Tools and resources to help your company expand globally

flag Canada Canada: Tax system

In this page: Corporate Taxes | Accounting Rules | Consumption Taxes | Individual Taxes | Double Taxation Treaties | Sources of Fiscal Information

 

Corporate Taxes

Tax Base For Resident and Foreign Companies
A company not incorporated in Canada is considered to be resident in the country if its central management and control are exercised in Canada (i.e. if the board of directors meets and takes decisions in the country).
A corporation incorporated in Canada will cease to be a Canadian resident if it is granted Articles of Continuance in a foreign jurisdiction, and vice versa.
 

Tax Rate

Corporate Tax Rate Federal Corporate Tax Rate: 15% after the general tax reduction (9% for Canadian-controlled private corporations claiming the small business deduction).

Provincial Tax Rate: Provinces and territories apply two tax rates - a low rate and a high rate. The low rate applies to business income that qualifies for small business deduction (varying between 0% and 3.2%). The high rate applies to all other income (varying between 11.5% and 16%).

For more information, please visit the Canadian government website.
For information concerning the tax measures taken in order to address the impact of the COVID-19 crisis, please consult the website of the Canada Revenue Agency.
 
Tax Rate For Foreign Companies
Corporations resident in Canada are subject to taxation on their worldwide income. Foreign non-resident companies are subject to taxation on Canada-sourced income and on capital gains arising upon the disposition of taxable Canadian property. On the other hand, they benefit from some exemptions.
Capital Gains Taxation
50% of capital gains is included in taxable income for the year in which the gains are realized and is subject to the normal rate of tax. Capital gains deriving from the disposal of qualified small business corporation shares are exempt up to CAD 913,630 (for 2022 - adjusted every year). Capital losses are deductible, but generally only against capital gains (in case of excess, the loss can be carried back three years and carried forward indefinitely).

Non-resident corporations are subject to corporate income tax on taxable capital gains arising on the disposition of taxable Canadian property (50% of capital gains less 50% of capital losses).

Main Allowable Deductions and Tax Credits
Companies may amortise their capital property up to a certain percentage every year. General business operating costs are also deductible. Losses may be carried back for three years and forward for 20 years for non-capital losses and indefinitely for capital losses. Interest on borrowed money used for earning business or property income, or interest in respect of an amount payable for property acquired to earn income, is deductible. Deductions for business meals and entertainment expenses are limited to 50% of their cost. Insurance premiums relating to property of a business are generally deductible, although life insurance premiums are generally not deductible if the company is the named beneficiary. Donations made to registered Canadian charitable organisations are deductible in computing taxable income up to 75% of net income (with some exemptions). Tax credits are also available for tax on dividends received from a foreign company as well as income tax paid in another country. Current expenditures on scientific research and experimental development can be deducted in the year incurred, or carried forward indefinitely to minimise tax payable. A reasonable reserve for doubtful accounts may be deducted for tax purposes.

Start-up expenses are not deductible, same as for federal, provincial, and territorial income taxes and government-imposed fines and penalties. Mining and oil and gas companies are generally allowed a 100% deduction for grassroots exploration costs, whereas other development costs are deductible at the rate of 30% on a declining-balance basis.

Other Corporate Taxes
Taxes on natural resources, namely oil and gas, mineral and timber are applied across Canada. Federal and provincial resource royalties and taxes are collected on resource production on federal and provincial Crown lands respectively. Certain rental payments and management fees are also subject to a 25% withholding tax, unless otherwise agreed upon in a tax treaty. Property taxes are levied by municipalities on the estimated market value of real property within their boundaries and by provinces and territories on land not in a municipality.

All provinces and territories impose on insurance companies a premium tax on life and non-life insurance, ranging from 2% to 5%. Insurance companies are subject to a tax on capital in Quebec and Ontario. Quebec also levies a compensation tax on insurance premiums at the rate of 0.30% (between 2022 and 2024; will be abolished from 1 April 2024). The federal government levies a Financial Institutions Capital Tax on banks, trust and loan corporations, and life insurance companies when taxable capital employed in Canada exceeds CAD 1 billion, at a rate of 1.25%.

All provinces and territories charge a land transfer tax or registration fee on the purchaser of real property within their boundaries, calculated on the sale price or the assessed value of the property sold at rates varying between 0.02% to 5% (higher rates may apply for non-residents).

Employers need to contribute to social security on behalf of their employees, with rates varying according to the territory. The maximum pensionable earnings under the Canada Pension Plan (CPP) for 2022 is CAD 64,900. For 2022, employers are required to pay, for each employee, government pension plan contributions up to CAD 3,499.80 and employment insurance premiums up to CAD 1,333.84.
Payroll taxes are charged at a maximum rate between 1.95% and 4.3%.

