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Tax Guide

Taxes in Canada vs. the US: A complete guide

Taxes in Canada vs. the US: A complete guide

Taxes in Canada and the US? There's a lot to unpack. Things like income tax rates, payroll deductions, and tax incentives all come into play. If you're an expat, a cross-border worker, or a business owner, it's important to understand the differences.

Sure, both countries have progressive tax systems—the more you earn, the more you pay. But that's where the similarities end. How are taxes structured and applied, and what benefits do they provide? They are different.

In this article, we'll break down Canada's tax system - federal, provincial, and more see how it stacks up against the US.

Income tax rate comparison Canada vs. US

Federal income taxes in Canada and the US? The differences are obvious. Both countries have progressive tax systems, but their tax rates and income brackets differ.

Income tax rate comparison: Canada vs. the US (2025)
Taxable income (CAD) Tax rate (%) Taxable income (USD) Tax rate (%)
0 - 57,375 15 0 - 11,925 10
57,375 - 114,750 20.5 11,926 - 48,475 12
114,750 - 177,882 26 48,476 - 103,350 22
177,882 - 253,414 29 103,351 - 197,300 24
253,414 and above 33 197,301 - 250,525 32
    250,526 - 626,350 35
    626,351 and above 37

Canada provincial tax rates

Canada has a progressive tax system, with taxes levied at both the federal and provincial levels. Here's a breakdown of provincial tax rates for 2025:

Canada provincial tax rates for 2025
BC Alberta Ontario Quebec
Taxable income (CAD) Tax rate (%) Taxable income (CAD) Tax rate (%) Taxable income (CAD) Tax rate (%) Taxable income (CAD) Tax rate (%)
0 - 49,279 5.06 0 - 151,234 10 0 - 52,886 5.05 0 - 53,255 14
49,279 - 98,560 7.7 151,234 - 181,48 12 52,886 - 105,775 9.15 53,255 - 106,495 19
98,560 - 113,158 10.5 181,481 - 241,974 13 105,775 - 150,000 11.16 106,495 - 129,590 24
113,158 - 137,407 12.29 241,974 - 362,961 14 150,000 - 220,000 12.16 129,590 and above 25.75
137,407 - 186,306 14.7 362,961 and above 15 220,000 and above 13.16    
186,306 - 259,829 16.8            
259,829 and above 20.5            

Corporate taxation Canada vs. US

Where a company chooses to do business often depends on corporate taxes. Canada and the US tax corporations, but their rates and systems differ significantly.

Corporate tax rates in Canada

In Canada, corporate income taxes are levied at both the federal and provincial/territorial levels. The rates depend on the type of corporation and its income.

Federal corporate tax rates:

  • Basic tax rate. Federal tax starts at 38% of taxable income. After a 10% federal reduction, it drops to 28%. With other reductions, such as the across-the-board tax cut, the net federal rate is 15%.
  • Small Business Deduction (SBD). Canadian-controlled private corporations (CCPCs) that qualify for the SBD pay a lower federal rate of 9% on active business income up to their business limit.

Provincial and territorial tax rates:

Provinces and territories add their corporate taxes to the federal rate, with two main categories:

  • Lower rate. This applies to income eligible for the federal SBD, with the business limit varying by province.
  • Higher rate. Applies to all other income.

For example, beginning in 2024, the combined federal and provincial/territorial tax rates for CCPCs on income eligible for the small business deduction are as follows:

  • Ontario: 12.2% (3.2% provincial + 9% federal)
  • British Columbia: 11% (2% provincial + 9% federal)
  • Newfoundland and Labrador: 11.5% (2.5% provincial + 9% federal)

It's important to note that Quebec and Alberta administer their corporate tax systems separately from the Canada Revenue Agency.

These rates are subject to change and corporations should contact the Canada Revenue Agency or provincial/territorial tax authorities for the most current information.

Corporate tax system in the US

In the United States, corporate income taxes are imposed at both the federal and state levels, and the rates can vary widely.

Federal corporate tax rate:
The federal corporate income tax is a flat 21% on taxable income and applies to all corporations.

State corporate tax rates:

  • State taxes are added on top of the federal rate, but they vary widely from state to state:
  • The lowest rate is North Carolina, at a flat 2.5%.
  • The highest rate is Minnesota, with a top marginal rate of 9.8%.
  • Six states with no state corporate income tax: Nevada, South Dakota, Texas, Washington, and Wyoming.

