2009

[Gholamhossein Davani]
Income taxes in Canada

Canada has special tax as base self assessment

Dayarayan
Management &
Consulting Serviced
LTD
Income taxes in Canada
Income taxes in Canada constitute the majority of the annual revenues of the
Government of Canada, and of the governments of the Provinces of Canada. In the last
fiscal year, the government collected roughly three times more personal income taxes
than it did corporate income taxes.[citation needed]

Tax collection agreements enable different governments to levy taxes through a single
administration and collection agency. The federal government collects personal income
taxes on behalf of all provinces and territories except Quebec and collects corporate
income taxes on behalf of all provinces and territories except Alberta, Ontario and
Quebec. Canada's federal income tax system is administered by the Canada Revenue
Agency (CRA). Quebec's income tax system is administered by Revenu Québec,
formally Ministère du Revenu du Québec.

Canadian federal income taxes, both personal and corporate are levied under the
provisions of the Income Tax Act[1]. Provincial and territorial income taxes are levied
under various provincial statutes.

The Canadian income tax system is a self-assessment regime. Taxpayers assess their tax
liability by filing a return with the CRA by the required filing deadline. CRA will then
assess the return based on the return filed and on information it has obtained from
employers and financial companies, correcting it for obvious errors. A taxpayer who
disagrees with CRA's assessment of a particular return may appeal the assessment. The
appeal process starts when a taxpayer formally objects to the CRA assessment. The
objection must explain, in writing, the reasons for the appeal along with all the related
facts. The objection is then reviewed by the appeals branch of CRA. An appealed
assessment may either be confirmed, vacated or varied by the CRA. If the assessment is
confirmed or varied, the taxpayer may appeal the decision to the Tax Court of Canada
and then to the Federal Court of Appeal.

Contents
[hide]

 History
 Personal income taxes
o Basic calculation
o Provincial and territorial personal income taxes
 Quebec
o Personal federal marginal tax rates
o Income not taxed
 Corporate income taxes
o Provincial/territorial corporate income taxes
  Integration of corporate and personal income taxes
 See also
 References
 External links

History
Unlike the United Kingdom and the United States, Canada avoided charging an income
tax prior to World War I. The lack of income tax was seen as a key component in
Canada's efforts to attract immigrants as Canada offered a lower tax regime compared to
almost every other country. Prior to the war Canadian federal governments relied on
tariffs and customs income under the auspices of the National Policy for most of their
revenue, while the provincial governments sustained themselves primarily through their
management of natural resources (the Prairie provinces being paid subsidies by the
federal government as Ottawa retained control of natural resources for the time being
there). The federal Liberal Party considered the probable need to introduce an income tax
should their negotiation of a free trade agreement with the United States in the early 20th
century succeed, but the Conservatives defeated the Liberals in 1911 over their support of
free trade.

The Conservatives opposed income tax as they wanted to attract immigrants primarily
from the United Kingdom and the United States, as opposed to Eastern Europe, and they
wanted to give their preferred choice of newcomers some incentive to come to Canada.
Wartime expenses forced the Tories to re-consider their options and in 1917 the wartime
government imposed a "temporary" income tax to cover expenses. Despite the new tax
the Canadian government ran up considerable debts during the war and were unable to
forego income tax revenue after the war ended. With the election of the Mackenzie King-
led Liberal government, much of the National Policy was dismantled and income tax has
remained in place ever since.

Personal income taxes

Canada levies personal income tax on the worldwide income of individuals resident in
Canada and on certain types of Canadian-source income earned by non-resident
individuals.

After the calendar year, Canadian residents file a T1 Tax and Benefit Return[2] for
individuals. It is due April 30, or June 15 for self-employed individuals and their spouses,
or common-law partners. It is important to note, however, that any balance owing is due
on or before April 30. Outstanding balances remitted after April 30 may be subject to
interest charges, regardless of whether the taxpayer's filing due date is April 30 or June
15.
The amount of income tax that an individual must pay is based on the amount of their
taxable income (income earned less allowed expenses) for the tax year. Personal income
tax may be collected through various means:

 deduction at source - where income tax is deducted directly from an individual's

pay and sent to the CRA.
 installment payments - where an individual must pay his or her estimated taxes
during the year instead of waiting to settle up at the end of the year.
 payment on filing - payments made with the income tax return
 arrears payments - payments made after the return is filed

Employers may also deduct Canada Pension Plan/Quebec Pension Plan (CPP/QPP)
contributions, Employment Insurance (EI) and Provincial Parental Insurance (PPIP)
premiums from their employees' gross pay. Employers then send these deductions to the
taxing authority.

