April 29, 2022
Generally, business taxes vary depending on your country of residence. For instance, GST/HST is only applicable in Canada. But, apart from these two key sales taxes, other types of taxes exist in Canada.
This article will look into the various types of taxes in Canada. This should be foundational knowledge for you as a business owner to enable hitchless operation in the country.
GST/HST are the two types of sales taxes levied at the provincial government level in Canada. GST is the Goods and Services Tax (GST), while HST means Harmonized Sales Tax (HST)
GST applies to most goods in Canada. According to Part IX of the Excise Tax Act, the Goods and Services Tax refers to the tax levied on the supply of goods or services purchased in Canada.
However, there are exceptions to this. Some politically sensitive goods do not attract GST, and these include medical services, financial services, groceries, and residential rent.
Generally, GST applies to all provinces in Canada. The harmonized sales tax (HST) applies in some provinces – Nova Scotia, New Brunswick, Newfoundland and Labrador, Ontario, and Prince Edward Island. These provinces combined the GST with the provincial sales tax (PST) to create the harmonized sales tax (HST).
In provinces where the HST does not apply, the GST rate is 5%, and the GST/HST combined rate is 15%, except in Ontario, where the rate is 13%.
The GST/HST is a major consumption tax in Canada. Almost all types of sales – goods, services, commercial real property, and e-commerce products are subject to GST/HST. There are specific stipulated rules that guide the sales of these products, depending on how the sale is characterized and sourced.
A payroll tax is a tax on employees’ wages and salaries. The employer subtracts a certain amount of money from each employee’s pay every pay period, based on the payroll tax rate applicable in the country.
There are three significant payroll deductions in Canada; deduct income tax, Employment Insurance premiums, and Canada Pension Plan (CPP) contributions. The payroll deduction table spells out the conditions of these deductions.
Corporate Income Taxes (CIT) are taxes on business profits or revenue by the Canadian federal and state governments. In other words, corporate tax is a tax on what your business brings in sales, excluding the costs of running the business.
The Canada Revenue Agency (CRA) regulates corporate tax at the federal level in Canada. The standard income tax rate for corporations is 38.0% or less, where rate reductions apply. For example, if your business pays provincial taxes, it’s entitled to a 10% reduction, lowering the tax rate to 28%.
Excise taxes describe taxes levied on specific goods, including alcohol, cigarette, tobacco, and fuel. Excise taxes can be grouped into two categories: ad valorem or specific.
Ad valorem tax applies to goods with a high social cost, such as cigarettes and alcohol. Ad valorem taxes are sometimes called sin taxes and are based on percentages.
On the other hand, specific taxes levy goods based on per-unit cost. An example for cigarettes could be $1.01 per pack of 20 and $2.02 for two packs of 40.
As a business owner in Canada, it is necessary to acquaint yourself with the taxation system in the country. And you may not need to go through the stress of contacting the CRA directly to know what the tax requirements look like. Tax advisory services are ready options you could always use. They don’t just keep you updated with the tax rates and requirements; they also help you manage your tax effectively.
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Accountero is a tech-powered service provider offering bookkeeping, tax advisory and fractional CFO. Accountero is not a public accounting firm and does not offer services that require a public accounting practice license.