Additional considerations:

  • Many small businesses, such as S corporations, LLCs, and sole proprietorships, are taxed as pass-through entities. This means that their business income is taxed at individual income tax rates instead of corporate rates.
  • Some states impose unique taxes, such as gross receipts taxes, that can increase a business's overall tax burden.

Canada vs. US capital gains taxes

Capital gains taxes apply to the profit you make from the sale of investments, real estate, or other assets. While both Canada and the United States tax capital gains, the rates, exemptions, and overall treatment are quite different.

Canada's capital gains tax rates

In Canada, selling an asset such as stocks, real estate, or other investments for more than you paid for it results in a capital gain, and only a portion of that gain is taxable. This taxable portion is determined by the capital gains inclusion rate.

Current inclusion rate (before June 25, 2024):

  • Individuals: 50% of the capital gain is taxable.
  • Corporations and trusts: 50% of the capital gain is taxable.

Upcoming changes (Effective June 25, 2024):
1. Individuals:

  • The first $250,000 of annual capital gains will continue to be taxed at the 50% inclusion rate.
  • Gains above $250,000 are taxed at the higher inclusion rate of 66.67%.

2. Corporations and trusts:
All capital gains, regardless of amount, are taxed at the 66.67% inclusion rate.

Example for individuals:

  1. If an individual earns $300,000 in capital gains in a year:
  2. The first $250,000 is taxed at the 50% inclusion rate:
  3. $250,000 × 50% = $125,000 taxable.
  4. The remaining $50,000 is taxed at the 66.67% inclusion rate:
  5. $50,000 × 66.67% ≈ $33,335 taxable.
  6. Total taxable amount: $125,000 + $33,335 = $158,335.

US capital gains tax rates

In the US, capital gains taxes are based on how long you've held an asset and your income level.

Short-term vs. Long-term capital gains:

  • Short-term gains. If you hold an asset for one year or less, any gain is taxed at your ordinary income tax rate, which ranges from 10% to 37%.
  • Long-term gains. Assets held for more than one year qualify for lower tax rates of 0%, 15%, or 20%, depending on your taxable income.
2025 Long-term capital gains tax brackets
Rate (%) Single Filers ($) Married Filing Jointly ($) Head of Household ($)
0 0 - 48,350 0 - 96,700 0 - 64,750
15 48,351 - 533,400 96,701 - 600,050 64,751 - 566,700
20 533,400 and above 600,050 and above 566,700 and above

Additional considerations:

  • Net Investment Income Tax (NIIT). A 3.8% tax applies to net investment income if your income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.
  • State taxes. Many states also tax investment income, and the rates vary widely. Some states have no capital gains tax, while others can significantly increase your overall tax burden.

Example:
Here's how the long-term capital gains tax works in a real-world example.
Suppose a single filer has a taxable income of $50,000 in 2025 and has a long-term capital gain of $10,000:

  1. The first $48,350 is taxed at 0%, so no tax is owed on that portion.
  2. The remaining $1,650 ($50,000 - $48,350) is taxed at 15%:
  3. $1,650 × 15% = $247.5
  4. Total federal capital gains tax: $247.5
Key differences
Aspect Canada US
Taxable portion 50% (rising to 66.67% on gains > $250,000 after June 2024). 100% of capital gains are taxable.
Rates The marginal tax rate on the taxable portion of the gain. 0%, 15%, or 20% based on income (long-term gains).
Short-term gains No distinction between short- and long-term gains. Taxed as ordinary income at rates of 10% to 37%.
Additional taxes None are directly linked to capital gains. NIIT adds 3.8% for higher earners; state taxes may apply.

Canada's system taxes only a portion of capital gains and offers lower effective rates, although higher earners will face higher taxes after mid-2024. In contrast, the US offers reduced rates on long-term gains but adds additional taxes such as the Net Investment Income Tax (NIIT) and potential state taxes.

Canada vs. US VAT rates

Canada has a federal Goods and Services Tax (GST) on most goods and services. Some provinces combine the GST with their provincial sales tax to form a harmonized sales tax (HST). This system keeps tax collection consistent, but rates can vary by province or territory.

The United States takes a different approach - there is no federal sales tax. Instead, sales taxes are administered at the state and local levels, resulting in a wide variety of rates and rules.

