What is Income Tax?
All governments are dependent on revenues generated through tax from its citizens to run the government machinery and to fund its welfare schemes and defense expenditure. The main taxes in any land are the excise duty, sales tax
and personal income
tax. These taxes keep the government solvent. Statistics show that last fiscal year, the personal income tax collected was almost thrice the amount collected as corporate tax, here in Canada.
This should explain how the backbone of the federal economy is the personal income tax. In Canada the income tax is collected by the federal government in all the provinces except in Quebec, and is regulated by the Income Tax Act and maintained by the Canadian Revenue Agency. Canada has one of the lowest tax regimes in the world and so there is no excuse for people who do not pay their taxes on time.
The individuals’ tax due is collected by the process of self-assessment. The tax payers file tax returns with the CRA by the due date, giving details about their income for the period and the tax dues thereof. This is cross checked with the data collected from the employers
and the finance
sector companies by the CRA. Canadians are taxed even if the income is generated elsewhere and resident non-resident Canadians are also taxed for income generated in Canada.
The income tax is calculated based on the individual’s annual taxable income and is collected by TDS – tax deducted at source, by the employer. Taxes can be paid in installments – an individual can pay tax periodically to ease the burden of a one-time payment. Other deductions along with the tax may be contributions towards the Canadian Pension Plan, Employment Insurance, etc. Any taxes overpaid, will be returned after verification of the filed papers by the CRA and they usually have to be paid by April end or can attract penalty or interest.
Every individual has the duty to report all their incomes during the fiscal year for the purpose of income tax calculation. Some deductions are allowed in the taxable net income for any contributions towards union & professional dues, child support, and retirement savings
schemes. Exemptions include business losses, 50% of capital gains and a special deduction for Northern Canadians.
In Canada there are 4 major tax brackets for calculation of tax. After the net income is arrived at, some basic deductions include non-refundable tax credits a basic tax exemption amount, dependents’ support, CPP contributions, disability exemption, educational and medical expenses
. Most provinces in Canada have a provincial agreement in place, by which the CRA collects the taxes on the guidelines set by the federal government. They can also levy surtaxes and low income tax deductions if their agreement with the federal government allows them do so. Some of the earnings totally exempted from income tax are inheritances
, gifts, lottery winnings
, earnings from betting & gambling, compensation for any accidents, some pensions for civil and military personnel, capital gains
from sale of one’s principal residence and RCMP pensions and many more. What is Income Tax?