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CLAconnect.com
Doing Business in Canada May 7, 2014
Jen Leary, CliftonLarsonAllen
Jonathan Bicher, Nexia Friedman
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Disclaimers
To ensure compliance imposed by IRS Circular 230, any U. S. federal tax advice contained in this presentation is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed by governmental tax authorities.
The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by CliftonLarsonAllen LLP to the user. The user also is cautioned that this material may not be applicable to, or suitable for, the user’s specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The user should contact his or her CliftonLarsonAllen LLP or other tax professional prior to taking any action based upon this information. CliftonLarsonAllen LLP assumes no obligation to inform the user of any changes in tax laws or other factors that could affect the information contained herein.
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Housekeeping
• If you are experiencing technical difficulties, please dial: 800-422-3623.
• Q&A session will be held at the end of the presentation.
– Your questions can be submitted via the Questions Function at any time during the presentation.
• The PowerPoint presentation, as well as the webinar recording, will be sent to you within the next 10 business days.
• Please complete our online survey.
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CPE Requirements
• Answer the polling questions
• If you are participating in a group, complete the CPE sign-in sheet and return within two business days
– Contact [email protected]
• Allow four weeks for receipt of your certificate; it will be sent to you via email
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Learning Objectives
• At the end of this session, you will be able to:
– Understand key developments in the Canadian economy, as well as practical guidance and considerations for doing business in Canada
– Understand the common forms needed to do business in Canada and their major tax structure for individuals and businesses operating in Canada
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About CliftonLarsonAllen
• A professional services firm with three distinct business lines
– Accounting and Consulting
– Outsourcing
– Wealth Advisory
• 3,600 employees
• Offices coast to coast
• Independent member of Nexia International
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CLA’s Global Services practice includes over 250 team
members throughout the U.S.
Our experience serving international businesses
allows us to provide support and insight.
CLA is the largest independent member of
Nexia International, a top 10 worldwide network of
independent accounting and consulting firms.
Founded in 1971
Top 10 network
worldwide
590 offices in over
100 countries
20,000 worldwide
staff
$2.1 billion in revenue
CLA’s Global Reach
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Speaker Introductions
• Jennifer Leary, CliftonLarsonAllen A leader in our global services team, Jen has over 17 years of experience in audit, advisory, mergers and acquisitions, internal audit, corporate governance, controls and risk assessments and internal audit department quality assurance reviews. She advises companies through due diligence and reverse due diligence engagements in conjunction with mergers and acquisitions within the U.S. and cross-border.
• Jonathan Bicher, Nexia Friedman Jonathan is the Chair of the Nexia Canada Tax Committee. He specializes in corporate and personal tax planning as well as both domestic and cross-border reorganizations and transactions. He has strong expertise in mergers and acquisitions architecture and execution. Jonathan provides services to U.S. companies doing business in Canada, working with diverse clientele as the entertainment industry, comedians, family-owned businesses, and service companies.
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May 2014
Presented by: Jonathan Bicher, CPA, CA
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CANADA
Largest bilateral trading relationship in the world
300,000 people cross our shared border, daily
$1.6 billion worth of goods cross our shared border, daily
Why should you pay attention to this webinar?
