Taxes in Canada: The Ultimate Guide for Canadian Taxpayers

Wondering how to pay your taxes? Canada has a progressive tax system, meaning the more money you make, the higher the tax percentage you pay. Taxpayers pay both federal and provincial taxes in Canada. The tax burden is relatively higher compared to many other countries. However, these mandatory payments provide social security contributions, such as universal healthcare, education, and infrastructure.

The good news is, Canadians have more affordable healthcare, and those who make a lower income pay fewer taxes than American citizens. You can pay in person at most banks, credit unions, or online. Canada’s tax system can be difficult to navigate, as tax rates vary significantly by province, and federal income tax rates change across income brackets. But we can help. This guide offers a closer look at the Canadian tax system so you can plan every expense.

Keep reading to learn about:

• • Who pays tax in Canada?
  • How much does Canada tax their citizens?
  • Property Taxes in Canada vs US

 

Who pays tax in Canada?

Taxes must be paid by individuals and businesses that earn income in Canada. The following groups are required to file taxes:

• Canadian residents: Permanent residents in Canada earning income from a job, business, or investment must file a yearly individual income tax return. This includes full-time and part-time workers, self-employed individuals, students, and retirees with passive income.
• Non-residents: Non-resident individuals who don’t live in Canada full-time must still pay taxes. Non-residents are required to pay if they do business in Canada or earn income from a Canadian source (like rental property, Canada pension plans, or dividend income).
• Consumers: Everyone pays sales tax when they buy goods and services, such as groceries, clothes, or concert tickets. The sales tax rates vary by province.
• Companies: Entrepreneurs invest in Canada to tap into the global market. Corporations and small businesses pay corporate Canadian income tax rates. Corporate taxes are based on their business income.
• Property owners: Individuals who own immovable or real property must pay property tax. Some examples of taxable Canadian property include homes, business properties, cottages, land, and shares of a private Canadian corporation.

How much does Canada tax their citizens?

Canada taxes its citizens based on a progressive income tax system with higher tax rates for higher earners. For 2025, federal tax brackets vary from 15 to 33 percent. Provincial income tax adds five to 26 percent or more, with sales tax varying between five and 15 percent. In fact, the average Canadian family spends 43 percent of its income on total taxes.

Taxes in Canada are divided into separate categories, such as federal and provincial taxes, personal income taxes, corporate taxes, sales taxes, property taxes, and capital gains. Here is a look at each of these categories.

Federal Income Tax Rates in Canada

Federal income tax is a mandatory federal tax that individuals and businesses pay to the federal government of Canada. 2025 federal tax brackets range from 15 to 33 percent and vary based on taxable income. The taxable income is the income derived after applying tax credits, tax deductions, and exemptions.

Individuals pay federal taxable income on their salaries, investments, and self-employment income. At the same time, corporations pay federal income tax rates on their business profits.

The main federal income tax purposes are to fund public services like healthcare, employment insurance premiums, infrastructure, and financial support for low-income families and seniors.

Source: Canada Revenue Agency

Provincial Income Taxes in Canada

Provincial taxes in Canada are a form of direct consumption taxation of each province or territory. The average tax rate in Canada for provincial income taxes ranges from five percent for lower incomes to over 20 percent for the highest earners. The tax laws for provincial income taxes are the same for non-residents and permanent residents.

Every province has different provincial and territorial taxes. The territorial income tax will vary based on where you live. For example, British Columbia, Ontario, and Québec have separate provincial taxes for employment income.

British Columbia

Québec income 

Personal Income Tax in Canada

Personal income tax in Canada is the tax you pay on the money you earn. This includes income from employment, self-employment, investments, Canada pension plans, and other sources. It is “personal” because it is based on the individual’s income or personal earnings.

Both the federal and provincial governments collect individual income tax. Non-residents and permanent residents earning an income in Canada pay a personal income tax.

Corporate Taxes in Canada

Canadian resident corporations must pay Canadian corporate income tax (CIT) on all their business income. A non-resident corporation only has to pay CIT on income made from doing business in Canada or on capital gains from selling taxable Canadian property.

