Canada-Ontario (EPC)

Basic taxes (briefly)

Personal tax 15-33%
Corporate tax (in detail) The base federal tax rate is 38%.
Capital gains tax. Details Half of the gains from the sale of assets are included in income taxed at regular tax rates.
VAT. Details The federal GST rate is 5%. GST is similar to VAT.
Other taxes Social contributions, Property tax, Land transaction tax
Government fee
Stamp duty No

International tax agreement

Tax treaties entered Algeria, Argentina, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belgium, Bermuda, Brazil, Bulgaria, Cameroon, Chile, China, Colombia, Croatia, Cyprus, Czech Republic, Côte d'Ivoire, Denmark, Dominican Republic, Ecuador, Egypt, Estonia, Finland, France, Gabon, Germany, Greece, Guyana, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Jordan, Kazakhstan, Kenya, Korea (Republic of), Kuwait, Kyrgyzstan, Latvia, Lebanon, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova (Republic of), Mongolia, Morocco, Namibia, Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, Papua New Guinea, Peru, Philippines, Poland, Portugal, Romania, Russian Federation, Senegal, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tanzania, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan, Venezuela, Viet nam, Zambia, Zimbabwe
   
Tax Exchange Information Agreement (TEIA) Anguilla, Aruba, Bahamas, Bahrain, Brunei Darussalam, Cayman Islands, Cook Islands, Costa Rica, Curaçao, Dominica, Guernsey, Isle of Man, Jersey, Liechtenstein, Panama, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, San Marino, Sint Maarten, Turks and Caicos Islands, Uruguay, Virgin Islands (British)


Show all entries Hide all entries

TAXATION

Overview

Taxation in Canada is a shared responsibility between the federal government and the various provincial and territorial legislatures.
Federal taxes are collected by the Canada Revenue Agency. Under tax collection agreements, the CRA collects and remits to the provinces (including Ontario):
  • provincial personal income taxes on behalf of all provinces except Quebec, through a system of unified tax returns.
  • corporate taxes on behalf of all provinces except Quebec and Alberta.
  • that portion of the Harmonized Sales Tax that is in excess of the federal GST rate, with respect to the provinces that have implemented it.

The Agence du Revenu du Québec collects the GST in Quebec on behalf of the federal government, and remits it to Ottawa.

Personal Income Tax

Canadian residents are taxed at the federal and provincial levels on their worldwide income. Certain income of controlled foreign affiliates is taxed on an accrual basis. Taxation also can arise in respect of investments in certain nonresident trusts and offshore investment funds. Nonresidents are taxed on Canadian-source income and on gains from the disposition of taxable Canadian property.
An individual is resident in Canada if he/she resides in Canada or is ordinarily resident in Canada. A nonresident individual will be deemed to have been resident in Canada if he/she spends at least 183 days in Canada in a calendar year. Except for Quebec provincial tax purposes, domestic residency status may be overridden by a tax treaty.
Taxable income includes employment income (including most employment benefits), certain investment income and profits earned from a business or profession are taxable at the individual's applicable personal tax rate. Dividends received from a Canadian corporation are subject to a more favorable tax regime.
Fifty percent of capital gains, less allowable capital losses, are included in income and taxed at the individual’s applicable income tax rate.
Federal tax rates are progressive up to 29% (or 24.215% for residents of Quebec). Provincial/territorial tax rates also are progressive, with the maximum rate in the range of 10%-25.75%.
Ontario personal income tax rates apply to specific tax brackets. Personal Income Tax Brackets and Rates for 2014 Tax Year are as follows:
Taxable Income, $ Tax Rate
0-39,020, 0-39,723, 0-40,120 5.05%
39,020-78,043, 39,723-79,448, 40,120-80,242 9.15%
78,043-500,000, 79,448-509,000, 80,242-514,090 11.16%
Over 500,000, 509,000, 514,090 13.16%

Tax rates are applied on a cumulative basis.
Tax year for individuals is a calendar year. Tax on employment income is withheld by the employer and remitted to the tax authorities; however, a taxpayer may be required to make installment payments as well. The deadline to file an individual tax return and pay the outstanding tax liability is 30 April. Individuals and their spouses or common law partners that operate a business or profession have their filing deadline extended to 15 June; however, the tax liability still is due by 30 April. Penalties apply if returns are filed late. Interest is payable on any late balance owed, compounded daily. Where installment payments were required, penalties and interest may apply for late or missed payments.

