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The Curious History of Canadian Taxes

by UFile Team Équipe ImpôtExpert | Mar 21, 2018   Comments:

UFile blog The-Curious History of Canadian TaxesLike clockwork, they come every year.

For most Canadians, taxes are one of the few constants that can be counted on. However, that hasn’t always been the case. While Canadians have been dutifully paying tax for just over a century, the path to today’s tax system has been winding and, sometimes, downright weird.

From cosmetic surgery to fancy cheese, here’s a look back at some of Canada’s strangest tax laws - and how they got us to where we are today.

It all started in World War I

Last year, Canada celebrated the 100th anniversary of the Income War Tax Act. While it may feel like Canadians have been taxed for millennia, the truth is, the government didn’t start taxing its citizens with any regularity until the First World War. Even then, tax was seen as only a temporary measure to help finance military and aid efforts. In this early incarnation, individuals with income over $1500 ($24,000 in today’s dollars) paid a flat tax of 4%. Everyone else had an exemption of $3,000 ($50,000 in today’s dollars) at the same tax rate above the threshold. So, if you feel like today’s Canadians are paying more taxes than ever, you’re right.

More big changes in the ’70s

Tax on capital gains (the sale of assets such as stocks and bonds and real estate) is considered one of Canada’s most important taxes, and it makes sense—money made selling assets is a form of income. For those who sell stocks and bonds for a living, such as traders, capital gains are the source of their entire income. Income from the sale of those assets wasn’t considered taxable until 1971, but as the chairman of the Royal Commission on Taxation once famously put it, “a buck is a buck.”

The bizarre background of head tax

Levied on Chinese immigrants between 1885 and 1923, the Chinese head tax is one of the first instances of taxation by the Canadian government. Under the head tax, each Chinese individual coming to Canada was ordered to pay $50, an amount eventually raised to its maximum of $500 by the time the tax was abolished in 1948. Since then, the tax has rightfully been condemned as a xenophobic measure. It was not until 2006, however, that the government of Canada made a formal apology to the Chinese community and began measures to symbolically repay those citizens affected.

Think “head taxes” are vastly outdated? Other, more benign, forms of head tax existed recently. For example, the Health Contribution in Quebec was a unique tax that was introduced by the province in 2010, and finally eliminated in 2017. Depending on family status, every Quebec resident over 18 who passed a certain income threshold had to pay an extra $25 of income tax on their return.

Botox as a medical expense and other weird tax rules

Until recently, Canadians who underwent voluntary cosmetic surgery for any reason could claim the fees paid as long as the procedure was performed by a recognized medical practitioner. Thinking of claiming a few nips and tucks with your CRA-certified software this year? Not so fast—as of 2010, only surgery necessary for medical reconstruction is eligible as a medical expense.

A surprising new tax rule for 2018? The elimination of the education and textbook amounts. These amounts gave an additional credit for the months you were in a post-secondary institution, and were designed to help with extra costs like books and supplies. The Canadian government has swung its support behind parents of younger children who are struggling under the weight of rising childcare costs; in the meantime, parents of older children will have to shell out extra for their children’s post-secondary education.

The weird, the wacky and the downright mysterious

The income tax you calculate using your CRA tax return software is just one of the ways in which Canadians pay the government. Much of what we buy day-to-day is taxed, too. Here is a sampling of some of Canada’s strangest tax rules:

  • Smoked Fish. Here’s something fishy: while fresh lobster and shellfish are all tariff-free, a 4% tax is added to any smoked fish.
  • Cheese. Canada has a set quota on imported cheese, and once it’s reached, importers pay a 245% surcharge. It’s almost un-brie-lievable!
  • Lottery. Our lotteries are government-run, so in a way, they’re already a form of tax. But still, it may surprise you to learn that lottery winners aren’t expected to pay tax on their winnings. Jackpot, indeed!

PayPal? Bitcoin? The future of tax is virtual

As the majority of monetary transactions move online, Canadians are increasingly making use of virtual payment systems such as PayPal and even cryptocurrency. What does that mean for taxes, then? When it comes time to do your taxes using CRA-approved software, you’ll find that existing tax laws still apply. This year, the government has had to gently remind its citizens that, virtual or not, money is money. So the Bitcoin you bought and sold during the boom? That’s subject to capital gains tax. And your income through PayPal? That’s still income, and therefore taxable.

Got a question about the history—or future— of taxes in Canada? Connect with us on Facebook and Twitter for news and updates on the 2017 tax return and UFile 2017 CRA-approved tax software. Visit Tax & U for accurate answers to all your questions about your 2017 tax return.

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