CRA & Revenu Québec, Tax Basics, Technical, Tools

What Exactly is Canada’s Federal Income Tax Act?

Have you ever wondered what the Income Tax Act for Canada is?  If not, don’t worry.  Most Canadians feel that taxes in Canada are determined by, and decided upon, through the Canada Revenue Agency (CRA).  That is only partially accurate.  The CRA enforces the Income Tax Act (and Excise Tax Act) in Canada. The Income Tax Act contains the laws regarding taxation in Canada.  It’s a very large, complicated book which is regularly updated, edited and tweaked as changes to Canadian tax laws are decided upon by politicians and changed through court challenges.

Taxes, as we all should know by now, finance the operation of government, from the salaries of federal politicians and government workers, to funding of social and economic programs across the country.

History Of The Income Tax Act (ITA)

Until World War I, the federal government in Canada was financed largely through customs and excise duties and postal rates. Prior to this, taxes on income were levied on a provincial basis, as provided in the British North America Act, the basis for Canada’s constitution.

The Income Tax War Act received assent from King George V on September 20, 1917, to finance the addition of 100,000 men to the Canadian armed forces. Once the revenue started coming in and the war ended, it was likely so nice to have all that tax-money which was being put to use to improve infrastructure, like roads, sanitation, bridges, etc.  As the money was building the country at a faster pace, so increased the need for more money, and lobbying to ensure that funds were being directed to certain causes.

With that being said, taxation is not theft, nor is it illegal. Anyone who cites the BNA Act of 1867 and uses that outdated legislation to determine that they are a “natural person” or not subject to taxation, they need to think again. Following that line is only going to result in swift actions being taken by the CRA, plus a lot of penalties and interest.  If anyone cares to think otherwise, feel free to Google Tax Court of Canada cases regarding the legality of taxation and see that the Income Tax Act wins every time.

Progressive Taxation

Our tax system is a progressive system, which is explained in more simpler terms as, the more you earn, the more you pay.

In practice it’s not that simple, since considerations such as how you earn income and your personal situation may alter tax rates and tax credits available to you. In Canada, tax brackets are arranged progressively by income. As well, everyone receives the basic personal exemption, upon which no tax is charged. Canadians who give back to the country through donations, for example, or by contributing to their own retirement (Canada Pension Plan) are rewarded with tax credits and deductions which reduces their taxes owing.

Ultimately, the more you earn, the more you pay, and in Canada, the highest income earners pay the majority of the taxes into the government not just through personal income tax, but also through consumption taxes (GST/HST) and payroll taxes, as they employ people and pay their salaries and their taxes.

While the taxation system is not perfect, it is certainly not broken, and should be discussed in order to keep it updated and fair.

The Tax Act

The lawmakers who are responsible for the laws of the country and for the legislation behind the Income Tax Act and the Excise Tax Act, are the Department of Justice, and on their website they maintain an official, consolidated copy of the current Income Tax Act as a convenience for the public, as it does with other federal acts.

The full version of the current consolidated Income Tax Act runs more than 3,000 pages, with English and French text presented together in columns, including 17 parts and 262 sections.

When you require information about anything tax-related in Canada, this is the most authoritative document.

If, however, you are tired and just can’t sleep, I strongly recommend opening up the ITA or ETA and starting to read it… I give you 3-pages before you are sleeping.  Worse case scenario is that you actually learn more about the Canadian tax system.