Income tax is a government-imposed tax on the earnings of individuals, businesses, and other entities. In Canada, income tax is collected by both the federal government through the Canada Revenue Agency (CRA) and, in most cases, by provincial or territorial governments. The revenue collected is used to fund public services such as healthcare, education, infrastructure, and social programs.

Individuals are taxed on various sources of income, including employment wages, business income, rental income, interest, dividends, and capital gains. Canada uses a progressive tax system, meaning the more you earn, the higher the rate you pay on each income bracket.

Businesses also pay income tax on their profits. Different types of corporations, such as Canadian-Controlled Private Corporations (CCPCs), may qualify for reduced tax rates or tax credits, depending on their size and activities.

Taxpayers are required to file annual income tax returns to report their income, claim deductions or credits, and calculate how much tax they owe or the refund they’re entitled to. Employers typically deduct income tax at the source through payroll.

Proper income tax planning and compliance are essential to avoid penalties and interest. In summary, income tax is a key part of Canada’s financial system, supporting the economy and public services.