Canada-Ontario (LP)

Basic taxes (briefly)

Personal tax 15-33%
Corporate tax (in detail) The limited partnership is not treated or taxed as a separate person. All income and losses are flowed out to the partners. As such, the limited partnership does not file an income tax return and is not taxed at the partnership level.
Capital gains tax. Details The limited partnership is not treated or taxed as a separate person. All income and losses are flowed out to the partners. As such, the limited partnership does not file an income tax return and is not taxed at the partnership level.
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)


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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.

The non-resident partners of LLP are not liable for income tax in Canada where the limited partnership:
  • is not carrying on business in Canada
  • did not earn employment income
  • did not dispose of taxable Canadian property (e.g. real estate in Canada)

Corporate Income Tax

The limited partnership is not treated or taxed as a separate person. All income and losses are flowed out to the partners. As such, the limited partnership does not file an income tax return and is not taxed at the partnership level.

Capital Gains Tax

LLP is not liable for capital gains tax.

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 LLP 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 LLP in Ontario is not 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.

The limited partnership in Ontario is obliged to file an annual partnership information return setting out its income and details of the partners who are entitled to that income, as applicable, if the limited partnership meets, among other criteria, certain financial thresholds, has a corporation or trust as a partner or is a tiered partnership.

Tax Returns

The limited partnership is not obliged to file a separate tax return under the Income Tax Act (Canada).

    Taxes of Canada

    Min. rate for corporate tax N/A
    Capital gains tax N/A
    VAT 5%
    Withholding tax 25%/0%/25%
    Exchange control No
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