Introduction to taxation

What is tax? Tax is defined as a compulsory contribution levied on persons, property, or businesses for the support of government for economic and social operations.. In other words, it

Introduction to Taxation

Investment and Finance 12

Ms Stewart

What is tax?

 Tax is defined as a compulsory contribution levied on persons, property, or businesses for the support of government for economic and social operations In other words, it is money paid to a government to fund its programs

and services

Why do we need taxes?

 Sometimes, different levels of government collect tax For example, in Canada

individuals will pay federal taxes to the

Government of Canada to run the country They may pay provincial, territorial, or

municipal taxes as well

 Without a tax system, a government would not have any money to provide services

 Citizens support the tax system by paying their fair share of taxes In turn, they receive services and benefits from their government

Benefits to Taxation

 Many of the benefits Canadians enjoy are

made possible through taxes Canada's tax systems pay for such things as roads, public utilities, education, health care, economic

development, cultural activities, defence, law enforcement, and other programs and

services

Benefits to Taxation

 Tax revenue helps redistribute wealth to such

beneficiaries as lower-income families, charities, students, retirees, and people with disabilities Tax revenue provides social services such as Old Age Security benefits, Employment Insurance benefits, Canada Child Tax Benefit payments, etc.

Distribution of Tax Revenue 2009

Factors that Define a Tax System

 There are various characteristics that define a tax system, such as:

1) Who pays the tax

2) The base to be taxed

3) The rates of tax to be applied to the base 4) General exemptions

5) General deductions

6) Other selective measures such as how to

pay tax

Putting the Factors into Practice

 The value and nature of these characteristics determine how much revenue is generated, how fair the tax system is, and the tax

system's ability to generate growth

 A tax system needs to be structured so that everyone at a specific economic level gets

the same tax treatment, no matter how they earn their income

Putting the Factors into Practice

 The system must be arranged so that people

at a higher economic level pay a larger share

of taxes than those at a lower level

 As well, a tax system needs to be neutral so that the tax does not affect the government's economic decisions (including where it

spends its budget every year)

Self Assessment

 The Canadian tax system is based on

self-assessment Self-assessment is considered the most economical and efficient way to collect income tax.

 Under the self-assessment system, non-residents

with Canadian income and Canadian residents are responsible for making sure they have paid their

taxes according to the Income Tax Act

 Based on this approach, the fairness and efficiency of the federal income tax system depend on both the

CRA and the taxpayer.

Tax Deductions

individuals and businesses by the CRA for

the federal government and the provinces

and territories The amount of income tax that

an individual must pay is based on the

amount of his or her taxable income (money earned minus allowed deductions) for the tax year

Tax Deductions

from your salary or wages If you become

unemployed, you may be entitled to EI

benefits

 The Canada Pension Plan (CPP) is a

pension plan that will provide you with some income when you retire Employers may also deduct contributions for the CPP

Tax Deductions

 Provincial sales tax (PST) is a tax that is

collected in most provinces when something

is sold

 Goods and services tax (GST) is a federal

tax collected by the CRA and it is charged on the sale of most goods and services in

Canada at a consistent rate of 5%

 In some provinces, the GST is combined with the provincial sales tax and the two are

collected together This is known as

harmonized sales tax (HST).