Corporate Income Tax

Residents are taxed at the federal and provincial/territorial levels on their worldwide income. Certain income of controlled foreign affiliates is taxed on an accrual basis. Taxation also can arise in respect of investments in certain nonresident trusts and offshore investment funds. Nonresidents are taxed on certain types of Canadian-source income.
Corporation tax is imposed on a company's profits, which consist of business/trading income, investment income and capital gains. Normal business expenses may be deducted in computing taxable income.
The federal general corporate income tax rate is 15%. Provincial general corporate income tax rates range from 10% to 16%.
Ontario has two rates of corporation income tax – the general rate and the lower small business rate. The lower small business rate is applicable to Canadian-controlled private corporations (CCPCs) with active business income eligible for the federal small business deduction. Generally, active business income is income earned by a corporation from a business other than a specified investment business or a personal service business. The lower small business rate applies to active business income up to business limit of $500,000.
Small business corporate income tax rate is 4.5%.
General corporate income tax rate is 11.5%.
Combined corporate income tax rate including federal and provincial components is 26.5%.
There are no Canadian corporate tax obligations if the EPC only conducts its business outside Canada and is deemed to be a non-Canadian legal entity. Otherwise, for all income generated in Canada by the EPC, the combined corporate income tax rate including Federal and Ontario components is currently 26.5%.

Capital Gains Tax

Fifty percent of capital gains, less allowable capital losses, are included in income and taxed at the normal corporate income tax rate.

Dividends

Private corporations: Dividends received from a taxable Canadian corporation or a corporation resident in Canada are deductible in computing corporate income tax. However, dividends from nonconnected corporations are subject to an additional tax, which is refunded when the corporation pays out taxable dividends to its shareholders. Dividends received from a foreign company generally are subject to tax, but deductions are available in respect of dividends from foreign affiliates. Where the payer is not a foreign affiliate, a credit for withholding tax generally is available.
Public corporations: Dividends received from a taxable Canadian corporation or a corporation resident in Canada are deductible for corporate tax purposes. Dividends received from a foreign company are subject to tax, but deductions are available in respect of dividends from foreign affiliates. Where the payer is not a foreign affiliate, a credit for withholding tax generally is available.
Dividends received by Canadian corporations from foreign affiliates are exempt if paid from exempt surplus, and are taxable with deductions for underlying foreign tax and withholding tax if paid from taxable surplus. Exempt surplus generally relates to active business income earned by an affiliate resident in, and carrying on an active business in, a country with which Canada has signed an income tax treaty. Dividends from affiliates located in nontreaty countries that enter into a tax information exchange agreement with Canada also may qualify as paid from exempt surplus. A new category of “hybrid surplus” (effective retroactively as from 19 August 2011) relates to certain capital gains realized by foreign affiliates. Dividends from hybrid surplus are 50% taxable.
Canadian public and private corporations are required to track dividends paid out of general-rate and low-rate income pools for purposes of determining the availability of enhanced dividend tax credits for individuals when amounts are paid out to them.

Losses

Trading losses may be carried back for three years and carried forward for 20 years. Capital losses may be carried back for three years and carried forward indefinitely.

Alternative Minimum Tax

Alternative Minimum Tax

Only the province of Ontario levies a corporate minimum tax.
The Ontario corporate minimum tax payable is equal to the amount by which the corporate minimum tax exceeds the Ontario corporate income tax.
A corporation is subject to corporate minimum tax if its total assets are $50 million or more and its total revenue is $100 million or more, except if the corporation was, throughout the tax year:
  • a corporation exempt from income tax under section 149 of the federal Income Tax Act;
  • a mortgage investment corporation;
  • a deposit insurance corporation under subsection 137.1(5) of the federal Act;
  • a congregation or business agency to which section 143 of the federal Act applies;
  • an investment corporation; or
  • a mutual fund corporation.

