Purpose of taxes – Learn about your taxes
Learn about your taxes
Purpose of taxes
An introduction to what taxes are, why they are collected, and how Canada’s tax system works.
Why you pay taxes - lesson completed
What types of taxes you pay in Canada and how taxes help pay for the programs and services the government offers.
Time to complete: about 4 minutes
This lesson includes
-
4 sections
- 1 question to test yourself
Resources: Why you pay taxes
Why you pay taxes (part 1 of 4)
Common taxes in Canada
Taxes are mandatory payments made to a government. This means that it is not a choice, but an obligation. The government uses taxes to support the programs and services it offers, like education or health care.
In Canada, the federal, provincial or territorial, and municipal (local) levels of government all collect taxes.
There are many common types of taxes you pay in Canada.
Income taxes
Individuals and businesses pay taxes on their income. Individuals calculate the income tax they owe on an income tax and benefit return every year.
Income tax and benefit return
- Income tax and benefit return
The amount of income tax you pay depends on your income and the tax credits you will claim. You calculate federal and provincial or territorial tax when you do your taxes.
Tax credits
- Tax credits
Sales taxes
3 different kinds of sales taxes exist in Canada:
- goods and services tax (GST)
A federal tax you pay on most goods and services you purchase in Canada. The rate is the same across the country. - provincial sales tax (PST)
A tax some provinces charge. The rate and the items they tax are different between provinces.Residents of Quebec
In Quebec, the PST is called the Quebec sales tax (QST).
- harmonized sales tax (HST)
A tax some provinces charge. These provinces combine the GST with the PST to form the HST.
Property taxes
Municipal (local) governments calculate these taxes based on the value of land and buildings.
Customs duties or tariffs
The federal government charges these amounts on certain imported and exported products.
Health services taxes
Provinces and territories are responsible for managing their own health care system. Some may charge additional amounts to access these services.
Test yourself
That's correct.
Answer: "Yes"
Although you may have to pay the same types of taxes as other individuals in Canada, your personal situation determines the amount you have to pay. For example, the amount of income tax you pay depends on your income and the tax credits you will claim. Or the province or territory where you purchase goods or services determines the sales tax you pay.
Sorry, that's incorrect.
Although you may have to pay the same types of taxes as other individuals in Canada, your personal situation determines the amount you have to pay. For example, the amount of income tax you pay depends on your income and the tax credits you will claim. Or the province or territory where you purchase goods or services determines the sales tax you pay.
Resources are available
After you finish this lesson, this resource link will be available:
- Taxes
Why you pay taxes (part 2 of 4)
Public programs and services
The government uses the taxes it collects to pay for the public facilities, programs, and services we enjoy every day in Canada.
Taxes help pay for:
- education and schools
- health care and hospitals
- roads and bridges
- police, ambulance, and fire services
- libraries
- parks and playgrounds
- arenas
- swimming pools
- garbage and recycling collection
- economic development
- wildlife conservation
- national defence
Why you pay taxes (part 3 of 4)
Paying for social programs and benefits
The taxes you pay also help:
- families with low or modest incomes
- students
- adults 65 years and older
- persons with disabilities
If you are an employee, through the contributions deducted directly from the money you earn, you also contribute towards social programs, like:
- employment insurance (EI)
- the Canada Pension Plan (CPP)
- the Quebec Pension Plan (QPP)
- the Quebec parental insurance plan (QPIP)
Your employer will deduct these contributions automatically and will also make contributions to these programs in your name.
Note: If you are self-employed, you pay both the employee and employer contributions when you do your taxes.
Self-employed
- Self-employed
Why you pay taxes (part 4 of 4)
Social programs and benefits
Your taxes and contributions help pay for social programs and benefits like:
- the goods and services tax / harmonized sales tax (GST/HST) credit
A tax-free payment that eligible individuals get every three months. It helps individuals and families with low or modest incomes offset the GST or HST they pay. - the Canada child benefit (CCB)
A tax-free monthly payment that helps eligible families with the cost of raising children under 18 years of age. - employment insurance (EI)
This program provides benefits to individuals who lose their jobs through no fault of their own and are available for and able to work but can’t find a job. This program also offers benefits related to parental, sickness, and caregiving leave.Residents of Quebec
Residents of Quebec receive maternity, paternity, parental, and adoption benefits from the Quebec parental insurance plan (QPIP).