Provinces and territories implement carbon taxes in accordance with the Greenhouse Gas Pollution Pricing Act.

Other Domestic Resources
Canada Revenue Agency
Consult the Doing Business Website, to obtain a summary of the taxes and mandatory contributions.
 

Country Comparison For Corporate Taxation

  Canada OECD United States Germany
Number of Payments of Taxes per Year 8.0 10.1 10.6 9.0
Time Taken For Administrative Formalities (Hours) 131.0 163.6 175.0 218.0
Total Share of Taxes (% of Profit) 24.5 41.6 36.6 48.8

Source: Doing Business - Latest available data.

Return to top

Accounting Rules

 

Accounting System

Accounting Standards
Canadian GAAP requires a publically accountable enterprise to use IFRS. A non-publically accountable enterprise may use IFRS or Accounting Standards for Private Enterprises.

The Accounting Standards Board of the Canadian Institute of Chartered Accountants (AcSB) establishes accounting and financial information standards.
Accounting Regulation Bodies
Canadian Accounting Standards Board
Accounting Law
Accounting principles are defined by National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards.
Difference Between National and International Standards (IAS/IFRS)
IFRSs are required for most listed companies and financial institutions. Companies also filing in the United States can choose to apply US GAAP while entities with rate-regulated activities are permitted to apply US GAAP until 2019 even if they do not file in the United States. IFRSs are not mandatory for SMEs. 
 

Accounting Practices

Tax Year
The tax year typically begins on 1 January and finishes on 31 December of the same year.

A company may also choose to establish a tax year of 12 consecutive months starting on the date the company started its activities. For example: from 1 June to 31 May. A taxation year may not exceed 53 weeks. Once selected, the tax year cannot be changed without approval from the tax authorities.

Accounting Reports
Financial accounts in Canada usually include a balance sheet, a profit and loss account, a statement of retained earnings and a cash flow statement.

Balance sheet: 12 pre-determined consecutive months;
1) Assets
2) Liabilities
3) Shareholder balance
Publication Requirements
The recommendations in the CPA handbook apply to all Canadian companies. Specific regulations apply to banks, insurance companies and public organisations.

Reporting of financial statements and balance sheets must be done yearly. Companies listed on the stock exchange must provide quarterly financial reports.
 

Accountancy Profession

Accountants
Accountants plan, organise and administer accounting systems for individuals or establishments. Financial auditors and accountants are employed by auditing and accounting firms throughout the private and public sectors, or may be self-employed.

Financial Auditors and Accountants: financial auditors examine and analyze the accounting and financial records of individuals and establishments to ensure accuracy and compliance with established accounting standards and procedures.
Professional Accountancy Bodies
CICA, Chartered Professional Accountants of Canada
CPAB, Canadian Public Accountability Board
Member of the International Federation of Accountants (IFAC)
Yes
Member of Other Federation of Accountants
Canada is a member of The American Institute of Certified Public Accountants and a member of the Confederation of Asian and Pacific Accountants (CAPA) which represents the national accountancy organisation in the Asia-Pacific region.
Audit Bodies
Companies have to seek a statutory auditor to conduct an annual audit of the financial health of their organisation.

You can contact an external auditor such as Deloitte or KPMG.
 
 

Return to top

Consumption Taxes

Nature of the Tax
There are three types of sales taxes in Canada, depending on the province: the GST (Federal Goods and Services Tax), the HST (Harmonized Sales Tax) and the PST (Provincial Sales Tax). Some provinces do not levy a PST or levy a single-incidence retail sales and use tax (a type of excise duty).
Standard Rate
The federal GST standard rate is 5%. The PST general rates are as follows: BC, 7%; SK, 6%. Some provinces (New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island) have fully harmonised their sales tax systems with the GST and impose a single HST (at 15% - 13% for Ontario). Quebec is not a participating province and levies a separate tax, the QST (Quebec Sales Tax) at a 9.975% rate, bringing the combined effective rate to 14.975% in Quebec. Other non-participating provinces include Manitoba and British Columbia (combined rate of 12%) and Saskatchewan (combined rate of 11%), which levy their own retail sales tax, and Alberta, which does not levy a retail sales tax.
Reduced Tax Rate
Certain products and services are zero-rated (exports of goods and services, basic groceries, prescription drugs, medical devices, some inputs for agriculture and fishing, and most international freight and passenger transportation services). Municipalities, universities, hospitals and other public administration institutions qualify for a partial or a complete refund of GST/HST paid on certain purchased inputs.
Exclusion From Taxation
In general, GST/HST does not apply to supplies of used residential property, financial transactions, most supplies by charities and public sector bodies, healthcare and education services.
PST generally does not apply to purchases of taxable goods, software, and services acquired for resale.
Method of Calculation, Declaration and Settlement
Sales tax in Canada is imposed on the purchaser of taxable supplies of business property and services made in Canada, and to imports of goods into Canada, with an obligation on the vendor to collect. All suppliers of taxable goods or services in Canada must register, except for suppliers who have under CAD 30,000 in annual worldwide taxable sale, non-residents who do not carry out business, and suppliers engaged only in the sale of non-business real estate. Returns are to be filed monthly (if annual turnover exceeds CAD 6 million), quarterly (if annual turnover is between CAD 1.5 million and CAD 6 million) and annually (if annual turnover is below CAD 1.5 million). Registrants must also file their tax returns electronically if their annual turnover is greater than CAD 1.5 million. In the states applying the HST (New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island), there is no need to register separately for GST and HST as both taxes are accounted for under one tax return and are jointly administered by the CRA.
Other Consumption Taxes
Excise duties are levied by the federal government at various rates on spirits, wine, beer, malt liquor, and tobacco products manufactured in Canada. Some provinces levy additional taxes on these items.