The corporate minimum tax rate is 2.7%.
In determining if the total assets or total revenue exceeds the limits, a corporation must include its share of the total assets and total revenue of a partnership in which it has an interest, any associated foreign or Canadian corporation, and any associated corporation's share of a partnership. If a corporation is associated, it must complete and file Schedule 511, Ontario Corporate Minimum Tax – Total Assets and Revenue for Associated Corporations, to report the total assets and total revenue of all the associated corporations.

Tax Year

The tax year of a corporation is its fiscal period, which is the period for which the accounts of the business are ordinarily made up. A tax year may not exceed 53 weeks.

Withholding Tax

Dividends paid by a Canadian resident corporation to a nonresident are subject to a 25% tax, unless the rate is reduced under a tax treaty.
Interest paid by a Canadian resident to a nonresident is generally subject to a 25% tax, unless the rate is reduced under a tax treaty. Certain exemptions apply, including an exemption for nonparticipating interest paid to arm's length foreign lenders.
Royalties paid by a Canadian resident to a nonresident are subject to a 25% withholding tax, unless the rate is reduced under a tax treaty. Copyright payments made in respect of literary, dramatic, musical or artistic works are exempt from withholding tax under domestic law. The domestic law exemption does not apply to payments for a right in, or for the use of, motion picture films or films, videotapes or other means of reproduction for use in connection with television.
Technical service fees may be subject to a 25% withholding tax; however, treaty relief generally is available.
A 25% branch remittance tax is levied, unless the rate is reduced under a tax treaty.
Depending on the facts, certain rental payments and management fees may be subject to a 25% withholding tax, unless the rate is reduced under a tax treaty.

VAT

A federal value added tax (Goods and Services Tax (GST)) is levied on the provision of most goods and services in Canada.
Like the provinces of New Brunswick (NB), Nova Scotia (NS), Prince Edward Island (PEI), Newfoundland (NL) and British Columbia (BC), since 2010, Ontario has combined its provincial sales tax with the goods and services tax (GST) to create a fully harmonized sales tax (HST) with the federal government under a single federal administration (the provincial sales tax (PST) regime still applies only to certain insurance premiums in ON).
The GST rate is 5%. The 8% provincial sales tax is collected separately when certain taxable goods or services are acquired for personal or business use.

VAT Registration

GST/HST registration generally is required for every person engaged in a commercial activity in Canada. Registration is not required for small suppliers (i.e. persons who have under CAD 30,000 in worldwide taxable sales) or nonresidents of Canada who do not "carry on business" in Canada.

VAT Tax Period and Returns

For a GST/HST monthly or quarterly filer, the return is due on the last day of the month following the end of the reporting period. For an annual GST/HST filer, the return is due three months after the end of the fiscal year. Quarterly installments are required by all annual filers.

Stamp Duty

There is no stamp duty in Canada.

Government Fee

There is no annual fee for companies in Ontario.

Other Taxes and Duties

Payroll tax Ontario imposes a formal payroll tax upon the annual gross wages, salary and other remuneration paid by an employer.
Real property tax Municipal authorities levy taxes on the occupation of real property. This tax is deductible in calculating the corporate tax liability.
Transfer tax All provinces impose registration fees or taxes on the transfer of real property.
Social security contribution Both the employer and the employee are required to make employment insurance and government pension plan contributions, with the amount based on the employee's earnings.