- the old age security (OAS) pension
A public pension you could receive monthly if you are 65 and older. - the Canada Pension Plan (CPP)
A retirement pension you could receive if you are least 60 years old and have made at least one valid contribution to the CPP, usually through employment. This program also offers additional payments related to disability. - the Quebec Pension Plan (QPP)
A retirement pension you could receive if you at least 60 years old and have contributed to the QPP for at least one year. This program also offers additional payments related to health and disability. - social assistance
Payments made to individuals who need them most to help pay for food, clothing, and shelter.
Example: Receiving payments when you need them most
Emmanuel has worked at his office job for many years. He qualifies for the GST/HST credit and receives payments four times a year. His child will be born next month, and Emmanuel plans to take EI parental leave. His wife will also receive CCB payments once their child is born. Without these programs, Emmanuel and his wife would probably have fewer options. This experience helped them understand the benefits of paying taxes.
Resources are available
After you finish this lesson, these resource links will be available:
- Child and family benefits
- Employment Insurance (EI) benefits
- Old Age Security (OAS)
- Canada Pension Plan (CPP)
- Quebec Pension Plan (QPP)
- Quebec Parental Insurance Plan (QPIP)
Why you should do your taxes - lesson completed
Find out how you can benefit from doing your taxes every year.
Time to complete: about 8 minutes
This lesson includes
-
5 sections
- 2 questions to test yourself
Resources: Why you should do your taxes
Why you should do your taxes (part 1 of 5)
Reasons to file a tax return
Income tax is one of the most common taxes you pay in Canada. It helps pay for the many different programs and services the government offers.
In Canada, individuals file an income tax and benefit return every year to report their income for the year. They do their taxes to calculate the income tax they actually owe and to find out if they are entitled to a refund or if they have a balance owing.
Income tax and benefit return
- Income tax and benefit return
Refund
- Refund
Balance owing
- Balance owing
Doing your taxes has benefits. You should do your taxes every year if you want to take advantage of these benefits.
You should do your taxes if you want to:
- get a refund
- begin or continue to receive payments like the goods and services tax / harmonized sales tax (GST/HST) credit or the Canada child benefit (CCB)
- carry forward or transfer unused tuition credits, which will help you pay less tax in the future
- earn registered retirement savings plan (RRSP) contribution room, which means you can save more money in your RRSP account
Goods and services tax / harmonized sales tax (GST/HST) credit
- Goods and services tax / harmonized sales tax (GST/HST) credit
Canada child benefit (CCB)
- Canada child benefit (CCB)
Registered retirement savings plan (RRSP)
- Registered retirement savings plan (RRSP)
When you must do a tax return
There are several situations when you must do your taxes, including if:
- you have to pay tax for the year
- the Canada Revenue Agency (CRA) sent you a request to file a return
Test yourself
That's correct.
Answer: "Yes"
By doing your taxes, you could get a refund, receive benefit payments, carry forward or transfer unused tuition credits, and earn RRSP contribution room.
Sorry, that's incorrect.
By doing your taxes, you could get a refund, receive benefit payments, carry forward or transfer unused tuition credits, and earn RRSP contribution room.
Resources are available
After you finish this lesson, this resource link will be available:
- Do you have to file a return?
Why you should do your taxes (part 2 of 5)
Getting a refund
A tax refund is an amount the CRA owes you when you do your taxes. You get a refund when you have more credits than amounts owing. This could happen if you paid more tax during the year than you actually owe. For example, your employer may have deducted too much tax from your pay during the year. It could also happen if you are entitled to any refundable tax credits.
Refundable tax credits
- Refundable tax credits
The only way to claim and receive a refund you are entitled to is to do your taxes.
Example: Overpaying your taxes
You worked part-time last year and that was your only source of income. Your employer deducted $2,600 of income tax from your pay. You actually owe $1,000 of tax on your income when you do your taxes. As a result, you are entitled to a refund of $1,600.
- Total payable -minus Total credits =equals Refund or balance owing
- $1,000 -minus $2,600 =equals -negative $1,600 (refund)
Remember, a negative result represents a refund.
You must do your taxes to claim this refund. Is it worth it?