For further information, consult the dedicated page on the website of the Government of Canada.

Return to top

Individual Taxes

Tax Base For Residents and Non-Residents
An individual who resides in or ordinarily resides in Canada, or spends more than 183 days in a calendar year in Canada, is considered a resident, unless otherwise provided in a tax treaty. Resident taxpayers are taxed at the federal and provincial levels on worldwide income while non-resident taxpayers are taxed on Canadian-source income, on gains from the disposal of Canadian property, and on income derived from carrying on a business in Canada.
 

Tax Rate

Federal Tax Rate (2022) Progressive from 15 to 33%
From CAD 0 to CAD 50,197 15%
From CAD 50,197 to CAD 100,392 20.5%
From CAD 100,392 to CAD 155,625 26%
From CAD 155,625 to CAD 221,708 29%
Above CAD 221,708 33%
Provincial Tax Rate Progressive from 4 to 21.8%.

For a full list, consult the Government of Canada website.

For information concerning the tax measures taken in order to address the impact of the COVID-19 crisis, please consult the website of the Canada Revenue Agency.
 
Allowable Deductions and Tax Credits
The main tax exemption is provided for payments into Registered Retirement Savings Plans (RRSPs), limited to 18% of earned income in the preceding year and a maximum contribution of CAD 29,210 for 2022 (whichever is less). Deductible costs and expenses include those related to employment, education, care for a dependent (capped at CAD 8,000 per child under seven years old and CAD 5,000 per child between 7-16 years old), alimony, certain moving expenses, union and professional dues, donations and investment carrying charges. Individual shareholders may also claim a tax credit on dividends. Interest on money borrowed to acquire investment property or to invest in a business is usually deductible. Capital losses are deductible, but generally only against capital gains.
Business deductions for self-employed persons normally include all reasonable expenses incurred to earn business income.
Several tax credits are provided by the law, for further information consult the dedicated page on the website of the Government of Canada. Furthermore, a comprehensive list of deductions for individual taxpayers is available here.
Special Expatriate Tax Regime
To eliminate any conflicts and the double taxation that might otherwise result, Canada's tax treaties often provide special residency "tie-breaker" rules for determining residency. Normally, under Canadian law and the residency provisions of most tax treaties, an individual is considered resident in the jurisdiction to which the individual has closer personal and economic ties, although other factors may influence this conclusion.
Non-resident taxpayers are taxed on Canadian-source income, on gains from the disposal of Canadian property, and on income derived from carrying on a business in Canada.
Capital Tax Rate
No taxes are levied on personal capital, net worth or property in Canada. However, municipal authorities levy taxes on the occupation of real estate.
Canada does not levy any federal or provincial/territorial inheritance, estate, or gift taxes.

Canadian-resident employees are required to pay government pension plan contributions of up to CAD 3,499.80 and employment insurance premiums of up to CAD 889.54 for 2022. The limits go up to CAD 6,999.60 for self-employed individuals.

Property taxes are levied by municipalities in Canada on the estimated market value of real property within their boundaries, and by provinces and territories on land not in a municipality.
All provinces and territories levy a land transfer tax or registration fee on the purchaser of real property within their territory, with rates varying between 0.02% and 5%.

Return to top

Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
Canada's Government - tax treaties in force
Withholding Taxes
Dividends: 0%(resident)/25% (non-resident); Interests: 0%(resident)/25% (non-resident); Royalties: 0%(resident)/25% (non-resident).
Bilateral Agreement
The United States and Canada are bound by a double taxation treaty.

Return to top

Any Comment About This Content? Report It to Us.

 

© Export Entreprises SA, All Rights Reserved.
Latest Update: November 2022