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How much tax a Canadian citizen pays?

March 10, 2013

By Gulshan Malhotra

I have always fathomed how a Canadian feels about a major chunk of his income going into the hands of government in the form of taxes. Tax vs Services are not efficiently managed by the government. So, a common man’s plight while he is toiling hard to make both ends meet, and the frustration that he goes through knowing that a big portion will be gone in taxes, motivated me to explore this further and pen down something to share my findings through research. I kept only two type of taxes, Harmonised Sale Tax (HST) and Income Tax, under the scope of my research.

Canadian Pension Plan (CPP), Employment Insurance (EI) deduction and property tax is excluded from the calculation of average tax rate, since deduction for CPP, EI and property tax goes to the specific program which runs independently and have long term benefits. CPP is for pension after the retirement while EI is for unemployment allowance during the lay-off or for any other reason if a person loses his job. Property tax is used to provide facilities to the resident like school, police, roads etc.

Figure 1: Type of taxes

HST rate is 13%. Out of 13%, 5% goes to the Federal Govt. and 8% goes to provincial government.

Income Tax, also, has two components. One component goes to Federal Government while the other component goes to provincial government. Income Tax is charged according to the slabs of income under which an individual falls. Each slab has a different rate. The idea is higher the salary or income, higher the tax amount. If a person’s salary is $100, 000, his tax rate is 28% (see table 1 for detail calculation).

Following example will explain that how much is the average tax rate including HST and Income Tax.

Pooja Malhotra draws a salary of $100,000 annually and lives in Toronto, Ontario. The tax rate for her is 28% (see table 1 for detail calculation). The income tax rates shown in the table are based on CRA tax rate for the income for the year 2012. She wants to buy a television priced at $1,000. She wants to know how much from her salary of $100,000 will go in buying the television. Firstly, she needs $1,130 to give to the shopkeeper, since shopkeeper will charge list price plus HST of 13%,i.e., $1,000 + 13% of $1,000 = $1,130. Further, She needs to earn $1,560 to get cash in of $1,130 ($1,130 ÷ (100% – 28%) = $1,560). This implies that she needs to earn 156% of her monthly expenses. In other words, she gets the purchasing power of $65,000, if her earning is $100,000 (See table 1 for detailed calculation).

Table 1: Average Combined Tax Rate (HST + Income Tax)

Further, Pooja also paid $6,255 towards other taxes (CPP, EI and property taxes) (See table 2 for detail calculation).

Table 2: Calculation of other taxes


Canadian pays very high tax rate which is 56% of cash received. My research will continue to dig out answers for some further questions like

  • How this rate is comparable to other country’s rate?
  • How and how much Pooja Malhotra gets back in return from government towards services.

Stay tuned for the continuation of this article in part 2.


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