The personal income tax system is the largest source of revenue for Canadian governments. It is also the most important tool in the pursuit of the objective of tax fairness. This means that the percentage of income paid in taxes increases with income.
Comprehensive income is the basis for determining the ability to pay tax in the Canadian tax system.
Income includes wages and salaries, self-employed earnings and capital income such as dividends, interest and capital gains . Some sources of income may not be fully taxed in order to achieve a variety of economic and social objectives. Deductions and tax credits are provided to recognize the influence of a number of factors on the ability to pay taxes. In some cases, credits at a federal rate of 17 per cent are used rather than deductions to ensure that high-income Canadians do not receive higher tax relief, reinforcing progressivity in the Canadian tax system. For example, credits are provided to cover the costs of medical expenses, education and disabilities.