Individuals who have overpaid taxes or had excess tax deducted at source will receive a
refund from the CRA upon filing their annual tax return.

Generally, personal income tax returns for a particular year must be filed with CRA on or
before April 30 of the following year.

Basic calculation

An individual taxpayer must report his or her total income for the year. Certain
deductions are allowed in determining net income, such as deductions for contributions
to Registered Retirement Savings Plans, union and professional dues, child care
expenses, and business investment losses. Net income is used for determining several
income-tested social benefits provided by the federal and provincial/territorial
governments. Further deductions are allowed in determining taxable income, such as
capital losses, half of capital gains included in income, and a special deduction for
residents of northern Canada. Deductions permit certain amounts to be excluded from
taxation altogether.

Tax payable before credits is determined using four tax brackets and tax rates. Non-
refundable tax credits are then deducted from tax payable before credits for various items
such as a basic personal amount, dependents, Canada/Quebec Pension Plan contributions,
Employment Insurance premiums, disabilities, tuition and education and medical
expenses. These credits are calculated by multiplying the credit amount (e.g., the basic
personal amount of $10,320 in 2009) by the lowest tax rate. This mechanism is designed
to provide equal benefit to taxpayers regardless of the rate at which they pay tax.

A non-refundable tax credit for charitable donations is calculated at the lowest tax rate for
the first $200 in a year, and at the highest tax rate for the portion in excess of $200. This
tax credit is designed to encourage more generous charitable giving.
Certain other tax credits are provided to recognize tax already paid so that the income is
not taxed twice:

• the dividend tax credit provides recognition of tax paid at the corporate level on
income distributed from a Canadian corporation to individual shareholders; and
• the foreign tax credit recognizes tax paid to a foreign government on income
earned in a foreign country.

Provincial and territorial personal income taxes

Provinces and territories that have entered into tax collection agreements with the federal
government for collection of personal income taxes ("agreeing provinces", i.e., all
provinces and territories except Quebec) must use the federal definition of "taxable
income" as the basis for their taxation. This means that they are not allowed to provide or
ignore federal deductions in calculating the income on which provincial tax is based.

Provincial and territorial governments provide both non-refundable tax credits and
refundable tax credits to taxpayers for certain expenses. They may also apply surtaxes
and offer low-income tax reductions.

Canada Revenue Agency collects personal income taxes for agreeing provinces/territories
and remits the revenues to the respective governments. The provincial/territorial tax
forms are distributed with the federal tax forms, and the taxpayer need make only one
payment -- to CRA -- for both types of tax. Similarly, if a taxpayer is to receive a refund,
he or she receives one cheque or bank transfer for the combined federal and
provincial/territorial tax refund. Information on provincial rates can be found on the
Canada Revenue Agency's site.

Quebec

Quebec administers its own personal income tax system, and therefore is free to
determine its own definition of taxable income. To maintain simplicity for taxpayers,
however, Quebec parallels many aspects of and uses many definitions found in the
federal tax system.

Personal federal marginal tax rates

The following historical federal marginal tax rates of the Government of Canada come
from the website of the Canada Revenue Agency. They do not include applicable
provincial income taxes. Data on marginal tax rates from 1998 to 2006 are publicly
available.[3] Data on basic personal amounts (personal exemption taxed at 0%) can be
found on a year by year basis is also available.[4] Their values are contained on line 300
of either the document "Schedule 1 - Federal Tax", or "General Income Tax and Benefit
Guide", of each year by year General Income Tax and Benefit Package listed.
 Canadian federal marginal tax rates of taxable income

