Talking about taxes and income tax

Useful tips

You could, for example, help your children calculate the taxes applicable on a game purchase. If they know the price of an item before taxes, they'll be ready to take out their calculator to calculate the taxes.

Remember that taxes are calculated as follows^[ 1 ]:

• A 5% goods and services tax is added to the list price.
• In Quebec, approximately 10% is added for the QST.

It's important for your children to know that taxes are applied at different moments of a transaction. The GST is calculated from the subtotal of the transaction and the QST is calculated from the subtotal with GST added. Your children will be able to figure out how much tax they will have to pay on an item.

It should be noted that in Prince Edward Island, New Brunswick, Nova Scotia, Ontario and Newfoundland and Labrador, the harmonized sales tax is calculated from the GST and PST, the provincial sales tax. In Ontario, for example, the HST is about 13%.

Did you know that many items are zero-rated (taxed at 0%) or tax-exempt?

• Basic groceries such as bread, milk, water and butter
• Most agricultural and fishing products
• Books (exempt from QST only)
• Prescription drugs
• Most child-care services
• Rent for a residential lease of at least 1 month
• Financial services
• Health services, including dental care
• Passenger transportation services
• Educational services

Useful tips

Looking for a visual way to explain income tax to your children?

Take a chocolate cake for example. In society, every year, citizens help bake a big chocolate cake. Some citizens provide many ingredients and others fewer or none at all (children and seniors, for example), based on their capacity to provide these ingredients.

The government receives these ingredients, bakes the cake and distributes slices of cake. All of society receives a portion. A slice is used for schools, another for park maintenance, public transportation, hospitals, etc.

Does this culinary example appeal to you? Some of you may prefer using the Income Tax Distribution in Images document to illustrate the subject to your children.

Useful tips

Your children are now familiar with the concept of taxes and income tax. Maybe they will want to find out more about how this money is used in society. And, as a portion of taxes and income tax is allocated to services that your family probably uses, it may be interesting to talk about what happens after tax and income tax returns have been filed.

In Canada, income tax and taxes are reused in the following segments of society:

1. 40% is reinvested in government institutions, such as the Canada Revenue Agency, Canadian government departments, etc.
2. 18% goes to families, seniors and children.
3. 14% is allocated to social programs, healthcare, public transportation, etc.
4. 11% is used for public debt payments.
5. 9% is allocated to defense and public security.
6. 8% goes to helping families who are between jobs.