CRA & Revenu Québec

Teaching Taxes: What Are Taxes and How Are They Used?

When teaching people information about their taxes and proper filing, basic questions about what taxes actually are and how they’re used often come up. Taxes are compulsory monetary contributions to the government that it spends on various social programs, operating costs and debt.

Types of Canadian Taxes

Canadian federal, provincial and municipal governments levy taxes on employment income, the consumption of goods and services, properties and the movement of goods across the border. If you have a job in Canada, you are charged income tax on your earnings, and you also pay sales tax on items or services you purchase.

Sales tax is added automatically every time you purchase something, and your employer takes income tax out of your pay cheque. At the end of the year, you file an income tax return with the Canada Revenue Agency (CRA) to ensure you paid the right amount of tax. If you underpaid, you owe money to the CRA, but if you overpaid, you receive a refund.

Returns

Just as workers file income tax returns, business owners, pensioners and investors file tax returns for business, retirement and investment income. Businesses that collect goods and services tax, or deduct payroll taxes, send those taxes to the CRA quarterly and file paperwork to ensure they paid the correct amount.

The CRA uses forms submitted from businesses and tax returns to ensure taxes are appropriately levied. The CRA also audits businesses and individuals to ensure tax payments are not overlooked.

Tax Funds Spent on People

Nearly half of all tax money is spent on people. These expenditures cover programs for seniors and children, as well as funding for health care, education and foreign aid.

The federal government sends about a fifth of every tax dollar to provincial governments. Provinces use these funds for post-secondary education, health care and children’s programs. Canada also invests in its seniors, and seniors receive tax dollars through Old Age Security payments, income supplements and allowances for spouses.

The government spends tax money on employment insurance and spending for children’s programs such as child care benefits, child benefits and GST credits for families with children. A portion of every tax dollar is also devoted to farmers, first nation and aboriginal people and research. Foreign aid costs two cents per tax dollar.

Taxes for Running the Government

The cost of running the government consumes just under a third of tax revenue. Eight cents per dollar funds defence, and fire fighters, police, border security and public safety programs cost four cents per dollar. Operating the CRA costs three cents of every tax dollar.

Other government operating costs include environment programs, public works, veterans affairs, food inspections, parks and other governmental organizations and projects. Taxes are also used to cover the costs of running crown organizations such as the National Gallery of Canada and the Canadian Museum of Civilization Tourism Commission.

Taxes for Debt Repayment

Some tax is spent on debt. If you have federal bonds or treasury bills, you own a portion of the government’s debt. When you sell those assets, the government uses taxes to repay you.

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