Canadian CIT and withholding tax (WHT) can be lowered or removed if Canada has a tax treaty with the country from which the non-resident is from.

Sales Taxes in Canada

Canada charges sales taxes on goods and services when you buy them.

There are three types of sales taxes:

• Goods and Services Tax (GST) – GST is a federal sales tax that applies across the country. But it varies based on the province. For example, GST is five percent in provinces like British Columbia, Alberta, the Northwest Territories, and for Québec residents.
• Provincial Sales Tax (PST) – PST is a provincial sales tax charged by an individual province. Some provinces charge PST separately from GST. For example, British Columbia and Manitoba have a seven percent PST.
• Harmonized Sales Tax (HST) – HST is a sales tax in Canada that combines GST and PST into one tax. For example, HST is five percent in Northwest Territories, 14 percent in Nova Scotia, and 15 percent in Prince Edward Island.

The Canada Border Services Agency (CBSA) collects taxes and duties on imported goods.

Property Taxes in Canada

Property taxes in Canada often vary between 0.5 percent and 2.5 percent. The amount you pay in property tax is based on how much your home is worth and the tax rate set by your local government.

The Canadian government determines a property’s assessed value regularly, but how often this happens varies by province. For example, British Columbia and the Northwest territories send a yearly property assessment notice. However, Ontario has assessments every four years. In Canada, permanent residents, Canadian citizens, and non-residents all pay property taxes on any real property they own. But a non-resident often pays higher taxes than a Canadian citizen.

Capital Gains Tax in Canada

Capital gains in Canada are taxes you pay on the profit you make from selling specific assets, like real estate, bonds, stocks, or other investments. In Canada, only 50 percent of capital gains are taxable.

There are certain exemptions to this type of tax. For example, certain sales of assets are not subject to capital gains tax. This includes your principal residence and money in special investment accounts like Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA), Registered Education Savings Plan (RESP), and First-Home Savings Account (FHSA).

Taxation in Canada: What to expect when filing taxes?

To file your taxes, you’ll need to complete the necessary tax forms. A Canadian resident must pay an income tax on worldwide income. But, to avoid double taxation, Canada has tax treaties, foreign tax credits, and tax deductions. Here is how each factor affects your tax rates:

• Tax treaties: Tax treaty countries are nations that have agreements with Canada to avoid double taxation on the foreign taxes paid. Canada has treaties with many countries, including the US, UK, Germany, and Australia.
• Foreign tax credits: When you file taxes, you can claim a credit for the amount of tax you paid to the foreign government. For many Canadian taxpayers, non-refundable tax credits are the key to reducing their overall tax burden for an entire calendar year. To be eligible for these credits, you must be a permanent resident, a Canadian citizen, or a Canadian-based company.
• Tax deductions: Common tax deductions related to investments, employment, or businesses may lower your overall tax burden. In most cases, Canadian citizens can claim tax deductions based on the nature of their expenses.

Taxes in Canada vs USA: Which one is higher?

Canada charges a five percent for Goods and Services Tax (GST), and in certain provinces, an additional Provincial Sales Tax (PST). This results in a total sales tax rate that can vary from five to 15 percent, depending on the province. However, the United States doesn’t have a federal sales tax. Instead, individual states set their own sales tax rates, ranging from zero to more than nine percent.

Because of the progressive tax system, people who live in Canada and earn more often pay higher income taxes than in the USA. However, the federal income tax brackets are very similar for medium to low-income earners. Both the United States and Canada have progressive taxes. Yet, in Canada, there are fewer ways to reduce taxes through deductions at the federal level.

When it comes to the value-added tax, there is the cost of health. Canadian taxes fund universal healthcare coverage, which makes many services free. The Canadian government covers about 70 percent of the healthcare costs. In the US, American citizens must pay for insurance with significant out-of-pocket expenses.

The Canadian and U.S. systems have similar tax advantages for seniors, allowing them to set some money aside for retirement. However, the Canada Pension Plan enables retirees to enjoy lower poverty rates than in the US. That’s why many Americans choose to retire in Canada.

Property Taxes in Canada vs US

Property taxes in Canada are often more affordable than in the US, but how much you will spend on territorial income tax varies based on where you live.

