General Question

monsoon's avatar

How do taxes work in Canada?

Asked by monsoon (2505points) December 10th, 2008

In the US, I think when you have a prospective salary you can subtract about 30% to account for taxes, is it similar in Canada? I would assume it would be more. And what about sales taxes and such?

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7 Answers

Bluefreedom's avatar

There are two types of sales taxes in Canada that when combined, form a 14 percent charge. One is known as P.S.T. (Provinicial Sales Tax) and the other is the G.S.T. (Government Sales Tax).

The taxes are high in this regard so it can be used to help pay for the Socialized health care and other social programs in Canada or at least that is the plan anyway.

As far as payroll taxes and the subtractions from that, I don’t have any information about that unfortunately. Sorry.

My wife is a former Canadian and she related the sales tax information to me.

artificialard's avatar

All figures here use the Canadian dollar and unless indicated use Ontario tax rates

Our federal sales tax is now 5% (lowered from 2007) which makes the actual sales tax rate in Ontario 13% (most provinces are similar). FYI sales taxes are added ‘at the counter’; all advertised prices are before taxes

Income tax has a federal and provincial component (like sales tax) and I have added the two together and rounded in a very rough way to better convey the rate for comparison than actual calculation. The government site has a surprisingly good overview of our income tax rates.

* 21% on the first ~$36–37k of taxable income
* 31% on the next ~$36–37k of taxable income
* 26% on the next $47,415 of taxable income
* 11% over 71k
* 29% of taxable income over 123k

(This is incremental, not bucket flat rates. Each level of tax increase is only on the additional income beyond the previous tax rate.)

There’s also Employment Insurance (EI ~5%) and Canadian Pension Plan (CPP ~2%) taken from gross pay. EI can be claimed in the event of job loss (injury, downsizing) while CPP pays benefits after retirement.

Thus tax paid from each Canadian paycheck is income tax (prov + federal) + EI + CPP. Which means at minimum a Canadian contributes roughly 28% of his/her pay back to the government on each paycheck, with the rate being as high as ~36%.

So while our sales tax is clearly higher our income taxes are a little harder to compare, given different brackets used and currency differences, and ‘maneuvers’ one can do to lower taxable income with various legal methods (like an RRSP).

When comparing tax rates between countries it’s also mindful to compare the government benefits doled out to citizens, one huge benefit being the fact that health care is completely ‘free’ to citizens. From normal physicals to the most extensive surgeries, there is not charge or even a user fee for going into the ER (which annoys me to no end. A headache is not an emergency.) I also get the impression that public education is a lot more inconsistent in the US – in Canada private school isn’t that prevalent (although that’s changing).

Still, having immigrated from China which has an incredibly spartan tax system I’m happy with the Canadian taxation system that empowers the government to invest it in larger infrastructure projects, services, and into Canada itself that benefits everyone.

At least I have this to show for the torture that was retail store management.

monsoon's avatar

Thanks @artifialard, that about answers my question. I had assumed the percentages would be higher for the reasons you mentioned. My girlfriend and I have a plan to try to move to Canada once we’re done with school, and I was curious about this.


galileogirl's avatar

It’s interesting that the progressive income tax is similar to what we have in the US but the top rate caps at a lower income here. That means lower incomes pay about the same but people with higher income pay more in Canada,,,interesting, nu?

The sales tax is higher but that is offset by the medical coverage. The additional sales tax would be at most $100/mo more for the average Canadian family while by not having to pay for insurance the average Canadian family saves $300/mo plus deductibles AND they don’t get refused coverage for prexisting conditions.

Also people who are thrifty not only save money on purchases, they save taxes and still get free medical care. Of course it will never go in the US because health is not a human right here, it is for sale.

artificialard's avatar

I found that interesting too – I actually thought US income taxes were much lower but they’re somewhat comparable at the low-middle levels. I’m not sure why the American system would continue to issue breaks past the 6-figure level but for each to their own.

I’m not sure if I represent a typical Canadian but I don’t think that’s an entirely accurate assessment of the benefits of our sales tax and health care. I’d wager sales tax is a lot more than $100 a month [ 13% on all purchases excluding rent but including things like utilities, cars, tuition, home improvement, etc. ] There’s also an additional tax on businesses in Ontario purely for health care.

Our health care also doesn’t cover certain health services that I consider essential (optometry and dental for me).

Finally while it may seem nice from your side of the border I wouldn’t consider the ‘buffet-style’ Canadian health care system ideal. Our shortage of doctors is well-known, wait times can be incredibly long, and it’s a continual economic drain on our social system. I would favor a semi-privatised system that might offer public institutions and also private ones that are subsidised and perhaps user fees for certain things (like non-life threatening ER visits).

A recent study that attempted to gauge the best health care systems of the world named France, Japan, and Australia to be the top-three in preventable deaths and all three health programs are somewhere between a private and a fully socialised health care system. Many Scandinavian countries do as well and they’re also considered to offer some of the best health care in the world.

carebare's avatar


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