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GEOGRAPHY
Second largest country in area in the world after
Russia
Over 3,850,000 square miles
Almost 9% is fresh water located in over 31,000
large lakes
125,570 miles: Longest coastline in the world
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GEOGRAPHY
Canada/US border over 5,525 miles
Stretches from Maine to Washington State
Longest undefended border in the world
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GEOGRAPHY
• Canada is a federation of:
10 Provinces
3 Territories
&
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POPULATION
• 33,500,000 (per 2011
census)
• 80% live within 90
miles of the US
border
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POPULATION
- Toronto
(5.6 million)
- Montreal
(3.8 million)
- Vancouver
(2.3 million)
The largest cities are:
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FEDERAL GOVERNMENT AND POLITICS
• Capital: Ottawa (Ontario)
• Parliamentary system: bicameral legislature House of Commons: 308 members
Senate: 105 members
• Government
Formed by Party with most representatives (seats), led by PM
• Voting: Done on party lines
Majority comes with great power
• Elections: Every 5 years, minimum (no set date)
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PROVINCIAL GOVERNMENT AND POLITICS
• Mimics Federal system, except:
Unicameral legislature
• Provinces are very powerful and autonomous
• Some provincial responsibilities include:
Healthcare
Education
Welfare
• Provinces collect more revenue than the federal government
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LEGAL SYSTEM
• Constitutional Act of 1982
Ended all legislative ties to the UK
• Common law prevails
• Quebec civil law predominates
• Criminal law is federal
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LANGUAGE
• Canada is officially a bilingual country
English
French
• Primary language in most of Canada: English
Exception:
In Quebec, French is the primary language
• However, even in Quebec, one can conduct business in English
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THINGS TO CONSIDER WHEN VISITING
1. Passport: needed to get into Canada
2. Temperature: measured in Celsius not Fahrenheit 32C = 90F
Thus pack accordingly
3. Distance: measured in KPH not MPH
100KPH = 60 MPH
Thus drive accordingly
4. Canada has its own currency
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BUSINESS CLIMATE
• Ranked best place for doing business among G-7 (per 2013 study of the Economist)
• Highly developed infrastructure
• Rated first in recent study measuring a country’s ability to attract
foreign investment on the basis of economic infrastructure
• Low business costs
• Low corporate taxes
• Little red tape for business
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DOING BUSINESS IN CANADA
• Banking
– 5 major chartered banks
– Other second tier banks
– Very profitable and stable
– Centralized decision making
– Highly regulated
– Minimally affected by the world banking crisis
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DOING BUSINESS IN CANADA
• Banking
– Non-residents Opening a Bank Account
– Individuals
– Need proper identification
– Corporations
– Must have proper identification
– Must have valid reason
• Once proper information and documentation is provided, account can normally be opened within 48 hours
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DOING BUSINESS IN CANADA
– Banking
• One can open bank accounts in Canadian
or U.S. dollars
• Funds can be wired back and forth effortlessly
• Cheques drawn on U.S. banks may take time to clear and
there may be a holding period
• Not all banks are equal; some banks are more U.S. focused
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DOING BUSINESS IN CANADA
– Investment / Wealth Management
• Not all firms licensed to deal with U.S.
Residents
• Not all advisors at the same firm are licensed to deal with U.S. residents
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DOING BUSINESS IN CANADA
– Investment / Wealth Management
• Investments often structured with Canadian
tax laws in mind
• Must always analyze investments to determine what the impact would be for U.S. Taxpayer; Canadian advisors are not structuring keeping U.S. in mind
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DOING BUSINESS IN CANADA
– Provincially controlled
Rules vary from province to province
– Be aware of funding requirements for social programs
(such as manpower training)
– Pay equity, language
– Often the employee receives the benefit of the doubt
Labour standards:
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DOING BUSINESS IN CANADA
• Canada has a national healthcare system
HOWEVER:
The management and funding is the responsibility of the
Provinces
• Funding: usually done through employer as a function of salaries
• Each province in which one has employees may require funding
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BUSINESS CLIMATE GDP Growth
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BUSINESS CLIMATE GDP Growth (cont’d)
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BUSINESS CLIMATE WORKFORCE
• 51%: Highest % of individuals 25-64 having attained post-secondary education (2012 OECD study)
Compared to 42% in the U.S. And 38% in the U.K.
• 3 : Canadian universities in the top 100 in the world per QS World University
– McGill University
– University of Toronto
– University of British Columbia
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BUSINESS CLIMATE WORKFORCE (cont’d)
• Canadian work-force
Multilingual
Well-travelled
Highly recognized for ability to work in international contexts
• Canada ranked first in G-7 in 2012 study measuring how management education meets needs of business community
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BUSINESS CLIMATE TRADE WITH U.S.
• 53.7% of foreign direct investment in Canada held by U.S.
