Canada`s new provisional “Income War Tax Act” by Canadian Finance Minister Sir Thomas White was submitted to Committee of the Whole on July 25, 1917, but met with resistance. [3] War spending forced the Conservatives to reconsider their options, and in 1918 the war government of Sir Robert Borden introduced a “temporary” income tax to cover expenses. With the election of the Liberal government of Prime Minister William Lyon Mackenzie King, much of national politics was dismantled and income taxes have remained in place ever since. Tax brackets are created by the CRA to determine how much money you have to pay in income tax each year. Tax brackets apply to personal income earned between predetermined minimum and maximum amounts, also known as tax rates. The amount of income tax a person must pay is based on the amount of their taxable income (income minus eligible expenses) for the taxation year. Income tax can be collected in several ways: Depending on the amount of income you earn, you belong to one of the five federal tax brackets and one of the five Tax Brackets in Ontario. Each tax bracket is taxed at a different rate. The system is based on so-called progressive tax rates. This means that if your income increases so that you enter a new tax bracket, only the amount of your income that falls into the top tax bracket will be taxed at the highest rate. Tax brackets are set by the federal government and by each province. The constitutional authority over federal income tax is found in section 91(3) of the Constitution Act, 1867, which gives the federal Parliament the power to “collect money through any type or tax system.” All provinces and territories also have their own tax brackets.

This means that Canadian taxpayers pay income tax to the federal government as well as to the government of the province or territory in which they reside. A common misconception is that if your taxable income changes to a higher tax bracket, all your income will be taxed at that higher rate. In fact, your income is divided into different parts that are only taxed at the rates at which they fall. Tax credits work differently from deductions because they are deducted from the amount of tax you owe, as opposed to your pre-tax income. The most common credit anyone can claim is a basic personal tax credit that allows you to deduct an amount set by the government. The base amount for federal individuals for the 2020 taxation year is $13,229. For 2021, this amount is $13,808. There are also basic provincial personal tax credits, which are determined by each province. In Ontario, it`s $10,783 for 2020. For the 2021 tax year, it is $10,880. If you earn more than $216,511 in taxable income in 2021, the portion above that amount will be taxed at the federal rate of 33%.

This is called the “top tax bracket.” The federal government and the Government of Ontario each levy and levy income tax. However, taxes are combined in such a way that the taxpayer only files a tax return and pays the combined amount of tax that governments then share. The amount of tax you have to pay depends on the amount of income you earned during the year, as well as the deductions and credits you claimed. In most cases, you are also required to pay taxes on investment income generated during the year, even if it is not received until the following calendar year. Canada`s income tax system is a self-assessment system. Taxpayers assess their tax liability by submitting a return to the credit rating agency within the required filing deadline. The credit rating agency will then evaluate the tax return based on the tax return submitted and the information received from employers and financial companies and correct it for obvious errors. A taxpayer who does not agree with the CRA`s assessment of a particular return may appeal the assessment. The appeal process begins when a taxpayer formally objects to the CRA`s assessment. The objection must explain in writing the reasons for the appeal and all related facts. The objection will then be reviewed by the CRA`s Appeals Division. A contested assessment may be confirmed, cancelled or amended by the credit rating agency.

If the assessment is confirmed or amended, the taxpayer can appeal the decision to the Tax Court of Canada and then to the Federal Court of Appeal. Tax collection agreements allow different governments to collect taxes through a single administration and collection agency. The federal government collects personal income tax on behalf of all provinces and territories. It also collects corporate taxes on behalf of all provinces and territories except Alberta. Canada`s federal income tax system is administered by the Canada Revenue Agency (CRA). .