$0 - $10,321 - $40,727 - $81,453 - over

$10,320 $40,726 $81,452 $126,264 $126,264
2009
(est.)[5]
29%
0% 15% 22% 26%

$9,601 - $37,886 - $75,770 - over

$0 - $9,600
$37,885 $75,769 $123,184 $123,184
2008 29%
0% 15% 22% 26%

$9,600 - $37,178 - $74,357 - over

$0 - $9,600
2007 $37,178 $74,357 $120,887 $120,887
0% 15% 22% 26% 29%
$8,839 - $36,378 - $72,756 - over
$0 - $8,839
2006 $36,378 $72,756 $118,285 $118,285
0% 15.25% 22% 26% 29%
$8,648 - $35,595 - $71,190 - over
$0 - $8,648
2005 $35,595 $71,190 $115,739 $115,739
0% 15% 22% 26% 29%
$8,012 - $35,000 - $70,000 - over
$0 - $8,012
2004 $35,000 $70,000 $113,804 $113,804
0% 16% 22% 26% 29%
$7,756 - $32,183 - $64,368 - over
$0 - $7,756
2003 $32,183 $64,368 $104,648 $104,648
0% 16% 22% 26% 29%
$7,634 - $31,677 - $63,354 - over
$0 - $7,634
2002 $31,677 $63,354 $103,000 $103,000
0% 16% 22% 26% 29%
$7,412 - $30,754 - $61,509 - over
$0 - $7,412
2001 $30,754 $61,509 $100,000 $100,000
0% 16% 22% 26% 29%
$7,231 - $30,004 -
2000 $0 - $7,231 over $60,009
$30,004 $60,009
 0% 17% 25% 29%
$6,794 - $29,590 -
$0 - $6,794 over $59,180
1999 $29,590 $59,180
0% 17% 26% 29%
$6,794 - $29,590 -
$0 - $6,794 over $59,180
1998 $29,590 $59,180
0% 17% 26% 29%

Income not taxed

The following types of income are not taxed in Canada (this list is not exhaustive):

 gifts and inheritances;

 lottery winnings;
 winnings from betting or gambling for simple recreation or enjoyment;
 strike pay;
 compensation paid by a province or territory to a victim of a criminal act or a
motor vehicle accident*;
 certain civil and military service pensions;
 income from certain international organizations of which Canada is a member,
such as the United Nations and its agencies;
 war disability pensions;
 RCMP pensions or compensation paid in respect of injury, disability, or death*;
 income of First Nations, if situated on a reserve;
 capital gain on the sale of a taxpayer’s principal residence;
 provincial child tax credits or benefits and Québec family allowances;
 Working income tax benefit;
 the Goods and Services Tax or Harmonized Sales Tax credit (GST/HST credit) or
Quebec Sales Tax credit; and
 the Canada Child Tax Benefit.

Note that the method by which these forms of income are not taxed can vary
significantly, which may have tax and other implications; some forms of income are not
declared, while others are declared and then immediately deducted in full. In certain
cases, the deduction may require off-setting income, while in other cases, the deduction
may be used without corresponding income. Income which is declared and then deducted,
for example, may create room for future Registered Retirement Savings Plan deductions.
But then the RRSP contribution room may be reduced with a pension adjustment if you
are part of another plan, reducing the ability to use RRSP contributions as a deduction.

Deductions which are not directly linked to non-taxable income exist, which reduce
overall taxable income. A key example is Registered Retirement Savings Plan (RRSP)
contributions, which is a form of tax-deferred savings account (income tax is paid only at
withdrawal, and no interim tax is payable on account earnings).
*Quebec has changed its rules in 2004 and, legally, this may be taxed or may not –
Courts have yet to rule.

Corporate income taxes

Corporate taxes include taxes on corporate income in Canada and other taxes and levies
paid by corporations to the various levels of government in Canada. These include capital
and insurance premium taxes; payroll levies (e.g., employment insurance, Canada
Pension Plan, Quebec Pension Plan and Workers' Compensation); property taxes; and
indirect taxes, such as goods and services tax (GST), and sales and excise taxes, levied on
business inputs.

Corporations are subject to tax in Canada on their worldwide income if they are resident
in Canada for Canadian tax purposes. Corporations not resident in Canada are subject to
Canadian tax on certain types of Canadian source income (Section 115 of the Canadian
Income Tax Act).

