What is the Canada Revenue Agency?
The Canada Revenue Agency is the body that collects the taxes for the federal government of Canada, most of the constituent provinces and all the territories. It has gone through a number of name changes, with names such as Revenue Canada, the Canada Customs and Revenue Agency and the Department of National Revenue. As well as dealing with taxes it has also overseas the implementation of trade agreements, registers charities, and looks after both research tax credits a variety of benefit programs that are delivered integrated into the tax system.
The Canada Revenue Authority operates a self-assessment scheme. Like most English speaking jurisdictions tax payers are expected every year to fill out a tax return which forms the basis for the assessment of the tax computation. This is then subject to checks against data from other sources held by the Canada Revenue Authority (such as bank interest and payroll information). If there is a dispute there is then an appeals process.
Canada is one of the world’s most thoroughly computerised large government. This has meant that there are two government programs designed to enable taxpayers to send in their forms electronically via the internet.
NETFILE is the program available to the ordinary Canadian taxpayer, while is its’ equivalent for professional tax preparers. NETFILE is available between February and September each year. Eligible Canadian taxpayers can submit their tax return to the Canada Revenue Agency via the Internet using NETFILE. To use NETFILE tax returns must be prepared using a Canada Revenue Agency approved commercial Web application or tax software package. This produces a .tax file, which then must be separately uploaded to the Canada Revenue Authority.
The taxes that the Canada Revenue Agency collects
The Canada Revenue Agency collects moat Canadian taxes, although this varies from province to province. The main taxes it collects are:
Personal Income taxes
Trust Income taxes
Corporate Income Tax
Goods and Services Tax
Harmonised Sales Tax
Personal and Trust Income taxes
Canadians are taxed at both a federal and provincial level on their personal and trust income. Most income tax in Canada is taxed at the federal level, with the combined personal and trust income taxes making about 40% of all Canadian tax revenue. Like most developed countries Canada operates a “progressive” tax system which means that tax rates increase when a taxpayer’s income increases. Canadians are taxed on their worldwide income, with a foreign tax credit shielding them from double taxation. There are other measures to encourage long term saving such as the Registered Retirement Savings Plan.
The Canada Revenue Agency collects Corporate Tax for all the provinces and territories in Canada outside of Alberta and Quebec.
Corporate Tax makes up about 13% of Canada’s tax revenue, a relatively small part of the total tax revenue. Companies pay tax on income and capital profits, made at the corporate level - so this is before it gets distributed as dividends to individual shareholders. A shareholder who gets a dividend also receives a tax credit to reflect this corporation tax, although dividend income is taxed at a higher level than other income due to a certain amount of double taxation.
Goods and Services Tax and Harmonised Sales Tax
The Goods and Services Tax (GST) is a tax levied on sales. It is collected as a value added tax, that is the tax broadly comes from the value added by each stage of production including at the consumer level. Essentially it is felt be the consumer in the same way as a sales tax. In all provinces apart from Quebec it is administered by the Canada Revenue Agency.
The Harmonised Sales Tax is a unified tax which replaces the Goods and Services Tax in three provinces, in Nova Scotia, New Brunswick and Newfoundland & Labrador, but at a higher rate as it also replaces the provincially levied sales tax. It functions in the same way as the Goods and Services Tax.
Situation in Quebec
Quebec sees itself as a distinct society, proud of its French speaking culture and its differences with the English speaking provinces and territories of Canada. This applies also to the Canada Revenue Agency. Quebec’s tax authority, Revenu Quebec, administers a separate corporation tax to Canada, as well as a separate personal income tax (which requires its own form) and it also administers the goods and services tax on behalf of Canada.
Although Quebec is extreme, there are many differences between the English speaking provinces of Canada. For example Alberta administers its own Corporation Tax and most provinces in Canada administer their sales taxes - with the exception of the three (soon to be five) provinces that have Harmonised Sales Tax.