Natural persons – These are also referred to as individuals in the ITA and are subject to graduated marginal rates during their lifetime. They are also subject to income taxation at the provincial level based on the tax rules for the applicable jurisdiction(s). It is possible to have income tax liability in more than one province or territory of Canada. An example would be a person who is a partner in a business that carries on business in more than one jurisdiction of Canada even though the person only lived in one province throughout the tax year.
Trusts – These are not legal entities but have been deemed to be individuals under the ITA. Inter vivos trusts are currently taxed at the top marginal rate on all income, as defined in the ITA, retained in the trust with certain exceptions. Testamentary trusts, that qualify under the ITA, are currently taxed at the same graduated rates as natural persons for all income, as defined in the ITA, retained in the trust again with certain exceptions. However, the 2013 Federal Budget includes a recommendation to review the taxation of testamentary trusts due to their prevalence in estate planning.
Trusts are also subject to income taxation at the provincial level.
Corporations – These are legal entities as specified by provincial legislation. Therefore, corporations are separate taxable entities from the people who own shares in them and are referred to as persons in the ITA but not included in the definition of “individual”. The corporate tax rules in the ITA are distinct from those that apply to natural persons or trusts.
Corporations are also subject to income taxation at the provincial level.
Note regarding partnerships – Partnerships are not legal entities and have not been deemed to be taxable entities under the ITA. However, there are rules in the ITA about how certain amounts are calculated in relation to partnerships such as income or losses as well as rules regarding dispositions of partnership interests which are a form of property for tax purposes.