Question

Canadian Tax System (2.5 marks)

Compare the Canadian income tax system with another nation’s tax system. Examine and describe current tax laws, concepts or calculations of a nation of your choice and discuss the similarities and differences with Canada’s tax system like:

• Individual marginal tax rates and tax brackets
• Individual deductions and credits
• Corporate or business taxation

answer should be approximately 1-3 pages and contribute to future tax planning for international financial service clients. Also, include any references or cite any publications that were used.

Answer 1

I am doing it for Canada and India:

Individual marginal tax rates and tax brackets:

Canada:

• 15% on the first $48,535 of taxable income, plus
• 20.5% on the next $48,534 of taxable income (on the portion of taxable income over 48,535 up to $97,069), plus
• 26% on the next $53,404 of taxable income (on the portion of taxable income over $97,069 up to $150,473), plus
• 29% on the next $63,895 of taxable income (on the portion of taxable income over 150,473 up to $214,368), plus
• 33% of taxable income over $214,368

India:

Income Tax Slab	Tax Rate
Up to Rs 2.5 lakh	NIL
Rs 2.5 lakh to Rs 5 lakh	5% (Tax rebate of Rs 12,500 available under section 87A)
Rs 5 lakh to Rs 7.5 lakh	10%
Rs 7.5 lakh to Rs 10 lakh	15%
Rs 10 lakh to Rs 12.5 lakh	20%
Rs 12.5 lakh to Rs 15 lakh	25%
Rs 15 lakh and above	30%

Individual deductions and credits:

Canada:

• Family, child care, and caregivers deductions and credits
  Claim amounts for your children, eligible dependants, and spouse or common-law partner.
• Education deductions and credits
  Find out if you can claim amounts for post-secondary and adult basic education, for yourself and others.
• Disability deductions and credits
  Learn more about claiming amounts for someone with an impairment in physical or mental functions.
• Pension and savings plans deductions and credits
  Claim amounts related to pension and savings income you reported, contributions, and more.
• Employment expenses and credits
  Find out about claiming amounts related to your employment income, and more.
• Provincial and territorial tax and credits for individuals
  Find out about provincial or territorial credits you may be entitled to in addition to your federal credits.
• All deductions, credits, and expenses
  List of all deductions, credits, and expenses you may be able to claim when completing a personal income tax and benefit return.
• Climate action incentive
  Find out if you can claim the climate action incentive payment.

India:

Deductions:

Credits:

Income Tax Credit:

Income tax credit is a popular form of tax credit. If an individual is invariably charged more tax than their actual liabilities due to various factors, then the excess amount is available as tax credit to the individual. This credit can be adjusted against future tax liabilities in an absolute manner, i.e. the credit is entirely deducted from the payable tax amount regardless of the individual’s tax bracket or liabilities.

Child Tax Credit:

There are no specific laws regarding child tax credits in India. However, there are various exemptions and deductions that can be claimed if you have a child.

Input Tax Credit:

Input tax credit is available for manufacturers and dealers. These taxpayers are entitled to tax credit on inputs purchased through the course of manufacture. Similarly a trader will receive input tax credit on goods purchased for the purpose of reselling. The tax credits are available on capital goods purchases made within the state, and only those goods that are involved in the processing or manufacture are applicable under this credit.

This tax credit is state-specific. If the final product is sold outside the state of manufacture, the input tax credit has to be reversed to authorities. Also, if the final product has tax exemptions, the input tax credit will not be applicable. The tax credit is usually spread over a period of 3 years, however rules vary according to individual states.

Foreign Tax Credit:

Foreign tax credit is available to Indians as per the Double Taxation Avoidance Agreement (DTAA), which India maintains with more than 80 countries worldwide. According to this agreement, if you are a resident Indian with income from abroad, you will be levied taxes in both the countries. To avoid double payment, DTAA allows for tax credits in the country of residence if the host country has deducted TDS on income. This credit can then be used to reduce the amount of payable tax in the country.

Corporate or business taxation:

Canada Federal rates:

The basic rate of Part I tax is 38% of your taxable income, 28% after federal tax abatement.

After the general tax reduction, the net tax rate is 15%.

For Canadian-controlled private corporations claiming the small business deduction, the net tax rate is:

• 9% effective January 1, 2019
• 10% effective January 1, 2018
• 10.5% before 2018

Provincial or territorial rates

Generally, provinces and territories have two rates of income tax – a lower rate and a higher rate.

Lower rate

The lower rate applies to the income eligible for the federal small business deduction. One component of the small business deduction is the business limit. Some provinces or territories choose to use the federal business limit. Others establish their own business limit.

Higher rate

The higher rate applies to all other income.

Provincial and territorial tax rates (except Quebec and Alberta)

The following table shows the income tax rates for provinces and territories (except Quebec and Alberta, which do not have corporation tax collection agreements with the CRA). These rates are in effect January 1, 2020, and may change during the year.

India: