Canadian residents pay income tax on their worldwide income, and non-residents pay income tax on income from sources in Canada.
Income tax is levied at the federal and 10 provincial and 3 territorial levels.
The federal tax is levied on a progressive scale:
The provinces and territories set their own tax rates and income levels to which they apply. Rates are also progressive and range from 4% to almost 26% depending on the level of income and the province or territory. The definition of taxable income is the same as the federal one, except in Quebec.
There is also a minimum alternative tax, calculated in a special way, which is payable if it exceeds the regular tax. The minimum alternative tax may be credited in future periods against the ordinary tax if the ordinary tax exceeds the minimum alternative tax.
Half of the gain on the sale of assets is included in income taxable at ordinary tax rates. There are special rules for accounting for tax purposes for gains on stock sales and dividends.
Canadian companies pay tax on their worldwide income; non-resident companies pay tax on income from sources in Canada.
The basic federal tax rate is 38%. It is reduced to 28% for income generated within the province or territory of Canada. There are reduced rates for small companies, manufacturing companies, etc. For income generated in the province/territory, there is also a regional income tax, with rates ranging from, generally, 2% to 16%, depending on the size of the profit and the province/territory.
Half of the gain on the sale of assets is included in income taxed at ordinary tax rates. There are special accounting rules for tax purposes for gains from the sale of shares and dividends. Dividends from Canadian companies, as a general rule, are not taxable to a Canadian company.
A foreign affiliate is a foreign company with a Canadian resident's ownership interest of at least 1% and together with related parties of at least 10%. With more than 50% ownership, a foreign company is considered a controlled company.
Certain types of income of a foreign affiliate are included in the taxpayer's taxable income. Usually these are certain types of income from property, passive income with some exceptions, certain types of capital gains.
Withholding tax on dividends and royalties is withheld at a rate of 25%. Interest paid to unrelated parties is not subject to withholding tax.
Tax may be withheld on certain other types of income.
Tax rates may be reduced in accordance with double taxation avoidance agreements (DTAs).
The federal GST rate is 5%. GST is similar to VAT. At the provincial level a similar tax can also be levied. The five provinces charge HST (harmonized sales tax) with rules similar to the GST at 13% to 15%. Quebec levies a similar tax on certain transactions at a rate of about 10%. Some other provinces have imposed provincial retail sales taxes with their own rules and rates.
Property taxes are levied at the municipal and provincial/territorial levels.
Tax is levied at the provincial and territorial levels, generally at rates of 0,02% to 3%; rates are usually higher for non-residents and they may be charged additional tax.
Canada has signed 96 Double Tax Treaties (DTC) and 12 Tax Information Exchange Agreements (TIEA) with the following jurisdictions:
96 DTCS: Algeria, Argentina, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belgium, Brazil, Bulgaria, Cameroon, Chile, China, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Dominican Republic, Ecuador, Egypt, Estonia, Finland, France, Gabon, Germany, Greece, Guyana, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Ivory Coast, Jamaica, Japan, Jordan, Kazakhstan, Kenya, Korea (Rep of), Kuwait, Kyrgyzstan, Latvia, Lebanon, Lithuania, Luxembourg, Madagascar, Malaysia, Malta, Mexico, Moldova, Mongolia, Morocco, Namibia, Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, Papua New Guinea, Peru, Philippines, Poland, Portugal, Romania, Russia, Senegal, Serbia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Tanzania, Thailand, Trinidad & Tobago, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan, Venezuela, Vietnam, Zambia, Zimbabwe.
12 TIEA: Anguilla, The Bahamas, Bermuda, Cayman Islands, Dominica, Isle of Man, Netherlands Antilles, San Marino, St. Kitts and Nevis, St. Vincent and the Grenadines, Turks and Caicos Island.
Canada has also signed and ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The Multilateral Convention entered into force for Canada on December 1, 2019.
In general, there is no restriction on foreign exchange transactions.