Why you should do your taxes (part 3 of 5)
Receiving benefit payments
The CRA calculates many benefit payments using information from your tax return, such as:
- the GST/HST credit
- the CCB
You calculate other benefits directly on your tax return, like the Canada workers benefit (CWB).
Canada workers benefit (CWB)
- Canada workers benefit (CWB)
Once you start receiving your benefit payments, you must do your taxes every year if you want to continue to receive them. This is true even if you had no income during the year or if your income was tax-exempt. If you have a spouse or a common-law partner, they must also do their taxes every year. You should do your taxes on time to avoid delays in receiving your payments.
Fast fact
You won’t receive payments yet if you are under 18 unless you have a spouse, a common-law partner, or a child. However, doing your taxes registers you in the CRA’s system. This means that you can automatically start receiving certain payments you’re entitled to, like the GST/HST credit, once you turn 19.
The only way to receive the payments you are entitled to is to do your taxes.
Test yourself
Sorry, that's incorrect.
Even though Tessa is entitled to the GST/HST credit, she will not continue to receive her benefit payments if she does not do her taxes. This is because the CRA calculates these payments using information from the tax return.
That's correct.
Answer: "No, because she has not done her taxes"
Even though Tessa is entitled to the GST/HST credit, she will not continue to receive her benefit payments if she does not do her taxes. This is because the CRA calculates these payments using information from the tax return.
Resources are available
After you finish this lesson, this resource link will be available:
- Child and family benefits
Why you should do your taxes (part 4 of 5)
Carrying forward or transferring unused tuition credits
You can claim a tax credit for eligible tuition fees paid to a recognized educational institution. Generally, this includes post‑secondary institutions, like universities or colleges. It can also include other educational institutions where you gain skills to develop your career, like a trade school.
Tax credits
- Tax credits
Fast fact
You do not need to have had any income to report the eligible tuition you paid during the year.
The tuition tax credit can help reduce the taxes you owe on your income. If you had low income or no tax to pay in the tax year you paid your tuition, you may not need to use all your tuition tax credits.
Tax year
- Tax year
If you don’t need to use all your tuition credits, you may be able to transfer unused credits to:
- your spouse or common-law partner
- your parent or grandparent
- your spouse’s or common-law partner’s parent or grandparent
Whether or not you choose to transfer your unused tuition credits, you can carry forward any unused credits until they are used up. This will help you pay less tax in the future when you have a higher income.
Carry forward
- Carry forward
The only way to update your account with your tuition tax credit information is to do your taxes.
Resources are available
After you finish this lesson, this resource link will be available:
- Tuition, education and textbook amounts
Why you should do your taxes (part 5 of 5)
Earning RRSP contribution room
An RRSP is a retirement savings and investment plan that you can open an account for and contribute to. This can help you save money for your future. Deductible RRSP contributions can be used to reduce your income tax.
The amount you can contribute to your RRSP is your deduction limit, often called your contribution room. This is also the maximum you can claim as a deduction on your tax return.
Deductions
- Deduction
The CRA calculates your contribution room using a few different amounts, including the money you earned, when you do your taxes.
Even if you don’t owe any tax, you could earn more contribution room by doing your taxes every year. This means that you could save more money in your RRSP.
If you don’t contribute the full amount of your contribution room to your RRSP, you don’t lose the unused contribution room. The CRA adds this amount to your contribution room for the next year when you do your taxes. This means you could contribute more to your RRSP in the future.
Fast fact
You can also use the money in your RRSP to buy a home through the Home Buyers’ Plan (HBP) or to finance full-time training or education through the Lifelong Learning Plan (LLP) if you meet all the eligibility criteria.
The only way to earn your contribution room is to do your taxes and report your income to the CRA.
Example: Earning contribution room
Carlos works part-time while going to school and does not earn enough income to owe anything when he does his taxes. However, Carlos reports his income every year and earns RRSP contribution room. He knows that when his income goes up after graduation, he’ll be able to contribute to his RRSP. Then, he can claim his deductible contributions to help reduce the tax he’ll have to pay.
Resources are available
After you finish this lesson, these resource links will be available:
- Registered Retirement Savings Plan (RRSP)
- Home Buyers’ Plan (HBP)
- Lifelong Learning Plan (LLP)
Know your rights and responsibilities - lesson completed
What both you and the Canada Revenue Agency are responsible for, and your rights as a taxpayer in Canada’s tax system.
