Income tax

Tax is defined as a compulsory contribution levied on persons, property, or businesses for the support of government for economic and social operations. In other words, it is money paid to a government to fund its programs and services.

The Department of Finance helps the Federal Government decide who gets taxed, how they get taxed and how much they get taxed. Each province and territory has similar organizations for provincial and territorial income taxes. The Canada Revenue Agency (CRA) is responsible for collecting federal, provincial (except Québec) and territorial income taxes. For a quick overview of Federal Government spending and sources of revenue, see Where Your Tax Dollar Goes on the Department of Finance website.

The Canadian tax system is also based on self-assessment. Under the self-assessment system, non-residents with Canadian income and Canadian residents are responsible for making sure they have paid their taxes according to the Income Tax Act. Income tax rates are set annually. Income and deductions are listed on the Income tax and benefit return so both the tax filer and the CRA can calculate the taxes the tax filer has to pay.

Based on this approach, the fairness and efficiency of the federal income tax system depend on both the CRA and the tax filer.

Similarly, Canadian corporations and non-resident corporations with Canadian income pay corporate income tax according to the Income Tax Act and provincial and territorial legislation. Corporations file a corporate income tax return.

In 2003/2004, nearly 23 million individual and trust income tax returns and 1.5 million corporate income tax returns were processed