Lessons from Spain, Germany and Canada
Studies in Fiscal Federalism and State–local Finance series
Edited by Núria Bosch and José M. Durán
Chapter 8: Tax Coordination under the Canadian Tax System
1 Paul Berg-Dick, Michel Carreau, Deanne Field and Mireille Éthier 1 INTRODUCTION Canada is comprised of ten provinces and three territories. The responsibilities of the federal and provincial governments are set out in the Canadian Constitution. Provinces delegate some powers and responsibilities to municipalities within their jurisdiction, and the federal government delegates some of its powers and responsibilities to territorial governments. Under the Constitution, the federal government and provincial governments have access to most of the major tax bases. Provinces are limited, however, to direct taxation within their jurisdiction: A direct tax is one which is demanded from the very person who it is intended or desired should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another. The direct/indirect test is a legal, not economic, one. (John Stuart Mill,  1909, Book V, Chapter 3, p. 1) Within Canada’s relatively decentralized structure, provinces have considerable ﬂexibility with respect to taxation. Federal and provincial governments use a variety of tax ﬁelds to raise revenue to ensure that no one item or activity bears an excessive tax burden. This means that, in practice, both the federal and provincial governments jointly occupy most tax ﬁelds. The three main tax ﬁelds jointly occupied by the federal and provincial governments in Canada are: income taxes on individuals (personal income tax), income taxes on businesses (corporation income tax) and sales taxes. The federal and provincial governments occupy all...
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