States set their rates, and local governments can add additional taxes, creating a complex and varied tax system across the country. This patchwork requires businesses and consumers to navigate different tax rules depending on where they are located.

Estate and inheritance taxes

Canada

Canada does not have a formal estate tax. Instead, when someone dies, their assets are treated as if they had been sold at fair market value on the date of death. This process called a deemed disposition, can trigger capital gains taxes on any appreciation. The estate pays these taxes before the assets pass to the beneficiaries.

In addition, states may impose probate fees or estate administration taxes, which vary by region.

United States

The United States imposes a federal estate tax on the transfer of assets after death. In 2024, estates below a certain exemption level will not be taxed, but amounts above that level may be subject to tax rates as high as 40%.

Some states also impose their own estate or inheritance taxes, with unique exemptions and rates, adding another layer of complexity.

Key differences
Aspect Canada US
Type of tax No formal estate or inheritance tax. Federal estate tax applies to wealth transfers above exemption thresholds.
Tax trigger Assets are treated as sold at fair market value upon death, triggering capital gains taxes on appreciation. Direct tax on the value of the estate, with rates up to 40% for amounts exceeding the federal exemption.
Estate's responsibility The estate pays capital gains taxes before assets are transferred to beneficiaries. The estate pays federal estate taxes on assets exceeding the exemption amount.
State/provincial Taxes Probate fees or estate administration taxes may apply, varying by province or territory. Some states impose estate taxes or inheritance taxes, with unique rates and exemptions.
Exemptions No specific exemptions for estate or inheritance taxes, but capital gains exemptions may apply for principal residences or small businesses. Federal estate tax exemptions for 2024 apply, with thresholds that protect smaller estates. States may offer additional exemptions.
Focus of taxation Capital gains on the appreciation of assets. Direct taxation of estate value above thresholds.

Canada vs. US property taxes

Property taxes are a significant expense for homeowners in both Canada and the United States. Rates can vary widely depending on location, property value, and local government policies.

Property taxes in Canada

In Canada, property taxes are primarily administered at the municipal level, and rates can vary widely between provinces and cities. These taxes are an important source of funding for local governments, supporting services such as education, public safety, and infrastructure.

For example, in 2024, the annual property tax on a home valued at $100,000 varied significantly from city to city:

  • Toronto, Ontario: About $620
  • Vancouver, British Columbia: About $250
  • Montreal, Quebec: About $800

Property taxes in the US

In the United States, property taxes are primarily administered at the local level, including counties, cities, and school districts. Rates and assessment methods vary not only between states but also between jurisdictions within the same state, creating significant regional differences.

Tax benefits and credits in Canada vs. the US

Both Canada and the US offer various tax credits and deductions to help reduce the tax burden. However, the way these benefits are structured and applied differs significantly between the two countries.

Aspect Canada US
Child/family benefits Canada Child Benefit (CCB): Tax-free monthly payments for families with children under 18. Child Tax Credit (CTC): Up to $2,000 per child under 17, with $1,400 refundable.
Sales tax relief GST/HST credit: Quarterly payments for low- to moderate-income families to offset sales tax. No equivalent federal sales tax credit, as sales taxes are managed at the state level.
Disability support Disability Tax Credit (DTC): Non-refundable credit for individuals with severe impairments. No specific disability tax credit, though deductions for medical expenses may apply.
Low-income worker benefits Canada Workers Benefit (CWB): Refundable credit to assist and encourage low-income workers. Earned Income Tax Credit (EITC): Refundable credit for low- to moderate-income workers, especially those with children.
Education benefits Canada Training Credit (CTC): Refundable credit for training and skills development. - American Opportunity Tax Credit (AOTC): Up to $2,500 for the first 4 years of college.
- Lifetime Learning Credit (LLC): Up to $2,000 per return for tuition and educational expenses.
Standard deduction Not applicable in Canada. Standard Deduction (2025):
- $15,000 for single filers.
- $30,000 for joint filers.
- $22,500 for heads of household.
Homeowner benefits Mortgage interest is not deductible in Canada. Mortgage Interest Deduction: Deduct interest on the first $750,000 of mortgage debt ($375,000 for married filing separately).
State and local taxes No specific equivalent deduction for property or local taxes. SALT Deduction: Deduct up to $10,000 ($5,000 if married filing separately) for state/local property and income or sales taxes.
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Canada vs. US tax filing process comparison

Understanding how tax filing works in Canada and the United States is key to staying compliant and avoiding penalties. Here's a quick comparison to guide you through the 2025 tax season.

