Doing Business in Canada
Contents
PART 1 GENERAL BUSINESS AND LEGAL REQUIREMENTS
Chapter 1 Introduction............................................................................................................................ 5
Economic Regions............................................................................................................................. 6
Population........................................................................................................................................ 7
Government..................................................................................................................................... 8
Political Parties................................................................................................................................. 9
Chapter 2 Import and Export Regulations..............................................................................................9
Imports
............................................................................................................................................. 9
Exports
........................................................................................................................................... 10
Investment Canada......................................................................................................................... 10
Chapter 3 Government Business Incentives..........................................................................................11
Federal Incentives........................................................................................................................... 11
Provincial and Regional Incentives..................................................................................................11
Chapter 4 Banking and Finance............................................................................................................. 14
Overview........................................................................................................................................ 14
The Structure of the Banking Sector...............................................................................................14
Government Controls..................................................................................................................... 14
Foreign Exchange............................................................................................................................ 14
Ownership...................................................................................................................................... 14
Other Financial Intermediaries....................................................................................................... 17
Securities Industry.......................................................................................................................... 17
Summary........................................................................................................................................ 17
Chapter 5 Business Organization and Formation..................................................................................18
Sole Proprietorship......................................................................................................................... 18
Partnerships................................................................................................................................... 18
Limited Companies......................................................................................................................... 19
Branch Operations.......................................................................................................................... 20
Personal Liability of the Directors of a Corporation........................................................................20
Chapter 6 Accounting and Auditing Principles and Practice.................................................................21
Corporate Framework..................................................................................................................... 21
The Accounting Profession in Canada.............................................................................................21
The Canadian Institute of Chartered Accountants (CICA)................................................................22
The Provincial Institutes................................................................................................................. 22
Nexia Friedman - Montreal............................................................................................................. 23
PART IITAXATION
Chapter 7 Company Taxation............................................................................................................... 25
The Scope of Corporation Tax......................................................................................................... 25
Planning Points for Overseas Investor.............................................................................................29
Chapter 8 Taxation of Individuals......................................................................................................... 31
General Principles........................................................................................................................... 31
Taxation of Residents...................................................................................................................... 31
Personal Tax Rates.......................................................................................................................... 31
General............................................................................................................................................ 31
Income Subject to Tax..................................................................................................................... 32
Deductions and Tax Credits............................................................................................................. 32
Taxation of Non-Residents.............................................................................................................. 33
Immigration and Emigration........................................................................................................... 33
Tax Consequences on Death........................................................................................................... 35
Tax Planning Matters for Consideration .........................................................................................35
Chapter 9 Indirect and Other Taxes............................................................................................................ 37
Goods and Services Tax........................................................................................................................ 37
Local Government Taxes...................................................................................................................... 41
PART III LABOUR REGULATIONS, WELFARE AND SOCIAL SECURITY
Chapter 10 Employment and Industrial Relations..................................................................................... 43
Employment and Labour Standards..................................................................................................... 43
Additional Information......................................................................................................................... 46
Chapter 11 Canadian Social Security......................................................................................................... 47
Old Age Security................................................................................................................................... 47
Canada Pension Plan............................................................................................................................ 47
International Social Security Agreements............................................................................................ 48
Employment Insurance........................................................................................................................ 49
Worker’s Compensation....................................................................................................................... 49
Child Tax Benefit.................................................................................................................................. 50
Social Assistance.................................................................................................................................. 50
Chapter 12 Introduction to Nexia’s Canadian Offices................................................................................ 51
Nexia Canada....................................................................................................................................... 51
Davidson & Company, LLP – Vancouver............................................................................................... 51
Zeifmans, LLP....................................................................................................................................... 52
Nexia Friedman, LLP – Montreal.......................................................................................................... 52
Perreault, Wolman, Grzywacz & Co..................................................................................................... 53
Lyle Tilley Davidson – Halifax, Dartmouth............................................................................................ 53
Chapter 13 Nexia International................................................................................................................. 54
APPENDICES............................................................................................................................................... 55
Appendix A Provincial Employment Standards Boards.............................................................................. 56
Appendix B Canadian Member Firms of Nexia International..................................................................... 58
PART I
GENERAL BUSINESS AND
LEGAL REQUIREMENTS
Part 1
General Business and Legal Requirements
Chapter 1 Introduction
Canada is a member of the British Commonwealth. A confederation of provinces, Canada also represents the joining together of two European cultures, French and British. Although Canada is a mixture
of many cultures, the two founding groups still dominate its society today.
The estimated population as at December 2, 2010 is 34,275,065.
Divided into ten provinces and three territories, Canada is second in size to Russia’s total area of
17,075,200 square kilometres. Canada covers a total of 9,984,670 square kilometres of eastern rolling
hills, and plains to mountains in the west. Next in size are the United States (9,631,418 square kilometres) China (9,596,960 square kilometres), and Brazil (8,511,965 square kilometres).
Two railway systems span the country, the freight and passenger carrier Canadian National Railway
Company and the freight-based Canadian Pacific Railway. There are several regional railways, some of
which are owned by provincial governments. The largest airline is both national and international in
operations. