Withholding tax is tax deducted at source from certain payments, notably payments to non-residents, and remitted to the CRA by the payer rather than the recipient.
Withholding tax requires the payer to hold back a portion of certain payments and remit it directly to the CRA. The most common Canadian context is Part XIII tax on payments to non-residents, dividends, interest, rents, royalties and management fees, generally at 25%, often reduced by a tax treaty.
The payer, not the recipient, is responsible for withholding and remitting, and is liable if it fails to. Non-residents earning Canadian-source income, and Canadian businesses paying them, must both understand these rules, and payroll income tax withheld from employees is a domestic form of withholding at source.
A Canadian company pays a $10,000 royalty to a US resident. Absent treaty relief it withholds 25% ($2,500) and remits it to the CRA, paying the non-resident $7,500. A treaty may lower the 25% rate.
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Multiply the pre-tax price by the combined rate for the province where the supply is made, then add that amount to the price. If the price already includes tax, divide the total by one plus the rate to get the pre-tax amount, and the difference is the tax. The rate depends on the province of supply rather than where your business sits, so verify the current rate for that province and confirm the item is not zero-rated or exempt.
Canada runs three systems. The federal GST is 5% for 2026 and applies nationally. Five participating provinces fold a provincial share into one harmonised rate: 13% in Ontario, 15% in New Brunswick, Newfoundland and Labrador and Prince Edward Island, and 14% in Nova Scotia since 1 April 2025. Others add their own tax to the 5% GST, giving 12% in British Columbia and Manitoba, 11% in Saskatchewan and 14.975% in Quebec. Alberta and the territories charge 5% only.
That figure is your payroll deduction rate, not a tax bracket. Canada's federal rates for 2026 start at 14% and rise through 20.5%, 26% and 29% to 33%, and what leaves your cheque blends federal and provincial tax with CPP at 5.95% and EI at $1.63 per $100 of insurable earnings for 2026. Payroll also annualises each cheque, so a bonus or overtime period is taxed as if every period looked the same. Filing squares it up.
The basic personal amount is the credit nearly every resident taxpayer can claim, and it sits on the first line of both the federal and the provincial TD1. It is already printed on the current year's form, and the federal amount is reduced for higher-income earners, so use the figure and worksheet on the form you were handed rather than a prior-year copy. If you hold two jobs at once, claim it on only one TD1.
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Reviewed and fact-checked by Udit Gupta
Ex Big 4 — Ernst & Young, Deloitte · International & cross-border tax specialist · CPA Canada (In-Depth Tax Program) · Chartered accountant, ICAI & MIA
Udit Gupta has over 15 years of experience helping corporations and business owners with corporate structuring, corporate tax filing, bookkeeping, payroll, GST/HST, cross-border tax and CRA representation. Big 4 trained at Ernst & Young and Deloitte, and qualified as a chartered accountant in India and again in Malaysia, he founded his accounting practice in 2014 to serve entrepreneurs, startups and non-resident business owners across Canada. View full member bio.
The Institute of Chartered Accountants of India — member 521458 · Malaysian Institute of Accountants — member CA 44667 · Ex Big 4: Ernst & Young, Deloitte · CPA Canada (In-Depth Tax Program), completed 19 Dec 2023 · In-Depth GST/HST Part I, 12 Jul 2022 · Part II, 5 Jul 2023
Editorial policy. Every page is researched against primary sources — the Income Tax Act, CRA publications and CPA Canada guidance — and every rate or threshold is stated with the tax year it applies to.
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