Canada determines property tax rates at the municipal level, and each province has its own rates, with an average rate of one percent. For example, British Columbia has the lower tax rates, with Vancouver’s tax rate at about 0.28 percent.

The United States has different property tax rates based on the state, ranging from 1.1 to over two percent of the property’s assessed value. Some states have the highest property tax rates, especially New Jersey (2.23 percent) and Illinois (2.11 percent).

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Frequently Asked Questions About Taxes in Canada

How much tax do you pay in Canada?

The federal tax rate for tax year 2025 is:

• 15 percent on the first $57,375 of taxable income
• 5 percent on the taxable income from $57,375 to $114,750, or over
• 26 percent on the taxable income from $114,750 to $177,882, or over
• 29 percent on the taxable income from $177,882 to $253,414, or over
• 33 percent on the taxable income over $253,414

Are taxes higher in Canada or the USA?

The Canada tax rate is more expensive for high earners compared to the US. That’s because Canada has both federal and provincial income taxes. In the US, some states don’t have any state income tax, so you only pay federal tax. Even though the top federal tax rate in Canada is 33 percent, compared to 37 percent in the US,  due to combined federal and provincial taxes, high-paid Canadians have higher income tax rates.

Is Canada a high-tax country?

Canada has a reputation for having high income tax rates, with a top federal tax rate of 33 percent. But, the good thing is, there are no inheritance or wealth taxes, so you don’t have to report them as income.

How is salary taxed in Canada?

Tax in Canada on salary is determined by a progressive system. Citizens pay federal taxable income tax based on their salary according to the employment income. However, only Québec collects its own income tax separately, so Quebec residents must file two tax returns—one for the federal government and one for Québec. Passive income is taxed at about 50 percent.

What taxes do foreigners pay in Canada?

Foreigners pay taxes depending on their residency status and the source of their gross income. As a foreigner, you have to pay federal income tax rates on your Canadian-sourced income. The income tax rates will vary based on whether you are a tax resident or non-resident. Residents often face a territorial income tax based on their location.

Does Canada tax worldwide income?

Yes, but only if you are a Canadian tax resident. You must report all your income, whether from a job in another country, rental property abroad, foreign investments, or pensions. You can also claim a credit for foreign taxes paid in another country to avoid being taxed twice on the same income.

How much income tax do Canadians pay annually?

Canada has a tiered system for paying taxes. The bigger your employment income, the higher the tax percentage. The government creates tax brackets to tax personal income at different rates. For example, federal income tax rates vary from 15 percent to 33 percent according to the portion of your employment income.

Which Canadian provinces have the highest property tax rates?

Winnipeg in Manitoba has the highest property tax rate, valued at 2.64 percent. So, if your house is assessed at $300,000, you would pay approximately $3,564 in property taxes per year in Winnipeg.

How much tax do you pay on investment income in Canada?

The tax rates vary based on the type of income you have. In 2025, the Canada Revenue Agency (CRA) taxes about 50 percent of capital gains. In other words, you pay tax on half of the profit you make from selling an asset.

Can married couples file taxes separately in Canada?

Even after couples marry, each person must submit their tax return. In Canada, you must file your tax returns separately. Of course, you can prepare them together, but you must file two individual returns.

When are taxes due in Canada?

Canadians pay taxes at different times of the year. For example, if you need to file an income tax return for the 2024 tax year, you start filing in February 2025. The deadline to file the income tax is 30 April 2025. Filing the taxes after the deadline could lead to higher interest paid and penalties.

What are the federal and provincial tax components in Canada?

Canada’s tax foundation has federal income tax and provincial/territorial income tax. Citizens pay federal income tax on their federal taxable income, which is calculated from their gross income minus deductions, resulting in net income. Each level, federal tax and provincial tax, has distinct progressive rates and non-refundable tax credits.

What happens to the Canadian withholding tax?

Withholding taxes is a tax Canada takes before the money leaves the country, usually when non-residents earn income from Canadian sources. The payer (like a bank or company) withholds the tax and sends it directly to the Canadian government. The standard rate is 25 percent but there can be lower taxes if non-residents are from tax treaty countries.