The taxes payable by a Canadian resident corporation may be impacted by the type of
corporation that it is:

• A Canadian-controlled private corporation, which is defined as a corporation that

is:

 resident in Canada and either incorporated in Canada or resident in

Canada from June 18, 1971, to the end of the taxation year;
 not controlled directly or indirectly by one or more non-resident persons;
 not controlled directly or indirectly by one or more public corporations
(other than a prescribed venture capital corporation, as defined in
Regulation 6700);
 not controlled by a Canadian resident corporation that lists its shares on a
prescribed stock exchange outside of Canada;
 not controlled directly or indirectly by any combination of persons
described in the three preceding conditions; if all of its shares that are
owned by a non-resident person, by a public corporation (other than a
prescribed venture capital corporation), or by a corporation with a class of
shares listed on a prescribed stock exchange, were owned by one person,
that person would not own sufficient shares to control the corporation; and
 no class of its shares of capital stock is listed on a prescribed stock
exchange.

• A private corporation, which is defined as a corporation that is:

 resident in Canada;
 not a public corporation;
 not controlled by one or more public corporations (other than a prescribed
venture capital corporation, as defined in Regulation 6700);
  not controlled by one or more prescribed federal Crown corporations (as
defined in Regulation 7100); and
 not controlled by any combination of corporations described in the two
preceding conditions.

• A public corporation, defined as a corporation that is resident in Canada and

meets either of the following requirements at the end of the taxation year:

 it has a class of shares listed on a prescribed Canadian stock exchange; or

 it has elected, or the Minister of National Revenue has designated it, to be
a public corporation and the corporation has complied with prescribed
conditions under Regulation 4800(1) on the number of its shareholders,
the dispersing of the ownership of its shares, the public trading of its
shares, and the size of the corporation.

If a public corporation has complied with certain prescribed conditions under Regulation
4800(2), it can elect, or the Minister of National Revenue can designate it, not to be a
public corporation. Other types of Canadian resident corporations include Canadian
subsidiaries of public corporations (which do not qualify as public corporations), general
insurers and Crown corporations.

Provincial/territorial corporate income taxes

Corporate income taxes are collected by the CRA for all provinces and territories except
Ontario, Quebec and Alberta. Provinces and territories subject to a tax collection
agreement must use the federal definition of "taxable income," i.e., they are not allowed
to provide deductions in calculating taxable income. These provincies and territories may
provide tax credits to companies, often in order to provide incentives for certain activities
such as mining exploration, film production, and job creation.

Ontario, Quebec and Alberta collect their own corporate income taxes, and therefore may
develop their own definitions of taxable income. In practice, these provinces rarely
deviate from the federal tax base in order to maintain simplicity for taxpayers.

Ontario has concluded negotiations with the federal government on a tax collection
agreement under which its corporate income taxes would be collected on its behalf by the
CRA starting in 2009.

Integration of corporate and personal income taxes

In Canada, corporate income is subject to corporate income tax and, on distribution as
dividends to individuals, personal income tax. The personal income tax system, through
the gross-up and dividend tax credit (DTC) mechanisms, currently provides recognition
for corporate taxes, based on a 20 per cent notional federal-provincial rate, to taxable
individuals resident in Canada.
Because of tax policy issues relating to the proliferation of publicly traded income trusts,
the federal government has proposed to introduce an enhanced gross-up and DTC for
eligible dividends received by eligible shareholders. An eligible dividend will be grossed-
up by 45 per cent, meaning that the shareholder includes 145 per cent of the dividend
amount in income. The DTC in respect of eligible dividends will be 19 per cent, based on
the expected federal corporate tax rate in 2010. The existing gross-up and tax credit will
continue to apply to other dividends. Eligible dividends will generally include dividends
paid after 2005 by public corporations (and other corporations that are not Canadian-
controlled private corporations) that are resident in Canada and subject to the general
corporate income tax rate.

Goods and Services Tax (Canada)

The Canadian Goods and Services Tax (GST) (French: Taxe sur les produits et services,
TPS) is a multi-level value-added tax introduced in Canada on January 1, 1991, by Prime
Minister Brian Mulroney and finance minister Michael Wilson. The GST replaced a
hidden 13.5% Manufacturers' Sales Tax (MST); Mulroney claimed the GST was
implemented because the MST hurt the manufacturing sector's ability to export. The
introduction of the GST was very controversial. As of January 1, 2008, the GST rate
across all Canadian provinces is 5%.

