Income Tax Act

The Income Tax Act (ITA) is Canada’s primary statute governing the imposition and collection of income tax. The Act applies to both individuals and corporations resident in Canada (taxed on worldwide income) and non-residents earning Canadian-source income. The Act defines income from various sources (employment, business, property, capital gains), provides deductions and credits, and establishes the progressive rate structure for individuals and the flat rate for corporations. The Act also includes complex rules for corporate reorganizations, partnerships, trusts, estate planning, international transactions, and tax avoidance (general anti-avoidance rule, GAAR). The Act is administered by the Canada Revenue Agency (CRA).

Legal area: Tax law establishes the legal framework for the imposition and collection of federal taxes, including income tax and consumption taxes.

Year enacted: 1985

Full text: https://laws-lois.justice.gc.ca/eng/acts/I-3.3/

Key Provisions

• Section 2: Tax payable by persons resident in Canada
• Section 3: Income computation (sources of income and deductions)
• Section 5: Employment income
• Section 9: Business income
• Section 12: Property income (interest, dividends, rent)
• Section 38: Capital gains (inclusion rate and taxable capital gains)
• Section 118: Personal tax credits (basic, spousal, age, disability)
• Section 245: General anti-avoidance rule (GAAR)

Significance

The Income Tax Act is Canada’s most important revenue statute, generating over $200 billion in annual federal revenue. The Act’s complexity reflects over a century of amendments responding to economic changes, tax planning strategies, and policy objectives. The GAAR (section 245) is the government’s primary tool against abusive tax avoidance. The Supreme Court has interpreted the Act in hundreds of decisions, including landmark rulings on the meaning of ‘business’ (Stewart v Canada, 2002) and the application of GAAR (Trustco Mortgage v Canada, 2005).