CANADA TAXATION SYSTEM
BUSM 4805- 003
DR. PAULINE GREAVES AYLWARD
17TH JANUARY, 2018
Canada is the northernmost and biggest country in the North America and the second largest country in the world. It shares border with Atlantic ocean and Arctic ocean. According to the myth, the Aboriginals people were the first people living in this area. The Baffin island in Canada is the fifth largest island in world and its area is more than two times the area of United Kingdom. One of the most popular game named basketball was originated in Canada. Even some famous dishes in the world like poutine, bacon, caramilk bar were founded in the Canada. Canada spans nearly 9.9 million sq. km and it is the home of largest street in the world , that is Yonge street in Ontario.. Canada is the first country in the world to adopt a policy of multiculturalism, embracing diversity and pluralism. Today, of Canada’s total population of more than 35 million, a fifth are immigrants. Nearly 4.3% population reported an Indigenous identity and 19.1% belong to a visible minority. The largest among these are Asians followed by fillipinos and Brazilians.
There are 10 provinces in Canada. They are Ontario, Quebec, Nova Scotia, New Brunswick, Manitoba, British Columbia, Prince Edward Island, Saskatchewan, Alberta, Newfoundland and Labrador. The biggest province among this is Ontario. British Columbia is the westernmost part of the country and the third populous province in the country. It has lot of highways and pathways to pacific ports. British Columbia is mostly famous for tourist attractions. This province have 10 mountain ranges. Victoria is the capital of British Columbia. The “Splendour without diminishment” is the provisional moto of British Columbia5.
In Canada, the federal, provincial and municipal governments collect taxes from individuals and companies for funding of government programs and services, such as roads, schools, health care, economic development etc. there are various types of taxes in Canada such as income tax, property tax, sales tax and business tax.
Progressive Nature of Income Tax-
A progressive nature of tax system means an increase in income will lead to an increase in income tax and vice versa. Progressive nature of taxation is the fair system of taxation, such that the burden doesn’t fall on the relatively poor people of the country. This will in return decrease the inequality within the country. Not only in Canada, but now most of the nations of the world follow the progressive system of taxation. Canada has the perfect blend of the direct and indirect taxes, where direct tax like income tax is progressive in nature and indirect tax like GST/HST are regressive in nature. The basic idea behind this is that individuals should be taxed according to their means. In Canada, each member of household, who has an income, is responsible for paying taxes. Taxes are paid at both federal level and provisional level. This is unlike with most of the countries where tax is paid at only one level.
Example If we had a flat tax rate, a person who made more money would still pay more taxes. As an example, say the tax rate was a flat 10%. A person who makes $40,000 would pay $4,000 and a person who makes $100,000 would pay $10,000. The higher earner pays more in taxes.
But in a progressive tax system, the rates change as the income increases. As a simple example, let’s say that for income under $50,000, you pay a 10% tax and for income of $50,000 or greater you pay 20% in taxes. Therefore, a person making $40,000 would pay $4,000 in taxes while a person who earns $100,000 would pay$20000.
Taxation rate in British Columbia and Alberta is progressive as shown in table12
Regressive System of Taxation
Regressive system of taxation means the taxation system in which the rate of taxation decreases with an increase in income and vice versa. This system is normally applicable in case of indirect taxes like GST, Service Tax, Excise Duty etc. Normally property tax & sales tax tends to be regressive because these taxes are generally levied at a flat tax rate for each assesses. The same flat rate for each assesse is not the main reason of being the tax progressive, but it’s the percentage of tax an assesse pays on his given income.
A regressive tax affects people with low incomes more severely than people with high incomes. While it may be fair in some instances to tax everyone at the same rate, it is seen as unjust in other cases.
For example, imagine two individuals each purchase $100 of clothing per week, and they each pay $7 in tax on their retail purchases. The first individual earns $2,000 per week, making the sales tax rate on her purchase 0.35% of income. In contrast, the other individual earns $320 per week, making her clothing sales tax 2.2% of income. In this case, although the tax is the same rate in both cases, the person with the lower income pays a higher percentage of income, making the tax regressive.
The regressive sales tax of British Columbia and Alberta is shown in table.
Alcohol and liquor taxes in Canada can be regarded as regressive in nature because these taxes are levied at a flat rate which is common to all the individuals. Thus we can say that the burden falls much more on the poor people than the rich people.
Beer tax in Canada generally includes the following three taxes-
Beer Basic Tax
Entertainment Tax (If Applicable)
HST on alcohol in Canada has a cascading effect which means tax on taxes, such that no set off of credit is available at certain transactions.
Canada has three level of government , that is Federal, Provincial and Municipal. Federal government has set the GST. Provincial government can make changes into the taxation system.
Different provinces has different rate of taxes
There are two types of taxation system, that is progressive nature and regressive nature.
According to progressive nature, tax rates increases with the increase in income
In regressive nature, the people with low income has to spent large part of their income on tax, like sales tax
Alcohol and tobacco has regressive nature of tax.
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