Structure
GST is imposed at 5% in Part IX of the Excise Tax Act. GST is levied on supplies of
goods or services made in Canada and include most products, except certain politically
sensitive essentials such as groceries, residential rent, and medical services, and services
such as financial services. Businesses that purchase goods and services that are
consumed, used or supplied in the course of their "commercial activities" can claim
"input tax credits" subject to prescribed documentation requirements (i.e., when they
remit to the Canada Revenue Agency the GST they have collected in any given period of
time, they are allowed to deduct the amount of GST they paid during that period). This
avoids "cascading" (i.e., the application of the GST on the same good or service several
times as it passes from business to business on its way to the final consumer). In this way,
the tax is essentially borne by the final consumer. Unfortunately, this system is not
completely effective, as shown by criminals who defrauded the system by claiming GST
input credits for non-existent sales by a fictional company.[1] Exported goods are exempt
("zero-rated"), while individuals with low incomes can receive a GST rebate calculated in
conjunction with their income tax.

In 1997, the provinces of Nova Scotia, New Brunswick and Newfoundland and Labrador
and the Government of Canada merged their respective sales taxes into the Harmonized
Sales Tax (HST). In those provinces, the current HST rate is 13%. HST is administered
by the federal government, with revenues divided among participating governments
according to a formula. All other provinces continue to impose a separate sales tax at the
retail level only, with the exception of Alberta, which does not have a provincial sales
tax. Ontario proposed in its 2009 Budget to harmonize its 8% retail sales tax with the
GST effective July 1, 2010.[2][3] In July, 2009, the province of British Columbia
announced plans to also merge the PST and GST effective July 1, 2010.[4] In PEI and
Quebec, the provincial taxes include the GST in their base. The three territories of
Canada (Yukon, Northwest Territories and Nunavut) do not have territorial sales taxes.
The government of Quebec administers both the federal GST and the provincial Quebec
Sales Tax (QST). It is the only province to administer the federal tax.

Untaxed items

The tax is a 5% tax imposed on the supply of goods and services that are made in
Canada, except certain items that are either "exempt" or "zero-rated":

 For tax-free — i.e., "zero-rated" — sales, GST is charged by suppliers at a rate of

0% so effectively there is no GST collected. However when a supplier makes a
zero-rated supply, it is eligible to recover any GST paid on purchases used in
making the particular supply. This effectively removes the cascading tax from the
particular goods and services.
o Common zero-rated items include basic groceries, prescription drugs,
inward/outbound transportation and medical devices (GST/HST
Memoranda Series ME-04-02-9801-E 4.2 Medical and Assistive Devices).
Certain exports of goods and services are also zero-rated.
 For tax-exempt supplies, the supply is not subject to GST and suppliers do not
charge tax on their exempt supplies. Furthermore, suppliers that make exempt
supplies are not entitled to recover GST paid on inputs acquired for the purposes
of making the exempt good or service. Tax-exempt items include long term
residential rents, health and dental care, educational services, day-care services,
legal aid services, and financial services.

Background
In 1989, the Progressive Conservative government of Prime Minister Brian Mulroney
proposed the creation of a national sales tax of 9%. At this time, every province in
Canada except Alberta already had its own provincial sales tax imposed at the retail level.

The purpose of the national sales tax was to replace the 13.5% Manufacturers' Sales Tax
(MST) that the federal government imposed at the wholesale level on manufactured
goods. Manufacturers were concerned that the tax hurt their international
competitiveness. The GST also replaced the Federal Telecommunications Tax of 11%.

The proposal was an instant controversy: a large proportion of the Canadian population
was irritated and disapproved of the tax. Although the GST was promoted as revenue-
neutral in relation to the MST, the shifting of the tax away from exported manufactured
goods would make life more costly for Canadians. The other parties in Parliament also
attacked the idea as did three Progressive Conservative Members of Parliament, David
Kilgour, Pat Nowlan, and Alex Kindy, who ended up leaving the Progressive
Conservative caucus as a result.

The Liberal-dominated Senate refused to pass the tax into law. In an unprecedented move
to break the deadlock, Mulroney used a little-known constitutional provision to increase
the number of senators by eight temporarily, thus giving the Progressive Conservatives a
majority in the upper chamber. In response, the Opposition launched a filibuster and
further delayed the legislation.