Aspect Canada US
Filing deadline April 30, 2025, for the 2024 tax year. Filing on time ensures access to benefits and credits. April 15, 2025, for the 2024 tax year. Filing early is encouraged for faster refunds.
Electronic filing system NETFILE: Longstanding system allowing individuals to file returns online (tax years 2017–2024). Direct File: Free federal filing option offered by the IRS, expanding features in 2025.
Extended filing deadlines N/A Direct File is available until October 15, 2025, for extended submissions.
Mandatory E-filing Required for businesses filing six or more information returns (e.g., T4, T5) from January 2024. E-filing is encouraged but not required for individual taxpayers.
State/provincial returns Handled by provinces and territories; included with federal tax filing in many cases. Many states have separate filing requirements and deadlines.
Form updates Form T619 updated for the 2025 tax year; accepted starting January 13, 2025. N/A for similar IRS-specific updates.

 

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Social security and healthcare in Canada vs. the US

Understanding the social security and healthcare systems in Canada and the United States is critical, especially for residents and expatriates. These systems differ significantly in the way they're structured, and funded and the benefits they provide.

Aspect Canada US
Social security programs - Canada Pension Plan (CPP): Provides retirement, disability, and survivor benefits; contributions split between employers and employees.
- Employment Insurance (EI): Offers temporary income support during unemployment, illness, or parental leave.
- Social Security: Provides retirement, disability, and survivor benefits funded by FICA payroll taxes.
- Supplemental Security Income (SSI): Provides federal payments ($967/month for individuals, $1,450/month for couples in 2025) to aged, blind, and disabled individuals with low incomes.
Healthcare coverage Universal healthcare (Medicare): Covers all residents for medically necessary services with no direct cost at the point of care. Mixed public-private system: Public programs (Medicare, Medicaid) cover specific groups, while others rely on employer-sponsored or private insurance. Many remain uninsured or underinsured.
Healthcare funding Primarily funded through taxes, ensuring access for all residents regardless of income. Funded through a combination of government programs, private insurance premiums, and out-of-pocket payments, often tied to employment.
Access to healthcare Canadians enjoy equitable access with minimal direct costs. Basic services are covered, but private insurance is used for additional needs (e.g., dental care, and prescriptions). Americans often face high out-of-pocket costs, including deductibles, co-pays, and uncovered services, even with insurance.
Cost to individuals Minimal or no direct payments for essential services; private insurance is optional for extras. Individuals often pay higher costs, including premiums, deductibles, and co-pays.
Public program highlights - Medicare (Canada): Administered by provinces and territories, covering essential hospital and physician services.
- Funded through taxation.
- Medicare (US): Covers seniors.
- Medicaid: Supports low-income individuals.
- Public programs leave significant gaps in coverage, requiring private insurance.

 

FAQ

1. As an expat, do I have to pay taxes in both Canada and the US?

It depends. Tax treaties between the two countries, such as the Canada-US Tax Treaty, help prevent double taxation. For example, you may be able to claim foreign tax credits for taxes paid in the other country.

2. Which country has higher taxes overall?

Canada typically has higher taxes at lower income levels due to combined federal and provincial tax rates. However, the US has higher top federal tax rates, up to 37%.

3. Can I deduct mortgage interest in Canada?

No. Unlike the US, Canada does not allow a mortgage interest deduction for your principal residence.

4. Are Social Security benefits taxed?

Canada: CPP and OAS benefits are taxable as income.

US: Social Security benefits are taxable based on income level, with up to 85% subject to tax for high earners.

5. Does Canada have an estate or inheritance tax?

No. There are no inheritance or estate taxes in Canada, but capital gains taxes may apply at death.

6. Which country offers better tax advantages for families?

The Canada Child Benefit (CCB) provides tax-free monthly payments to families with children under the age of 18.

The US Child Tax Credit (CTC) provides a refundable credit of up to $2,000 per child.

7. How do expat healthcare systems compare?

Canada. Health care is publicly funded, providing universal access at no direct cost.

The US. Expats often need private insurance, which can be expensive.

 

Further reading

Tax guide for Americans in Canada