Taxes are an important consideration for those earning income in Canada. As a country with a developed welfare infrastructure and socially accessible public programs, taxes play a crucial role in Canadian society and, even more so, in the well-being of the people of Canada.
Still, due to the fact that they can incur additional costs or deduct them from people’s income, the issue of low tax rates is often popular.
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The province or territory that has the lowest income tax rates in Canada is Nunavut; However, the issue is more complex than it seems at first glance.
Types of taxes in Canada:
Canada introduces several different taxes; the two most common are:
- Income tax (which is broken down into provincial and federal income taxes); and
- Consumption tax (which can be broken down into Generalized and Provincial Sales Taxes).
However, keep in mind that there are other types of taxes that may be relevant to your situation. To learn more about the different types of taxes in Canada, visit the dedicated government page here.
Income taxes
Income taxes are double in Canada. There is the federal income tax rate that applies to all residents of Canada, in all provinces and territories, and the provincial income tax rate that varies from province to province. People in Canada will have to pay a combination of both income taxes.
Canada’s tax rates are organized in parentheses. Current federal and provincial tax rates can be found here. For more information on how to file your federal income tax, visit our dedicated webpage here.
A common misconception about income tax in Canada is that as income increases (and individuals move up the tax brackets), the flat rate at which total income is taxed also increases. However, this is not the case; Instead, income is taxed on a tiered system between these brackets. For example:
The 2023 tax rates cite a 15% tax on income of $53,359 CAD or less, and a 20.5% tax on income between $53,359 and $106,717 CAD.
If your annual income in Canada is $90,000 CAD, instead of simply jumping to the relevant federal tax rate for your bracket (20.5%), you would pay the applicable tax on the amount that falls into the lower bracket (15% on the first $53,359 CAD ), before paying the corresponding tax rate (20.5%) on amounts that exceed the bracket limit. This means that instead of paying $18,950 in income tax (20.5% flat rate), you pay $15,515 in annual income tax.
Therefore, to determine which province actually has the lowest tax rate, we need to use an example salary, to better judge what the relevant taxes may be. According to Statistics Canada, the average national labor income for a Canadian worker (aged 16 and older) in 2021 (the latest Canadian income survey available) was $51,600 CAD, which we can use as pre-tax income.
The federal tax rate in 2023 for this salary is 15%. Below is a list of how much a person earning this salary would pay in taxes, in each province:
- British Columbia: 7,515 Canadian dollars;
- Alberta: CAD$8,399;
- Saskatchewan: CAD$8,296;
- Manitoba: 9,564 Canadian dollars;
- Ontario: 7,449 Canadian dollars;
- Quebec: 9,331 Canadian dollars;
- New Brunswick: 9,173 Canadian dollars;
- Nova Scotia: 7,515 Canadian dollars;
- Prince Edward Island: 9,909 Canadian dollars;
- Newfoundland and Labrador: 9,487 Canadian dollars;
- Northwest Territories: 7,502 Canadian dollars;
- Nunavut: 6,727 Canadian dollars; and
- Yukon: 7,704 Canadian dollars.
We can see that the tax payable is the lowest in Nunavut; However, this may not be constant and can vary greatly depending on one’s income and expenses. To get a better idea of what taxes you might pay in each province, you can visit the government’s 2023 provincial tax rates page. here.
consumption taxes
Consumption taxes are broken down in a similar way to income taxes. While the federal government imposes a national consumption tax known as the General Sales Tax (GST), each province also has its own Provincial Sales Tax (PST). Canadian residents must pay both types of taxes on goods and/or services purchased within Canada. Note that Some goods and services are exempt from these taxes..
Some provinces combine the GST with their local PST, creating what is called a Harmonized Sales Tax (HST). While HST works exactly like charging GST and PST separately, it is more convenient for accounting as a single tax rate.
The national GST in Canada (in 2023) is 5%.
Among provinces that charge both consumption tax rates, the following are the 2023 PST rates:
- British Columbia: 7%;
- Manitoba: 7%;
- Quebec: 9.975%; and
- Saskatchewan: 6%.
Among provinces that combine consumption taxes, the 2023 HST rates are:
- Ontario: 13%;
- New Brunswick: 15%;
- Newfoundland and Labrador: 15%;
- Nova Scotia: 15%; and
- Prince Edward Island: 15%.
Additionally, the following provinces and territories do not charge PST and only charge GST on goods and services:
- Alberta;
- Northwest Territories;
- Nunavut; and
- Yukon.
reference: www.cicnews.com