Social security contributions
For 2020, Canadian-resident employees are required to pay government pension plan contributions of up to CAD 2,898.00 and employment insurance premiums of up to CAD 856.36. However, Quebec employees instead contribute a maximum of CAD 3,146.40 in Quebec government pension plan contributions, CAD 650.40 in employment insurance premiums, and CAD 387.79 to a Quebec parental insurance plan.
Starting 1 January 2019, Canadian government and Quebec government pension plan contributions were increased by an enhancement that will be phased in over seven years. The enhanced portion of the contributions is deductible, while a credit equal to 15% of the lesser of the base (non-enhanced) amount payable and the required base premiums for the year is allowed in computing an individual's federal taxes payable.
Self-employed persons contribute double the employee's government pension plan contribution (i.e. for 2020, up to CAD 5,796.00, or if in Quebec, CAD 6,292.80) and are permitted to deduct half of the base (non-enhanced) contribution and 100% of the enhanced contribution. The non-deductible portion qualifies for a tax credit. Self-employed persons are not liable for employment insurance premiums, but may opt to pay them. Self-employed persons in Quebec must contribute up to CAD 689.23 to the Quebec parental insurance plan.
Federal Goods and Services Tax (GST)
The GST is a federal tax levied at a rate of 5% on the supply of most property and services made in Canada. It is a value-added tax (VAT) applied at each level in the manufacturing and marketing chain. However, the tax does not apply to supplies that are zero-rated (i.e. taxed at 0%) or exempt (e.g. used residential real property and most health care, educational, and financial services). Examples of zero-rated supplies include basic groceries, medical and assistive devices, prescription drugs, feminine hygiene products, agriculture and fishing, and most international freight and passenger transportation services.
Generally, registrants charge GST on their sales and pay GST on their purchases, and either remit or claim a refund for the amount of net tax reported (i.e. the difference between the GST charged and the GST paid). Suppliers are entitled to claim input tax credits for the GST paid or payable on expenses incurred relating to making fully taxable and zero-rated supplies (i.e. commercial activity), but not on expenses relating to the making of tax-exempt supplies.
Harmonised Sales Tax (HST)
Five provinces have fully harmonised their sales tax systems with the GST and impose a single HST, which includes the 5% GST and a provincial component. HST applies to the same tax base and under the same rules as the GST. There is no need to register separately for GST and HST because both taxes are accounted for under one tax return and are jointly administered by the Canada Revenue Agency (CRA). The HST rates follow.
|Provinces||HST rate (%)|
|Newfoundland and Labrador||15|
|Prince Edward Island||15|
GST/HST and the digital economy
To ensure the GST/HST system applies in a fair and efficient manner to the growing digital economy, draft legislative proposals will generally require the following:
- Non-resident vendors supplying digital products or services (including traditional services) to consumers in Canada to register for GST/HST and collect and remit the tax to the CRA on their taxable supplies to Canadian consumers. A simplified GST/HST registration and remittance framework will be available to non-resident vendors and non‑resident distribution platform operators that are not carrying on business in Canada (e.g. have no PE in Canada).
- Companies that run distribution platforms to register under the normal GST/HST rules and collect and remit the GST/HST on products that are sold by third-party vendors on those platforms and shipped through Canadian fulfilment warehouses (unless the vendor is already registered for GST/HST).
- Companies that run short-term accommodation platforms to collect and remit the GST/HST on accommodations offered through these platforms (unless the property owner is registered for GST/HST). A simplified GST/HST registration and remittance framework will be available to non-resident accommodation platform operators that are not carrying on business in Canada.
The proposed new GST/HST rules will generally take effect 1 July 2021.
Provincial retail sales tax (PST)
The provinces of British Columbia, Manitoba, and Saskatchewan each levy a PST (in addition to the 5% GST) at 7%, 7% (a proposed decrease to 6% has been postponed until further notice), and 6%, respectively, on most purchases of tangible personal property, software, and certain services.
PST generally does not apply to purchases of taxable goods, software, and services acquired for resale; registered vendors can claim this resale exemption by providing to their suppliers either their PST number or a purchase exemption certificate. Certain exemptions also exist for use in manufacturing, farming, and fisheries.
