Canada: Tax System

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 capital gains arising upon the disposition of taxable Canadian property. On the other hand, they benefit from some exemptions.
A special 25% 'branch tax' is applicable to a non-resident's after-tax profits not invested in qualifying property in Canada. Essentially, this tax serves as a withholding tax on funds repatriated to the foreign head office. However, for corporations residing in treaty countries, the branch tax rate may be reduced to the withholding tax rate on dividends as specified in the relevant tax treaty, typically ranging from 5%, 10%, to 15%.

Capital Gains Taxation

50% of capital gains are included in taxable income for the year in which the gains are realized and is subject to the normal rate of tax. 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. Net operating losses may be carried back for three years and forward for 20 years. 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 properties 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 (a 5-year carryforward is available). 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, the 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%. 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).

A 2% tax is levied on equity repurchases by entities listed for trading on designated stock exchanges. The tax applies to the difference between the fair market value of the redeemed, acquired, or canceled equity and the fair market value of the equity issued in the same year. Certain nonconvertible preferred shares are exempt from this tax.

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 2024 is CAD 68,500. For 2024, employers are required to pay, for each employee, government pension plan contributions up to CAD 3,867.50 and employment insurance premiums up to CAD 1,468.77.
Payroll taxes are charged at a maximum rate between 1.95% and 4.26%.

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

Other Domestic Resources

Canada Revenue Agency

Country Comparison For Corporate Taxation

Source: The World Bank - Doing Business, Latest data available.

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.

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 31,560 for 2024 (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.
The income tax system offers individuals a lifetime tax exemption for capital gains from qualified small business corporation shares and qualified farm or fishing property. This exemption, known as the Lifetime Capital Gains Exemption (LCGE), is set at CAD 1,016,836 for 2024.
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 3,867.50 and employment insurance premiums of up to CAD 1,049.12 for 2024. The limits go up to CAD 8.151,5 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%.

A tax is imposed on the sale of luxury cars, personal aircraft, and boats for personal use, provided their retail sales price exceeds CAD 100,000 for cars and aircraft, and CAD 250,000 for boats. The tax is calculated as the lesser of either 20% of the amount exceeding the sales price threshold or 10% of the total value of the luxury car, boat, or personal aircraft.