Tax And Social Security In Canada

Tax And Social Security In Canada
The Canadian government, both at the federal and provincial level, derives the majority of its revenue from income tax on Canadian citizens. The amount each person pays per year is based on their taxable income. Except for Quebec province, the federal government collects all the taxes for provinces as well.

There are several ways a person can manage their income tax debt. They can have a portion of their monthly paycheck sent directly to the Canadian tax office, they can pay the entire tax bill when they file their annual taxes each April or they can file their tax return and wait until the government sends them a bill for taxes owed.

Most people use the first option, having a portion of their paycheck deducted. At the end of each year they will either pay more taxes to make up the difference owed or if they paid too much they will get a tax refund. Income tax rates vary by province but in general they are around 26 per cent of taxable income.

Canada's income tax system is self-regulating, which means the taxpayer is responsible for determining their tax liability when they file their annual tax return with the federal tax office. The government then assesses each tax return for accuracy and either accepts or corrects it.

There are a number of things that are not taxed as income in Canada, including gifts, inheritances, lottery winnings and capital gains on primary residences. Some personal income tax can be placed into the Registered Retirement Savings Plan (RRSP), a government-approved tax shelter account to help citizens save for their retirement.

Another mandatory deduction from your monthly paycheck is the Canada Pension Plan. This earnings-related social security program is one of the two main parts in Canada's public retirement system. The other half of this program is the Old Age Security scheme.

The program requires all workers over the age of 18 to contribute 4.95 per cent on average of their annual salary up to C$48,500 to the pension plan. The employer matches this monthly contribution, in effect doubling the amount of pension a worker puts into their account.

When the person reaches age 65 they are entitled to begin collecting their social security payments. You can begin collecting at age 60 at a reduced rate, but most people wait until 65 so that they can get the maximum benefits. Old Age Security is another cash benefit you get when you retire. In 2012, the average monthly payment is C$520.