Tax collection agreements enable different governments to levy taxes through a single administration and collection agency. The federal government collects personal income taxes on behalf of all provinces and territories except Quebec and collects corporate income taxes on behalf of all provinces and territories except Alberta, Ontario and Quebec.

Canada's federal income tax system is administered by the Canada Revenue Agency (CRA).

Canadian federal income taxes, both personal and corporate are levied under the provisions of the Income Tax Act.

Provincial and territorial income taxes are levied under various provincial statutes.

The Canadian income tax system is a self-assessment regime. Taxpayers assess their tax liability by filing a return with the CRA by the required filing deadline. CRA will then assess the return based on the return filed and on information it has obtained from employers and financial companies, correcting it for obvious errors. A taxpayer who disagrees with CRA's assessment of a particular return may appeal the assessment. The appeal process starts when a taxpayer formally objects to the CRA assessment. The objection must explain, in writing, the reasons for the appeal along with all the related facts. The objection is then reviewed by the appeals branch of CRA. An appealed assessment may either be confirmed, vacated or varied by the CRA. If the assessment if confirmed or varied, the taxpayer may appeal the decision to the Tax Court of Canada and then to the Federal Court of Appeal.

Canada levies personal income tax on the worldwide income of individuals resident in Canada and on certain types of Canadian-source income earned by non-resident individuals.

The amount of income tax that an individual must pay is based on the amount of their taxable income (income earned less allowed expenses) for the tax year. Personal income tax may be collected through various means:

1. deduction at source - for example where an employer deducts income tax directly from an individual's pay and sends it to the CRA.
2. installment payments - where an individual pays their estimated taxes in advance to the CRA.
3. arrears payments - payments made with the income tax return or after the return is filed. 

Employers may also deduct Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums from their employees' gross pay. Employers then send these deductions to the CRA.

Individuals who have overpaid taxes or had excess tax deducted at source will receive a refund from the CRA upon filing their annual tax return.  Generally, personal income tax returns for a particular year must be filed with CRA on or before April 30 of the following year.

An individual taxpayer must report his or her total income for the year. Certain deductions are allowed in determining net income, such as deductions for contributions to Registered Retirement Savings Plans, union and professional dues, child care expenses, and business investment losses.

Net income is used for determining several income-tested social benefits provided by the federal and provincial/territorial governments. Further deductions are allowed in determining taxable income, such as capital losses, half of capital gains included in income, and special deductions for residents of northern Canada. Deductions permit certain amounts to be excluded from taxation altogether.

Tax payable before credits is determined using four tax brackets and tax rates. Non-refundable tax credits are then deducted from tax payable before credits for various items such as a basic personal amount, dependents, Canada/Quebec Pension Plan contributions, Employment Insurance premiums, disabilities, tuition and education and medical expenses. These credits are calculated by multiplying the credit amount by the lowest tax rate. This mechanism is designed to provide equal benefit to taxpayers regardless of the rate at which the pay tax.A non-refundable tax credit for charitable donations is calculated at the lowest tax rate for the first $200 in a year, and at the highest tax rate for the portion in excess of $200. This tax credit is designed to encourage more generous charitable giving.

Certain other tax credits are provided to recognize tax already paid so that the income is not taxed twice:-- the dividend tax credit provides recognition of tax paid at the corporate level on income distributed from a Canadian corporation to individual shareholders; and-- the foreign tax credit recognizes tax paid to a foreign government on income earned in a foreign country.

Provinces and territories that have entered into tax collection agreements with the federal government for collection of personal income taxes ("agreeing provinces", i.e., all provinces and territories except Quebec) must use the federal definition of "taxable income" as the basis for their taxation. This means that they are not allowed to provide deductions in calculating the income on which tax is based.

Provincial and territorial governments provide both non-refundable tax credits and refundable tax credits to taxpayers for certain expenses. They may also apply surtaxes and offer low-income tax reductions.

Canada Revenue Agency collects personal income taxes for agreeing provinces/territories and remits the revenues to the respective governments. The provincial/territorial tax forms are distributed with the federal tax forms, and the taxpayer need make only one payment -- to CRA -- for both types of tax. Similarly, if a taxpayer is to receive a refund, he or she receives one cheque or bank transfer for the combined federal and provincial/territorial tax refund.

Quebec administers its own personal income tax system, and therefore is free to determine its own definition of taxable income. To maintain simplicity for taxpayers,however, Quebec parallels many aspects of and uses many definitions found in the federal tax system.

Federal tax rates for 2008 are:

· 15% on the first $37,885 of taxable income, +

· 22% on the next $37,884 of taxable income (on the portion of taxable income between $37,885 and $75,769), +

· 26% on the next $47,415 of taxable income (on the portion of taxable income between $75,769 and $123,184), +

· 29% of taxable income over $123,184.

For more information on Taxes in Canada please visit, http://www.cra-arc.gc.ca/menu-eng.html