Ecn 501 Term Paper

In Canada, income taxes constitute the majority of the annual of the Government of Canada, and of the governments of the Provinces of Canada. The federal, provincial and municipal governments collect money from individuals and companies to help pay for government programs and services, such as roads, public utilities, schools, health care, economic development and cultural services. Government uses taxes to discourage certain types of activity by raising the price of those activity. For example, government raise taxes on alcohol and tobacco to discourage people quit smoking.

According to the report from World Bank Group and PricewaterhouseCoopers, Canada ranks 28th in the world for its ease of paying taxes in 2010. (Appendix A)

A resident of Canada must pay tax on worldwide income, regardless of where the income is earned. Non-residents are only required to pay taxes on the income they earn in Canada. In Canada, each tax payer is responsible for self-assessing his or her income on a annual basis. Taxpayers assess their tax liability by filing a return with the CRA by the required filing deadline. CRA will then assess the return based on the return filed and on information it has obtained from employers and financial companies. A tax payers who disagrees with CRA's assessment may appeal the assessment to the Tax Court of Canada and then to the Federal Court of Appeal. The tax payers must proof and provide evidence to the Tax Court of Canada or Federal Court of Appeal that the CRA had assessed his tax return wrong.

There are several types of income tax such as personal income tax, corporate income tax, goods and services taxes and harmonized sales tax, property taxes, payroll that help the government raise money and support daily operation. In the last fiscal year, the government collected roughly three times more personal income taxes then it did corporate income taxes. We will discuss the current situation for each type of income taxes and the suggestion to improve the current tax system in this essay.

Government employs a combination of flat and progressive tax rates. A flat tax rate is the one that applies to all taxpayers equally no matter of their consumption of income levels. An example for flat tax rates can be the 13% of HST. Progressive taxation is based on the principle that people with higher income levels should be required to pay more tax than those with lower income levels. That means the more you earn the higher the rate of tax which you pay. Personal income taxes and corporate income taxes are the examples of a progressive income tax system.

An individual tax payer must report his or her total income for the year. In order to determine the net income, certain deductions are allowed such as deduction for contributions to Registered Retirement Savings Plans, union and professional dues, child care expenses, and business investment losses. Further deductions are allowed