Investors (in 2011)
• By far, the U.S. is Canada’s largest trading partner
• Trade benefits from:
Streamlined trans-border transportation system
RESULT:
Making it one of the world’s most efficient border systems
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INVESTMENT CLIMATE
• Generous tax incentives for R&D
• World-leader in post-secondary research
• Many Canadian production hubs closer to U.S. Markets than
American production sites
• Canada’s GDP per capita was highest among G-7 countries
offering ex-pats a very high standard of living (Per 2012 World Bank study)
• Low inflation and low interest rates
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COMMON FORM FOR BUSINESS
1. Corporations
2. Partnerships
3. Unlimited Liability Corporations (ULC)
4. Branches
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COMMON FORMS FOR BUSINESS Corporations
• Most popular vehicle for business
• Can be federally or provincially incorporated;
Generally use federal companies or companies
established under legislation of province of operation
• Income tax paid within corporation
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COMMON FORMS FOR BUSINESS Partnerships
• Income taxed in hands of partners
• Historically offered tax deferral opportunities,
which were removed in the last few years
• Often complex reporting requirements
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COMMON FORMS FOR BUSINESS ULCs
• Alberta, British Columbia and Nova Scotia offer Unlimited Liability
Corporations
• For Canadian purposes
Treated as ordinary corporations
• For US purposes
Possible to treat a disregarded entity
• Could be subject to 25% withholding tax on the payment of
dividends
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COMMON FORMS FOR BUSINESS Branches
• Earnings in Canada of a branch of a foreign
corporation taxed in Canada
• In addition, such branches may be subject to an
additional branch tax
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2014 Federal Income Tax Rates for Active Business Income
General Active Business Income
Canadian Controlled Private Corporation
(CCPC)
Small Business Income to $500,000
General corporate rate 38.0% 38.0%
Federal abatement (10.0) (10.0)
28.0 28.0
Rate reduction (13.0) (17.0)
15.0 11.0
CANADIAN CORPORATIONS
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CANADIAN CORPORATIONS 2014 Provincial Tax Rates for Active Business Income
Jurisdiction Investment Income
General Active Business Income
Small Business Income between $425,000 and $500,000
Small business Income between $350,000 and $425,000
Small Business Income to $350,000
British Columbia 11.0 11.0 2.5 2.5 2.5
Alberta 10.0 10.0 3.0 3.0 3.0
Saskatchewan 12.0 12.0 2.0 2.0 2.0
Manitoba 12.0 12.0 12.0 0.0 0.0
Ontario 11.5 11.5 4.5 4.5 4.5
Quebec 11.9 11.9 8.0 8.0 8.0
New Brunswick 12.0 12.0 4.5 4.5 4.5
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2014 Provincial Tax Rates for Active Business Income
CANADIAN CORPORATIONS
Jurisdiction Investment Income
General Active Income
Small Business Income between $425,000 and $500,000
Small Business Income between $350,000 and $425,000
Small Business Income to $350,000
Nova Scotia 16.0% 16.0% 16.0% 16.0% 3.0%
Prince Edward Island
16.0 16.0 1.0/4.5 1.0/4.5 1.0/4.5
Newfoundland 14.0 14.0 4.0/3.0 4.0/3.0 4.0/3.0
Northwest Territories
11.5 11.5 4.0 4.0 4.0
Yukon 15.0 15.0 4.0 4.0 4.0
Nunavut 12.0 12.0 4.0 4.0 4.0
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CANADIAN TAX HIGHLIGHTS Expatriating Profits
• Dividends subject to withholding taxes at 25% often reduced by treaty Can be reduced to 15% or 5%, depending on structure and
shareholdings, for payments to residents of the U.S.
• Arm’s-length interest not subject to withholding (Per domestic
Canadian tax law)
All interest not subject to withholding (Per Canada-U.S. Treaty)
• Thin Capitalization rules apply To prevent a Canadian subsidiary from deducting too much interest on
loans from foreign parent (1.5 to 1 debt-equity ratio) –denied interest subject to withholding tax requirements
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ACTIVITIES CARRIED OUT IN CANADA
1. Sending employees to perform services in Canada
2. Renting a warehouse in Canada
3. Engaging an independent sales force in Canada
4. Disposition of Taxable Canadian Property
5. Importing goods into Canada
THAT MAY LEAD TO CANADIAN TAX
FILING
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SENDING EMPLOYEES TO PERFORM SERVICES IN CANADA
1. Nature of the work • May be able to request a waiver of the Regulation 105
withholding. Types of waiver requests: 1. Treaty-based – Specific conditions to meet 2. Income and expenses
• Regulation 105 withholding does not represent final income tax liability. Income tax filing will either be required or desired.
