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The Ugly Truth about Canadian Tax System

Canadian Tax System

The Canadian tax system is based on self-assessment by tax payers. This means taxpayers have to have to complete a tax return each year to report their income and calculate whether they owe tax or will receive a refund.

Fraser Institute, an organization based in BC, recently came out with a study that says Canadians are paying more taxes than necessities.  

That sounds crazy, isn’t it?

If you think about it, here’s the list of taxes that we pay…every single day. 

  • Personal income tax (part of your payroll)
  • Employment insurance (that’s paid as part of your payroll too)
  • Corporation tax (business tax)
  • Property tax (if you own a property or indirectly helping someone pay their property tax if you rent)
  • Sales tax (HST 13% in Ontario, 13% GST & PST combined in BC, maybe 5% if you live in Alberta)

These are the obvious ones.  Then there are the less obvious ones…

  • Tax on gasoline for your vehicles 
  • Import duties (which are included as part of what you pay for your cars, alcohol, pretty much everything that are imported and subjected to duties)
  • Liquor, tobacco, amusement and other excise taxes
  • Others

According to Fraser Institute, on average, we spend 44% of our income on all of the taxes listed above.  We only spend 36% on basic necessities such as food, shelter and clothing combined.  

Crazy, isn’t it? 

44% of our income goes to the government, while only 36% of income is spent on basic necessities. 

It boggles my mind how we can spend more on taxes, than supporting our families… but that’s the Canadian tax system for you.

Let’s flip a switch and look at what made up of the government’s revenue.  

Almost 50% of the federal government’s revenue came from personal income tax.  

If you include Employment Insurance premiums that you contribute as an employee, more than 50% of the government revenue came from your paycheck alone.  ☹️

Source: https://www.tpsgc-pwgsc.gc.ca/recgen/cpc-pac/2019/pdf/2019-vol1-s1-eng.pdf

On the other hand, corporation income tax only contributes to 15.2% of government revenue.  

Really?!

Many people ask me if there’s a tax benefit in setting up corporations.  Guess what, corporations only contribute to 15.2% of the government revenue.  Much lower than what personal income tax has contributed to the system. 

You would understand why corporation can be a beneficial vehicle to lower your taxes. 

The politicians from all parties can tell us how much tax cuts they are going to implement, these charts and statistics can show you that we’re paying more taxes than ever.  

Building a business and investing, in some sort of corporation environment, can help you build your wealth much more tax efficiently.  

Until next time, happy Canadian Real Estate Investing.

Cherry Chan, CPA, CA

Your Real Estate Accountant