Lesson 17 — Activity 1: What Is Income Tax?
Lesson 17 — Activity 1:
What Is Income Tax?
Income tax is one of the main sources of revenue (commonly known as money) for the federal
and provincial governments in Canada. You pay income tax on the money you
earn through work or other investments. This tax helps the government provide you with
different services, such as health care, education, roads, the military, old age pensions,
and other social programs.
To see where 2016-2017 tax dollars were spent, click here.
The income tax system in Canada is based on the idea that people with similar incomes pay similar amounts in taxes. People who have more money pay more in taxes. Therefore, people who need assistance will receive assistance through government programs paid for by your tax dollars. The amount of income tax you pay is based on your taxable income. The term taxable income refers to the amount of money you earn in a year, minus some expenses that you might be allowed to claim.
The income tax you pay is deducted from your paycheques by your employer. Your employer will also deduct contributions to two government programs:
- The Canada Pension Plan (CPP) — All working people in Canada between the ages of 18 and 70 contribute to the CPP. Employers contribute an equal amount. This money provides income for such situations as retirement or disability.
- Employment Insurance (EI) — All employers deduct EI premiums so that you may receive benefits if you become unemployed.
The money deducted from your paycheque for income tax, CPP contributions, and EI premiums is submitted by your employer to the Canada Revenue Agency (CRA).
Another way that you pay taxes is through purchases made where the GST (Goods and Services Tax) is charged. When filing an income tax form, you may find a GST credit returned to you. This occurs when you have not earned enough money in one given year according to the government guidelines.
Filing an income tax return is something that you are required to do as long as you have an income.