British Columbia will be extending its PST registration requirements to out-of-province vendors. Effective 1 April 2021, non-residents of British Columbia located:
- in Canada that sell taxable goods, or
- in or outside Canada that sell software and telecommunication services,
to customers for consumption or use in British Columbia will generally be required to register for BC PST if their annual revenue from sales in the province exceeds CAD 10,000.
Saskatchewan has recently expanded its already-broad registration requirements for out-of-province sellers to various online platforms and marketplace facilitators. Effective 1 January 2020, businesses that operate online selling platforms are required to register for and collect Saskatchewan PST if they:
- create or facilitate the marketplace in which retail sales of tangible personal property, taxable services, or contracts of insurance for consumption or use in or relating to Saskatchewan take place, and
- collect payment from a consumer or user of the tangible personal property, taxable services, or contract of insurance and remit the payment to a marketplace seller.
Out-of-province sellers do not have to register for Saskatchewan PST if they only make sales to customers in Saskatchewan through online accommodation platforms or marketplace facilitators that are registered for Saskatchewan PST.
PST is administered by each province’s tax authority, separate from the CRA. Unlike GST/HST, PST is not a VAT and could apply to a business’s inputs that are not acquired for resale (e.g. charges for telecommunications services). Therefore, any PST paid on purchases by a business cannot generally be claimed as a credit or otherwise offset against PST charged on sales.
Alberta and the three territories (the Northwest Territories, Nunavut, and the Yukon) do not impose a retail sales tax. However, the GST applies in those jurisdictions.
The Quebec Sales Tax (QST) is a VAT structured in the same manner as the GST/HST. The QST is charged in addition to the 5% GST and is levied at a rate of 9.975% on the supply of most property and services made in the province of Quebec, resulting in an effective combined rate of 14.975%. Registrants charge QST on taxable supplies (that are not zero-rated) and can claim input tax refunds for QST paid or payable on their expenses incurred and/or purchases made in the course of their commercial activity. The resulting net tax is reported to Revenu Québec (Quebec’s tax authority) and is either remitted or claimed as a refund. Revenu Québec also administers the GST/HST on behalf of the CRA for most registrants that are resident in the province.
The mandatory QST registration rules were recently expanded to non-residents of Quebec. Suppliers that are not residents of, and have no physical or significant presence in, Quebec, and that make digital and certain other supplies to ‘specified Quebec consumers’ may be required to register for QST under a new specified registration system, starting:
- 1 January 2019 for non-residents of Canada that make supplies of incorporeal moveable property (IPP) and services, and
- 1 September 2019 for residents of Canada that reside outside Quebec and make supplies of corporeal moveable property, IPP, and services.
The requirement to register also applies to digital property and services distribution platforms in regards to taxable supplies of IPP or services received by specified Quebec consumers if these digital platforms control the key elements of the transaction.
Net wealth/worth taxes
There are no net wealth/worth taxes in Canada.
Inheritance, estate, and gift taxes
There are no federal or provincial/territorial inheritance, estate, or gift taxes. However, an individual who dies is deemed to have disposed of any capital property immediately before death. This can result in any accrued capital gains being subject to income tax in the manner discussed under Capital gains in the Income determination section. In addition, most provinces and territories impose probate fees or administrative charges for probating a will.
Property taxes are levied by municipalities in Canada on the estimated market value of real property within their boundaries, and by provinces and territories on land not in a municipality. In most provinces and territories, a general property tax is levied on the owner of the property. Some municipalities levy a separate business tax, which is payable by the occupant if the premises are used for business purposes. These taxes are based on the rental value of the property at tax rates that are set each year by the various municipalities. School taxes, also generally based on the value of real property, are levied by local and regional school boards or the province or territory.
In British Columbia, an annual speculation and vacancy tax (SVT) is imposed on residential property in certain urban centres in British Columbia (i.e. Metro Vancouver Regional District, Capital Regional District, Kelowna-West Kelowna, Nanaimo-Lantzville, Abbotsford, Chilliwack, and Mission; most islands are excluded). The SVT targets foreign and domestic home owners who do not pay income tax in British Columbia, including those who leave their homes vacant. The tax rate, as a percentage of the property’s assessed value at 1 July of the previous year, is:
- 2% for foreign investors and satellite families.
