Income Tax Services and the Different Types of Income Taxes They Can Help You With

Michael Pignatelli
Dec 09, 2021

Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.

Income tax services are not just for people who have money. First of all, income taxes are a government mandate that every taxpayer needs to file on time to avoid penalties. That being said, if you want to steer clear of tax trouble, it is important to find an income tax professional that can help. One of the best ways to save money on taxes is by filing online with the assistance of income tax e-filing services.

There are many different types of income taxes in Canada, so it is important to understand these types first before deciding which firm or professional you choose to do your taxes with.

Income Tax Services and What They Can Do to Help You

Income tax services are there to let you focus on your expertise. You might be a business owner who manages your growing empire or a full-time employee performing at your best for the company. As a taxpayer, you are very busy with everything going on in your life, and you need help doing all your stuff. 

To provide an accurate tax report, you will need to hire an accounting professional who will do your income tax preparation. Do not feel bad about paying a hefty sum to an income tax service provider because this expert can:

  • Accomplish your tax on time as long as you provide all the necessary details and tax documents
  • Guide you on electronic filing or manual filing
  • Provide tax advice on how to lessen your tax liability legally
  • Aside from physical stores, other income tax services have expertise in eCommerce platforms such as Amazon and Shopify

Remember, you need a tax expert during tax season only—unless you have other financial concerns in which you need an accountant.

Income tax services need to be updated with modern-day applications that can help them and their clients. Thankfully, many tax professionals are embracing technology, and they can provide income tax services online. One of the most widely used tax applications is TaxJar. This online income tax service simplifies things by calculating sales tax rates, collecting state sales taxes, and preparing reports for filing.

Canadian tax form

Different Forms of Income Taxes in Canada

For so many years, the Canadian government has been reliant on taxes to provide the best public services for the welfare of its citizens. Canada has high tax rates, and the Canada Revenue Agency (CRA) is responsible for collecting federal and provincial taxes and setting tax rates.

Canada supports different forms of income taxes. Here is the comprehensive list of the different taxes supported by Canada.

Personal Tax Income

This tax is paid by all Canadian citizens who have earned an income during the year. The amount of money that you pay on your individual income tax will be determined using a progressive rate, which means it will increase depending on how much annual pre-tax earnings you make. This form of taxation takes into account both provincial and federal taxes combined. There is also a split between each province when filing for provincial income taxes. Regional differences should always be considered when doing calculations to avoid any issues with accuracy later down the line.

Corporation Income Tax

CRA collects corporate taxes from businesses or corporations within Canada. In general, there are two different types of income taxes that can be applied when filing for corporate income tax.

Part I Tax. This type of corporate income tax applies to businesses in Canada earning $200,000 or more in taxable capital gains annually. Taxable capital gain is a profit you make on certain assets such as stocks and bonds, which are sold at their market value price. If companies do not meet the aforementioned criteria, then they need to pay Part II Tax instead. However, typically corporations benefit from paying Part I Tax because there is no provincial taxation involved like what happens with every other province except Quebec.

Part II Tax. If your business falls under any of the following categories, you will need to pay Part II Tax:

  • Corporations that earn a taxable income of more than $200,000 annually - If they have earned less than this amount but can still make a profit during their fiscal year, they must file for Part I taxation, even if it means paying higher taxes later on.
  • Canadian Controlled Private Corporations (CCPCs) are considered specified investment flow-through or SIFT by CRA. These entities help people invest in different assets such as stocks and bonds without incurring any form of double taxation from both provincial and federal levels.
  • Companies with income that come from professional business activities, including lawyers or doctors earning fees from their clients. Just like CCPCs, SIFT entities also pay lower taxes and avoid double taxation as well. This is also why they are popular among investors looking to reduce their income tax burdens from investments with capital gains.

Trust Income Tax

The most common forms of trust income taxes in Canada includes:

  • Registered Disability Savings Plans (RDSP). Individuals who qualify under disability can actually benefit from these plans by receiving government grants to help them save money without any form of penalty or loss whatsoever.
  • Pooled Registered Pension Plan (PRPP). Like RDSP benefits, PRPP has similar features that promote saving money for retirement purposes while avoiding penalties and tax consequences thanks to contributions made by your employer.
Taxpayers

Employee Benefit Plan Income Tax

This is another form of income tax that applies to employees who receive benefits from their employers, including:

  • Employer-sponsored group term life insurance. This type of coverage can protect your family if you pass away, with a lump sum amount given to them, which will help cover any debts or expenses they might have after losing someone close due to an accident or other unforeseen circumstances.
  • Employee stock options. Just like investment capital gains mentioned earlier, if individuals are able to sell shares purchased through their company, then it's considered taxable and must be reported accordingly on a T1159 document during the year when these transactions take place so there won't be any issues with accuracy later down the line. 

Self-Employed Income Tax

While Canadians who make a living from self-employment will have to pay income taxes under the new budget introduced by Prime Minister Trudeau, business owners may see some tax relief in the future. If you earn less than $50,000 annually, you can benefit from paying lower federal and provincial tax rates as well, which means that you should save more money for other purposes such as opening up your own small business or taking a vacation with family members after a long year of work.

Final Thoughts

Income tax services are done by reliable and competent tax preparers who can accurately deliver reports and tax computations no matter what form of taxation it is. Now that you know the various types of income taxes, remember each one so you can classify what tax you need to focus on.
Unloop is one of Canada's best income tax services specializing in bookkeeping, analytics, and sales tax support. If you want to know more about Canada's tax system, you can read Canada’s Income Tax Act: A Comprehensive Walk-Through written by Michael Pignatelli, one of our CPAs here in Unloop.

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About unloop
Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting.. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.
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