5 Differences between Taxation in Canada and America

Canada's taxation system is similar to that of the United States. This shouldn't be surprisingthe countries have similar economic systems, they share extensive trade ties and both have legal systems based on British common law. However, there are several noteworthy differences in the tax laws. 

Government Spending and Taxes

The tax rates in Canada are usually higher than in the United States. In Canada, tax revenue makes up 38.4 percent of the GDP, while in the United States, the tax revenue makes up 28.2 percent. This is largely due to the differences in the way each government spends money.

One of the biggest differences is the way each government funds health care. In Canada, the government covers the basic health-care expenses of all of its citizens and lawful resident aliens though the Medicare program. The more specialized types of health care, such as dentistry, are either partially covered by the government or not covered at all (depending on the procedure in question). In total, the Canadian government covers up to 70 percent of all health-care expenses per year. By contrast, the United States covers the medical expenses of only the elderly and the poor through the Medicare and Medicaid programs, respectively. Overall, it covers up to 50 percent of their medical costs.

Note that, although the Canadian government's health spending leads to larger taxes, Canadian taxpayers don't have to spend as much on health care as their American counterparts. This doesn't quite negate the increased tax burden, but it does make it easier to bear.

Income Tax

Both the United States and Canada impose income taxes. However, the two countries calculate them differently. American and Canadian citizens in lower income brackets are taxed at roughly the same rate, while Canadian taxpayers in higher tax brackets pay higher taxes than do their American counterparts.

Sales Tax

Both the United States and Canada have sales taxes, but the way in which they work differs. In both cases, the sales tax is imposed on a state or provincial level. However, in the United States, cities and counties or parishes have a right to levy their own sales taxes in addition to the state tax. In some states, this doesn't make much difference, while in other states, it can be significant. In Canada, the sales tax is the same in every part of a given province, but it can vary dramatically between provinces.

Goods and Services Tax

Another important difference between the two countries is that Canada has a goods and services tax. This tax is levied against all nonessential products. Essential products and services such as groceries, residential rents and medical services are exempt from the goods and services tax. This tax is levied by the federal government at the same set rate. As of this writing, the rate is set at 5 percent.

Inheritance Tax

Inheritance tax is an estate tax levied against the property inherited by the beneficiaries of the deceased. Said beneficiaries are responsible for paying it out of their own pockets. In the United States, the inheritance tax is levied on a state level in Iowa, Indiana, Kentucky, Maryland, Nebraska, Oklahoma, Pennsylvania and Tennessee. In Canada, the inheritance tax has been abolished altogether since 1972. Both countries have an estate tax on the state or provincial level that's levied against the estate of the deceased.

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