  2.           in the province of British Colombia, the lowest tax rate is of 5.06%, while the highest is 16.8%;
  3.           in the province of Manitoba, the lowest tax rate is set at 10.8%, while the highest is 17.4%;
  4.           in the province of New Brunswick, the lowest tax rate is of 9.08%, while the highest is 20.3%;
  5.           in Newfoundland and Labrador, the lowest tax rate is 8.7%, while the highest is 18.3%;
  6.           in the Northwest Territories, the lowest tax rate is set at 5.9%, while the highest is of 14.05%;
  7.           in the province of Nova Scotia, the lowest rate is set at 8.79%, while the highest is 21%;
  8.           in the province of Nunavut, the lowest tax rate is set at 4%, while the highest is 11.5%;
  9.           in the province of Ontario, the lowest tax rate is set at 5.05%, while the highest is 13.16%;
  10.           in Prince Edward Island, the lowest tax rate is of 9.8%, while the highest is of 16.7%;
  11.           in the province of Quebec, the lowest tax rate is of 16%, while the highest is 25.75%;
  12.           in the province of Saskatchewan, the lowest tax rate is of 11%, while the highest is 15%;
  13.           in the Yukon Territory, the lowest tax rate is 6.4%, while the highest is of 15%.

Canadian companies in these provinces and territories can also claim the small business deduction which ranges between 0% and 8%.

The other tax which needs to be considered when setting up a business in Canada is the value added tax or the goods and services tax (GST) which is levied at 5% at a federal level. At provincial and territorial levels, the rate of the GST or sales tax ranges between 5% and 15%.

For more information on the taxation system in Canada, please contact us. You can rely on us if you need company registration and accounting services in Canada.