- 0.5% for British Columbians and all other Canadian citizens or permanent residents who are not members of a satellite family.
Up-front exemptions are available for most principal residences and for qualifying long-term rental properties and certain special cases, including home renovation, illness, and divorce. A tax credit may be available in varying amounts (depending on the type of owner) for owners subject to the SVT.
All residential property owners in the areas subject to the SVT must:
- make a declaration (i.e. register and claim an exemption) online by 31 March of the following year, and
- if no exemption is available, pay any tax owing by 2 July of the following year.
If a property has multiple owners, each owner must complete a declaration, even if they are married to another owner of the property. An owner with multiple properties must complete a separate declaration for each property. Failure to file a declaration for a calendar year will result in assessment at the 2% tax rate for the taxpayer, regardless of residency status or exemption eligibility.
Land transfer tax
All provinces and territories levy a land transfer tax or registration fee on the purchaser of real property within their boundaries. These levies are expressed as a percentage, in most cases on a sliding scale, of the sale price or the assessed value of the property sold, and are generally payable at the time title to the property is registered. Rates generally range from 0.02% to 5%, depending on the province or territory, but may be higher if the purchaser is a non-resident. Some exemptions (or refunds) are available. Additional land transfer taxes may apply for properties purchased in the municipalities of Montreal or Toronto. Other municipalities may also impose these taxes and fees.
In British Columbia, a 20% land transfer tax (in addition to the general land transfer tax) is imposed on foreign entities (i.e. foreign nationals and corporations, and certain Canadian corporations controlled by such foreign persons), and certain trusts and/or their trustees that have a foreign connection (a taxable trustee), that purchase residential property in the Metro Vancouver Regional District (but excluding residential property located on the Tsawwassen First Nations lands), the Capital Regional District, the Regional District of Central Okanagan, the Fraser Valley Regional District, and the Regional District of Nanaimo. Failure to pay the tax or file the required forms can result in interest, plus significant penalties, and/or imprisonment. Anti-avoidance rules will capture transactions that are structured to avoid this tax. Relief from the additional land transfer tax is available to:
- foreigners who become Canadian citizens or permanent residents within one year of purchasing a principal residence, or
- foreign workers coming to British Columbia under the British Columbia Provincial Nominee Program who purchase a principal residence.
Starting 16 May 2019, in an effort to stop tax evasion when property ownership is hidden behind numbered companies and trusts, the British Columbia government requires trustees and corporations that acquire property to identify all individuals with a beneficial interest in the trust or significant interest in the corporation on the property transfer tax return. For beneficiaries or trusts that are corporations, information about each director must be disclosed. This applies to all property types, including residential and commercial, with exemptions for certain trusts (e.g. charitable trusts) and corporations (e.g. hospitals, schools, and libraries).
In Ontario, a 15% land transfer tax (in addition to general land transfer tax and Toronto’s land transfer tax) is imposed on foreign entities (i.e. foreign nationals and corporations, and certain Canadian corporations controlled by such foreign persons) and taxable trustees (i.e. trustees of a trust that has at least one trustee or beneficiary that is a foreign entity) that purchase residential property in the Greater Golden Horseshoe (a defined region of Southern Ontario surrounding and including the city of Toronto). For this tax to apply, the land transferred must contain at least one, but not more than six, single family residence(s). The tax also applies to unregistered dispositions of a beneficial interest in such residential property, when the purchaser of the interest is a foreign entity or taxable trustee. Failure to pay the new tax can result in a penalty, fine, and/or imprisonment. Exemptions from the 15% land transfer tax are available in certain circumstances (including for foreign workers coming to Ontario under the Ontario Immigrant Nominee Program or for refugees under the Immigration and Refugee Protection Act, who purchase a principal residence), and rebates of the tax can be obtained in certain situations.
Luxury and excise taxes
Excise duties are levied at various rates on spirits, wine, beer, malt liquor, and tobacco products. When these goods are manufactured or produced in Canada, duty is payable on the goods at the point of packaging and not at the point of sale. When these goods are imported into Canada, duty is generally payable by the importer at the time of importation. Excise tax is also imposed on automobile air conditioners and fuel-inefficient automobiles, in addition to aviation fuel, gasoline, diesel fuel, and certain insurance premiums.