Anti-Avoidance Rules

Transfer pricing: When a taxpayer enters into transactions to buy or sell goods or services with a non-arm's length nonresident, the price charged should be the price that would have been set between persons dealing at arm's length. If the price charged differs from an arm's length price, upward or downward adjustments will be made to ensure the price charged reflects an arm's length price. Proper documentation must be maintained to support the transfer pricing methodology used. If contemporaneous documentation is not prepared, penalties may apply if adjustments exceed specified amounts.
Thin capitalization: There are limitations on the deductibility of interest on outstanding debts to specified nonresident persons. The amount of interest-bearing debt owed by a Canadian corporation to related nonresident persons can be no greater than 1.5 times the amount of its equity, or a portion of the interest deduction will be disallowed.
Controlled foreign companies: Canadian residents must pay Canadian income tax on a current basis to the extent of their share of foreign accrual property income (FAPI) earned by a controlled foreign affiliate. The definition of “controlled foreign affiliate” is broad, and an anti-avoidance rule may apply if shares are acquired or disposed of and the principal purpose is to avoid this status.
Disclosure requirements: Canadian corporations, trusts and individuals that hold or acquire investments outside of Canada are required to report any holdings that are in excess of CAD 100,000 to the Canadian tax authorities on an annual basis. In addition, Canadian corporations, trusts and individuals are required to report to the Canadian tax authorities any transfers or loans made to, distributions received from or indebtedness to a nonresident trust. A nonresident that disposes of or plans to dispose of taxable Canadian property is required to disclose this to the Canada Revenue Agency before or within 10 days of the disposition, subject to a possible exception for treaty-protected property (notification within 30 days of the disposition). A person who sells tax shelters is required to register for an ID number, provide investors with tax shelter ID numbers and statements and file an annual information return disclosing certain information about the persons who have invested in those tax shelters. The province of Quebec and the federal government have introduced measures, including disclosure requirements and additional penalties, to combat what is perceived to be aggressive tax planning.
There are numerous anti-avoidance rules to address specific perceived abuses and a general anti-avoidance rule (GAAR), which is meant to be an all-encompassing anti-avoidance rule where no specific rule applies.

Double Tax Agreements

Canada has exchange of information relationships with 118 jurisdictions through:
  • 94 DTC: Algeria, Argentina, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belgium, Bermuda, Brazil, Bulgaria, Cameroon, Chile, China, Colombia, Croatia, Cyprus, Czech Republic, Côte d'Ivoire, Denmark, Dominican Republic, Ecuador, Egypt, Estonia, Finland, France, Gabon, Germany, Greece, Guyana, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Jordan, Kazakhstan, Kenya, Korea (Republic of), Kuwait, Kyrgyzstan, Latvia, Lebanon, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova (Republic of), Mongolia, Morocco, Namibia, Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, Papua New Guinea, Peru, Philippines, Poland, Portugal, Romania, Russian Federation, Senegal, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tanzania, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan, Venezuela, Viet nam, Zambia, Zimbabwe.
  • 24 TIEA: Anguilla, Aruba, Bahamas, Bahrain, Brunei Darussalam, Cayman Islands, Cook Islands, Costa Rica, Curaçao, Dominica, Guernsey, Isle of Man, Jersey, Liechtenstein, Panama, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, San Marino, Sint Maarten, Turks and Caicos Islands, Uruguay, Virgin Islands (British).

Foreign exchange control

There are no foreign exchange controls in Canada.

ACCOUNTS

Financial Statements

An extra-provincial corporation in Ontario is no required to prepare financial statements.

Annual Return

Generally speaking, Annual Return is a short review on the current state of the company, which is prepared by the company secretary annually. As a rule it includes the following information:
  • Incorporation information (registration date, registered address);
  • Information about directors and their resignation;
  • Information about secretaries and their resignation;
  • Information about registered capital, nominal value of shares and amount of issued shares;
  • Information about shareholders and share transfer.

Like federally incorporated businesses, all corporations in Ontario, including extra-provincial corporations that have an EPL must file Annual Return every year . After the EPL is obtained, the EPC will be required to file a Form 2 Initial Return within 60 days after beginning to carry on business in Ontario. There is no government filing fee.

Tax Returns

Federal and provincial tax authorities require monthly or other periodic installment payments on account of the current year tax liability. Final tax payments generally are due within two months of year end. The corporate tax return should be filed within six months of the end of the taxation year.
Penalties are levied for the late filing of returns, omission of amounts required to be included in computing income in a return or for furnishing false or negligent statements. Penalties also apply for failure to withhold and remit taxes as required.
A Canadian corporate income tax return is not required to be filed if the EPC does not conduct business in Canada.

    Taxes of Canada

    Min. rate for corporate tax 38%
    Capital gains tax 50% of the regular rate
    VAT 5%
    Withholding tax 25%/0%/25%
    Exchange control No
    RU EN