Are auto insurance companies in Canada allowed to raise rates because of an accident?

Yes they are, and the majority of time that is when they will raise rates, especially when you are at fault.

If you were at-fault for the accident and had to make a insurance claim, then your rates will definitely increase, since you are a higher risk driver, and the insurance company had to pay out because of you.

If you are in an accident that you were not at fault, then your rates should not increase but they might. Some companies again see this as you being a higher risk driver since you were in a accident, even if it wasn't your fault, so they will raise the rates. If this happens, I recommend switching insurance companies, as a good company should not do this.

In either case your rates will not increase until your insurance is up for renewal. At which point, if they do increase I would recommend looking around and comparing prices from other companies