Despite the tax being lowered to 7% by the time it became enacted, it remained
controversial. What the tax covered also caused anger. The Government defended the tax
as a replacement for a tax unseen by consumers because it was placed on manufacturers,
and in the long run it was posited that removing the MST would make Canada more
competitive. Once the MST was replaced with the GST prices did not initially fall by the
level some thought appropriate immediately, however proponents have argued that in
Canada's market economy the MST's replacement could only be expected to influence
prices over time and not on a stroke.

Despite the opposition, the tax came into force on January 1, 1991.

Reactions
A strong Liberal Party majority was elected under the leadership of Jean Chrétien in the
1993 election. The Progressive Conservative Party fared very poorly in that election,
winning only two seats. Although the party recovered somewhat in subsequent elections,
it remained the smallest party in the House of Commons until it disbanded itself
permanently in 2004, and merged with the Canadian Alliance to form the Conservative
Party of Canada.

During the election campaign, Chrétien promised to repeal the GST, which the Liberals
had denounced so vociferously while they were the Official Opposition, and replace it
with a different tax. Instead of repeal, the Chrétien government attempted to restructure
the tax and merge it with the provincial sales taxes in each province. They intended to
call it the "Blended Sales Tax", but opponents quickly came to derisively call this
proposal the "B.S. Tax", and the name was changed to Harmonized Sales Tax before its
introduction. Only three Atlantic provinces agreed to go along with this plan, however.
Nova Scotia, New Brunswick and Newfoundland and Labrador now have the 13%
Harmonized Sales Tax instead of separate GST and PST.

The decision not to abolish or replace the GST caused great controversy, both within the
party and without. Liberal Member of Parliament (MP) John Nunziata voted against the
Liberal government's first budget and was expelled from the party. Heritage Minister
Sheila Copps, who had personally promised to oppose the tax, resigned and sought re-
election. She was re-elected with ease in the subsequent by-election, however, as was the
Liberal government in the 1997 election.
Current situation
Many also argue that a switch towards heavier consumption taxes on the European model
has helped the Canadian economy become more efficient and competitive with lower-
priced goods for the international market. However, the effects of the GST in this realm
are quite modest, and are regularly swamped by large changes in the exchange rate.[citation
needed]
It can also be claimed that the transparent nature of the GST has kept Canadians
acutely aware of their taxation.

The GST once again became an issue, as the Conservative Party of Canada reduced the
tax by 1% (to 6%) on July 1, 2006 as part of an election promise. They again lowered it
to 5%, effective January 1, 2008. This reduction was included in the Final 2007 Budget
Implementation Bill (Bill C-28),[5] which received Royal Assent on December 14, 2007.

Much of the reason for the notoriety of the GST in Canada is for reasons of an obscure
Constitutional provision. Other countries with a Value Added Tax legislate that posted
prices include the tax; thus, consumers are vaguely aware of it but "what they see is what
they pay". Canada cannot do this because jurisdiction over most advertising and price-
posting is in the domain of the provinces under the Constitution Act, 1867. The provinces
have chosen not to require prices to include the GST, similar to their provincial sales
taxes. As a result, virtually all prices (except for gas pump prices, taxi meters and a few
other things) are shown "pre-GST", at the merchant's choice.

Tax-free shopping for visitors

For purchases before April 1, 2007, visitors to Canada could request a tax refund when
they left Canada by filling out a form at a Canadian airport or some duty free stores at
border crossings.[6] Under that regime, the visitor sent in original receipts with a stamp by
Canadian Customs. Cheques are mailed to the visitor within a few weeks. This refund
was eliminated, except for business purchases, as announced September 25, 2006, in
effect April 1, 2007. Legislation implementing the change (Bill C-52) received Royal
Assent on June 22, 2007 (S.C. 2007, c. 29). The rebate remains available for purchasers
"other than consumers" who export the goods within 60 days of purchasing them in
Canada.
Harmonized Sales Tax
In Canada, the Harmonized Sales Tax (HST) combines the Goods and Services Tax
(GST) and Provincial Sales Tax (PST) into a single sales tax.[1] This changes the PST
from a cascading tax system, which has been abandoned by most economies throughout
the world, to a value added tax like the GST.