Time to complete: about 5 minutes
This lesson includes
-
3 sections
- 1 question to test yourself
Resources: Know your rights and responsibilities
Know your rights and responsibilities (part 1 of 3)
Your responsibilities
In Canada, each person does their own taxes every year. This involves reporting their income on an income tax and benefit return to determine if they have a balance owing or will receive a refund. This type of tax system is based on the self-assessment principle.
Income tax and benefit return
- Income tax and benefit return
Balance owing
- Balance owing
Refund
- Refund
In this tax system, you have specific responsibilities.
Doing your taxes by the deadline
Generally, you have to do your taxes by April 30. If you do your taxes late and have a balance owing, you will be charged a late-filing penalty. You can avoid the penalty by doing your taxes by the due date, even if you cannot pay your balance in full.
Giving the Canada Revenue Agency (CRA) accurate and complete information to assess your tax return
You must give the CRA the necessary information to process your tax return correctly. This includes submitting supporting documents, like receipts for medical or moving expenses, if the CRA reviews your tax return.
Paying your balance owing
If you have a balance owing when you do your taxes, it is also due on April 30. If you do not pay your balance by the payment due date, the CRA will start charging you compound daily interest as of May 1. The CRA will charge interest on your total balance, including amounts owing from previous years and penalties, until you pay it in full.
Compound daily interest
- Compound daily interest
Notifying the CRA of any changes to your personal information, like a change to your address or marital status
This makes sure you keep receiving the benefit payments you are entitled to and important mail from the CRA.
Test yourself
Sorry, that's incorrect.
Canada’s tax system is based on the self-assessment principle. This means you must do your own taxes every year to find out if you have a balance owing or if you will receive a refund.
Sorry, that's incorrect.
Canada’s tax system is based on the self-assessment principle. This means you must do your own taxes every year to find out if you have a balance owing or if you will receive a refund.
That's correct.
Answer: "You do your own taxes every year to calculate the amount"
Canada’s tax system is based on the self-assessment principle. This means you must do your own taxes every year to find out if you have a balance owing or if you will receive a refund.
Sorry, that's incorrect.
Your employer will deduct a certain amount from your income for taxes. This may be higher or lower than the actual amount you owe.
Canada’s tax system is based on the self-assessment principle. This means you must do your own taxes every year to find out if you have a balance owing or if you will receive a refund.
Resources are available
After you finish this lesson, this resource link will be available:
- Due dates and payment dates
Know your rights and responsibilities (part 2 of 3)
The Canada Revenue Agency’s responsibilities
The CRA provides information about Canada’s tax laws so you can understand and follow them. The CRA uses different channels, like its website or social media, to regularly share information and updates with the public. This keeps the Canadian tax system fair and protects its integrity.
The CRA has specific responsibilities.
Reviewing tax returns
The CRA randomly reviews tax returns to ensure that you claimed or reported amounts, like tax credits or deductions, correctly and that you have the proper supporting documents. The CRA interprets and applies the Canadian tax law consistently and neutrally.
Tax credits
- Tax credits
Deductions
- Deductions
Reducing participation in the underground economy
The underground economy includes any activity that involves not properly reporting income tax or GST/HST (sales tax). The underground economy puts an unfair tax burden on all law-abiding Canadians.
Taking appropriate action
The CRA has several compliance programs in place to deal with suspected cases of tax evasion, fraud, and other tax offences. These programs ensure that individuals and businesses follow Canada’s tax laws, like reporting all their income, paying all taxes they owe, and updating information that could affect their benefit payments.
Resources are available
After you finish this lesson, these resource links will be available:
- The underground economy
- Compliance
Know your rights and responsibilities (part 3 of 3)
Your rights
The CRA believes that you are more likely to meet your obligations in Canada’s tax system if you have the information and services you might need to do so.
The Taxpayer Bill of Rights describes 16 rights and outlines the treatment you are entitled to when dealing with the CRA. It builds on the CRA’s values.
