The tax system for the United States and Canada have many similarities. This is not surprising because both countries have similar economic structures. Because of the proximity of the two countries, they also have close ties when it comes to trade, and both of the judicial systems have a British base. At the same time, there are several differences when it comes to the tax system in each country.
In both countries, there are income taxes imposed at the federal level. The difference is that they are calculated differently in Canada than in America. When it comes to lower-income citizens, both countries tax these individuals at a similar rate. When it comes to higher tax brackets, Canadian citizens pay higher taxes than high earning Americans.
The United States and Canada both have a sales tax, but the way the taxes are imposed is quite different. In both countries, the sales tax is imposed on a province or state level, but when it comes to the United States, both counties and parishes are allowed to impose their own sales tax in addition to the sales tax that is imposed by the state. This is not an issue in some states, but in other states, the difference can be quite large. In Canada, the sales tax remains the same in each province, but within the province, there can be a dramatic difference.
Government Tax Rates
When it comes to the difference in government taxes, Canada generally is higher than the US. Revenue from taxes in Canada makes up close to 40% of the GDP. In the US, tax revenue makes up about 30% of the GDP. Each government spends money in different ways, and this is the reason why there is such a difference in tax revenue. It is highly known that the healthcare systems in Canada and the US are extremely different. In Canada, the government covers all basic healthcare expenses of all citizens in the country. This includes legal aliens as well. Other types of health care that require a specialist are either not covered or partially covered by different government programs. The United States is quite different. Healthcare expenses of the needy and the elderly can be covered through different government programs, but each citizen is responsible for covering his or her own health care if they are neither indigent nor elderly. The United States does offer healthcare insurance to all citizens who can not receive benefits through work, and there is a fine imposed if individuals choose to not have health insurance.
Tax on Non-Essential Items
When it comes to goods and services taxes, there is a big difference between Canada and the United States. The United States does not add on an additional tax for goods and services. This is a tax that Canada adds to all nonessential products. Any products that are considered essentials such as food, shelter, and medical expenses do not receive this taxation. This is a tax that is imposed at the federal level which is about 5%.
Tax Due Dates
For citizens of Canada, they are required to file their individual taxes each year. Their due date is April 30th of the previous calendar year. For United States citizens, their due date to pay is April 15th of each year. Both countries allow individuals to pay their taxes quarterly as well.
Wrapping Up the Tax Talk
Whether you are a citizen of Canada or the United States, you do well to talk with the tax professional or get informed by other means in order to completely and fully understand how you are taxed and how much to pay when it comes to your individual taxes. There are also great American and Canadian tax preparation software that you can get a hold of if you are an individual who prefers to do your taxes on your own. Taxes are a normal part of life in both countries, and they are imposed in order to allow citizens to enjoy certain privileges such as schools, libraries, street lights, paved roads, bridges, etc. Since taxes are something that you cannot avoid, you do well to be informed about how your country imposes taxes.
Lizzie Howard is a Colorado native who after graduating from the University of Colorado spends her time as a freelance writer. When Lizzie isn’t writing, she enjoys going on hikes, baking for her friends and family, and spending time with her beloved yellow lab, Sparky.
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