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fast facts

• Income taxes are imposed by federal and provincial governments

• Canadian residents are taxed on their world-wide income

• Non-residents of Canada generally are taxed on income derived from Canadian sources

• Value-added and certain other taxes also are imposed

taxation in Canada In Canada, the federal, provincial and municipal governments each impose taxes onbusinesses and individuals.

income taxThe federal Income Tax Act and corresponding provincial statutes impose tax on theworld-wide income of Canadian residents. Non-residents are generally taxed on incomederived from Canadian sources.

income tax on a Canadian branchA foreign corporation that is not entitled to benefits under a bilateral tax treaty withCanada (a “Treaty”) is generally subject to Canadian income tax on income earnedfrom its Canadian operations. A foreign corporation entitled to benefits under a Treatyis generally only subject to Canadian income tax on income earned from its Canadianoperations if it has an actual or deemed “permanent establishment” in Canada.

A foreign corporation that is not entitled to benefits under a Treaty is also generallysubject to a federal branch profits tax. A foreign corporation entitled to benefits undera Treaty is generally subject to federal branch profits tax at a reduced rate and only onearnings attributable to an actual or deemed permanent establishment in Canada.

income tax on a Canadian subsidiaryA subsidiary incorporated in Canada generally is deemed to be a Canadian resident andis, therefore, subject to tax in Canada on its world-wide income.

Certain types of amounts paid or credited by a Canadian subsidiary to a non-residentcorporation are subject to Canadian withholding tax.

we’ve got you covered in Canada

capital gains realized by non-resident corporationsA non-resident corporation is subject to Canadian income tax on taxable capital gains realized on the disposition of certain types of Canadian-linked property.

certain other taxesvalue-added taxes The federal government imposes a multi-stage value-added tax (referred to as the goods and services tax or the “GST”) that applies to domestic supplies of most types of property and services within Canada at a rate of 5%. The provinces of Ontario, Nova Scotia, New Brunswick, Newfoundland & Labrador and Prince Edward Island (collectively, the “HST provinces”) have harmonized their sales tax regime with the GST and the combined tax is referred to as the harmonized sales tax (“HST”).

Each HST province sets its own provincial tax rate to combine with the federal GST rate. For example, the current HST rate in Ontario is 13%, consisting of the 8% Ontario component and the 5% federal component. Quebec does not impose the HST, but instead imposes the Quebec sales tax (the “QST”), which is substantially similar to the GST, at a 9.975% rate. The GST and QST impose a combined tax rate of 14.975%.

Certain types of transactions are specifically exempted from GST/HST/QST or are taxable at a 0% rate, such that no GST/HST/QST applies.

provincial retail sales taxesThe provinces of British Columbia, Saskatchewan and Manitoba impose a single stage retail sales tax on the end-consumer or user (tax is paid only by the final consumer, business, institution, or individual) at a 7% general rate in British Columbia, 5% general rate in Saskatchewan and 8% general rate in Manitoba.

customs dutiesCanada levies customs duties on certain goods imported into Canada and applies additional excise taxes and duties on specific goods.

land transfer taxIn most provinces, a buyer of real property situated in the province must pay a land transfer tax based on the value of the consideration paid.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained. For more information contact your regular McMillan advisor or go to http://www.mcmillan.ca.

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