Like the GST and PST, the Harmonized Sales Tax is a regressive tax. To maintain the
progressive nature of total taxes on individuals, Canada and other countries have
accompanied the change with a reduction in income taxes, as well as instituted direct
transfer payments to lower-income groups, resulting in lower tax burdens on the poor.

Though economists support the change and studies have shown it will be revenue neutral,
polls show that 82% of British Columbians and 74% of Ontarians oppose it.

On December 16, 2009, the HST has legislation has passed 3rd reading on the provinicial
level and received Royal Assent. Two days later, HST became a reality as Ottawa
followed suit.[citation needed]

Background
Over 130 countries have moved to harmonized sales tax systems including four Canadian
provinces. Evidence from numerous studies shows that harmonization raises business
investment and that PST-type taxes slow down provincial growth. The HST is set to
replace the PST, a tax system which has been abandoned by most economies throughout
the world.

In 1996, three Atlantic provinces —New Brunswick, Newfoundland and Labrador, and
Nova Scotia— worked with the federal government to implement a Harmonized Sales
Tax and lower the sales tax portion to eight percent. The result was a 15% combined tax
when the federal rate of seven percent was added. The new tax went into effect on April
1, 1997. The HST is collected by the Canada Revenue Agency, which then remits the
appropriate amounts to the participating provinces. On 1 July 2006, the GST was lowered
to 6%, resulting in a combined HST of 14%, and again lowered on 1 January 2008 to 5%,
resulting in a combined HST of 13%.

The implementation in eastern provinces demonstrated that consumer prices fall after the
change to a harmonized sales tax. The Martin task force found that “in Atlantic Canada
prices on goods fell when they harmonized the sales tax.
Structure
The tax attempts to build a more efficient tax system while not increasing sales tax
revenues. The tax allows Small business owners to claim the entire 13% of the HST
compared to just the 5% GST before making them pay the remaining 8% PST on capital
costs.[citation needed]

On March 26, 2009 in its annual budget, the province of Ontario announced its intention
to merge the PST and GST to take effect on July 1, 2010. On July 1, 2010, the sales taxes
in British Columbia will also be reformed to merge the PST and GST.

Affected Items

 GST was previously applied on Gasoline and diesel which will no longer be taxed
under the Harmonized Sales Tax. Items from haircuts to carpet cleaning that
today include only the five per cent GST will see an increase in costs. However,
the PST portion of the HST will be exempt on newspapers and fast food items not
exceeding $4 per purchase.
 In Ontario, a rebate compensating for the HST will leave the first $400,000 of a
new home purchase unaffected whereas the portion of a home above $400,000
will be charged the full HST.
 Exemptions
 Both provinces made such household goods as children's clothing and shoes, car
seats, diapers and feminine hygiene products HST exempt. Reception

A study, conducted by the CD Howe Institute before announcements to exempt low value
purchases, found the B.C. and Ontario HST’s likely revenue neutral. A separate report
from the Roger Martin task force on the economy found the HST would lower taxes
overall as “increased revenue from the harmonized sales tax is matched by reductions in
corporate and personal taxes and by tax credits. The effect is revenue loss.” The Globe
and Mail reporting on the study found that the "Ontario government will actually lose
revenue." Public opinion however holds negative feelings towards the HST with an Ipsos
Reid poll showing vast majority of British Columbians (82%) and Ontarians (74%)
oppose their provincial government’s plans to harmonize the sales tax.

Only 39% of the public believes the HST would be beneficial for businesses whereas the
Martin task force found costs will decrease for small business as they recover sales taxes
they have to pay on goods and services they purchase and will lower their administrative
costs. Additionally, only 10% of the public agree that the move will help to create more
jobs. Alternatively, a study by Jack Mintz of the University of Calgary School of Public
Policy found that the HST will create almost 600,000 new jobs over the next ten years.[19]

Dividend

In Canada, there is taxation of dividends, but tax policy attempts to compensate for this
through the Dividend Tax Credit or DTC for personal income in dividends from
Canadian corporations. An increase to the DTC was announced in the fall of 2005 by
Liberal finance minister Ralph Goodale just prior to the fall of the Liberal minority
government, in conjunction with the announcement that Canadian income trusts would
not become subject to dividend taxation as had been feared. Effective tax rates on
dividends will now range from as low as 3% to over 30% depending on income level and
different provincial tax rates and credits.

Source: Wikipedia