The Taxpayer Bill of Rights includes, among others, your right to:
- be treated professionally, courteously, and fairly
When you deal with the CRA, you will be treated fairly under clear and set rules. You can expect high standards of accuracy, professionalism and courtesy. - correct your taxes
If you make a mistake on your tax return or leave out details about your income, you have the chance to correct the situation. You can also change your tax return if you forgot to claim certain deductions or credits. - register a dispute or make a complaint
You may disagree with the way your taxes were assessed or have a complaint about the service you received. You should first try and resolve the issue by talking with the CRA. If you are still unsatisfied, there are formal programs where you can ask to review the issue.
It is important to understand your rights and to know that you can apply them if needed.
The Office of the Taxpayers' Ombudsperson
The Office of the Taxpayers' Ombudsperson works independently from the CRA. They work to improve the service that the CRA provides to taxpayers by reviewing service-related complaints. They also look at issues that can affect more than one person, or a part of the population.
Resources are available
After you finish this lesson, these resource links will be available:
- Taxpayer Bill of Rights
- How to change a return
- Service feedback, objections, appeals, disputes, and relief measures
- Office of the Taxpayers' Ombudsperson
Quiz: Purpose of taxes
Take the quiz after you’ve finished all the lessons for: Purpose of taxes.
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Your quiz results:
- You answered 01234567 out of 7 questions correctly
Quiz: Purpose of taxes (7 questions)
Put your knowledge to the test.
Question 1
Sorry, that's incorrect.
Some of the most common types of tax you pay in Canada include income tax, sales tax, property taxes, customs duties and tariffs and health services taxes.
That's correct.
Answer: "No"
Some of the most common types of tax you pay in Canada include income tax, sales tax, property taxes, customs duties and tariffs and health services tax.
Question 2
Sorry, that's incorrect.
That is partially correct.
That's correct.
Answer: "Hospitals and arenas"
Taxes make many of the things that we value every day in Canada possible.
These include:
- Hospitals
- Arenas
These do not include:
- Internet access
- Tow trucks
Question 3
That's correct.
Answer: "True"
These amounts help pay for social programs and benefits like:
- the goods and services tax / harmonized sales tax (GST/HST) credit
- the Canada child benefit (CCB)
- employment insurance (EI)
- the old age security (OAS) pension
- Canada Pension Plan payments (CPP)
- Quebec Pension Plan payments (QPP)
- social assistance
Sorry, that's incorrect.
These amounts help pay for social programs and benefits like:
- the goods and services tax / harmonized sales tax (GST/HST) credit
- the Canada child benefit (CCB)
- employment insurance (EI)
- the old age security (OAS) pension
- Canada Pension Plan payments (CPP)
- Quebec Pension Plan payments (QPP)
- social assistance
Question 4
Sorry, that's incorrect.
You do not need to have had any income to report the eligible tuition you paid during the year. You may be able to transfer your unused amounts to a designated individual, or else you can carry forward any unused credits to claim them in a future year.
That's correct.
Answer: "Yes"
You do not need to have had any income to report the eligible tuition you paid during the year. You may be able to transfer your unused amounts to a designated individual, or else you can carry forward any unused credits to claim them in a future year.
Question 5
Sorry, that's incorrect.
The only way to claim and receive any refund is to do your taxes.
Sorry, that's incorrect.
The only way to claim and receive any refund is to do your taxes.
Sorry, that's incorrect.
The only way to claim and receive any refund is to do your taxes.
That's correct.
Answer: "By filing your income tax and benefit return"
The only way to claim and receive a refund is to do your taxes.
Question 6
Sorry, that's incorrect.
The Canadian tax system is based on the self-assessment principle, which means each person accounts for their income tax every year. This involves reporting their income on an income tax and benefit return to determine if they have a balance owing or will receive a refund.
Sorry, that's incorrect.
The Canadian tax system is based on the self-assessment principle, which means each person accounts for their income tax every year. This involves reporting their income on an income tax and benefit return to determine if they have a balance owing or will receive a refund.
That's correct.
Answer: "self-assessment principle"
Each person accounts for their income tax every year. This involves reporting their income on an income tax and benefit return to determine if they have a balance owing or will receive a refund.
Question 7
Sorry, that's incorrect.
The Taxpayer Bill of Rights describes 16 rights and outlines the treatment you are entitled to when dealing with the CRA.
That's correct.
Answer: "False"
The Taxpayer Bill of Rights describes 16 rights and outlines the treatment you are entitled to when dealing with the CRA.
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