Canada is known for its beautiful landscapes, friendly people, and high quality of life. However, one aspect of living in Canada that may not be as well understood is the country’s income and tax system. Understanding how income is earned and taxed in Canada is essential for both residents and non-residents alike.
The first step to understanding Canada’s income and tax system is knowing how income is earned. In Canada, income can come from various sources such as employment, self-employment, investments, or government benefits. Employment income is typically subject to income tax deductions at the source, meaning that taxes are automatically deducted from each paycheck. Self-employed individuals must file their own taxes and are responsible for paying both income tax and self-employment tax. Investment income, such as dividends and capital gains, are also taxable in Canada. Additionally, residents who receive government benefits, such as the Canada Pension Plan or Employment Insurance, may also be subject to taxes on those benefits.
Once you understand how income is earned in Canada, it is important to understand how taxes are calculated and paid. Canada uses a progressive tax system, meaning that the more income an individual earns, the higher the tax rate they will pay. The federal government collects income tax, while each province and territory in Canada also collects their own provincial/territorial tax. Income tax is calculated based on taxable income, which is determined by subtracting