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2. Duration of the work performed in Canada
• Duration may cause the corporation to have a permanent
establishment in Canada
• Depending on the number of days within a calendar year:
1. May necessitate payroll withholding in Canada
2. Employee may be required to file Canadian income tax
returns
SENDING EMPLOYEES TO PERFORM SERVICES IN CANADA (cont’d)
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PERMANENT ESTABLISHMENT IN CANADA
• Article V of Canada – U.S. Tax Convention – permanent establishment includes:
Fixed place of business (including place of management, branch,
office, factory, workshop, mine, oil or gas well, quarry or other place of extraction of natural resources)
Building site, construction project and installation project
lasting more than 12 months in Canada Person (other than independent agent) who habitually
concludes contracts in Canada on behalf of U.S. resident
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• Permanent establishment does not include:
Fixed place of business used solely for storage, display or
delivery (e.g., warehouse or showroom)
Independent agent
• May have to file treaty-based return
PERMANENT ESTABLISHMENT IN CANADA (cont’d)_
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The Fifth Protocol
• Fifth Protocol expands definition of permanent
establishment to include, in 2010 and later years:
Services provided by an individual that has a presence for
183 days or more in any 12 month period and, during that
period, more than 50% of gross active business revenues
consist of income derived from services performed in that
country by that individual
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OR
• Services are provided in a contracting state for aggregate of
183 days or more, in any 12 month period with respect to
same or connected project for customers;
who are residents of the contracting state , or
who maintain a permanent establishment in that
other state and the services are performed in respect
of the permanent establishment
The Fifth Protocol (cont’d)
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DISPOSITION OF “TAXABLE CANADIAN PROPERTY”
• Disposition includes: Sale Share redemption or repurchase for cancellation Share exchange
• Possible relief from compliance certificate requirement for gains not taxed due to a treaty as long as:
a) Purchaser concludes after reasonable inquiry that the non-resident person is resident in a country with which Canada has a tax treaty;
b) The property is treaty-protected property; AND
c) Purchaser provides notice to the Canadian taxation authorities within 30 days after date of acquisition.
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DOING BUSINESS IN CANADA
– Sales Taxes – What do the Acronyms Mean?
– GST – Goods and Services Tax
– HST – Harmonized Sales Tax
– QST – Quebec Sales Tax
– All of the above are Value Audit Tax or VAT
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SALES TAXES Federal & Selected Provinces
Federal (GST) 5.0% P.E.I. (HST) 14.0% Québec 9.975% Ontario (HST) 13.0% Manitoba 8.0% Saskatchewan 5.0% B.C. 7.0% Alberta 0.0% Newfoundland (HST) 13.0%
New Brunswick (HST) 13.0%
Nova Scotia (HST) 15.0%
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Mechanics of VAT in Canada
• GST is collected and remitted at each stage in the
production and marketing of most goods and services,
unless the supply is zero-rated or exempt
• Registrants may recover GST paid on properties and
services acquired in order to make taxable and zero-rated
supplies
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IMPORTING GOODS IN CANADA
• The importer of record will be subject to GST
• Can they get the GST back?
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GST REGISTRATION
• A person, including a non-resident, must register if the person carries on business in Canada and is not a small supplier 1
• Non-residents who do not carry on business in Canada may voluntary register if they are engaged in a commercial activity in Canada, regularly solicit orders for goods to be delivered in Canada, provide services in Canada or intangibles to be used in Canada
• Non-residents who do not carry on business in Canada through a
permanent establishment may have to provide a security deposit • The particular facts of each situation must be examined to
determine whether GST registration for a non-resident is required or desired
1 Taxable sales equal to or less than $30,000 in four preceding quarters
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REAL ESTATE RENTALS
• 25% withholding tax on gross rental income
• Can file section 216 election to have withholding based on net rental income before depreciation
• Will be required to file a Canadian tax return with final numbers
• Vehicle through which to own Canadian real estate depends upon the situation
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Questions?
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CLAconnect.com
twitter.com/ CLAconnect
facebook.com/ cliftonlarsonallen
linkedin.com/company/ cliftonlarsonallen
Thank you
Jen Leary
704-998-5283
Jonathan Bicher [email protected] 514-731-7901
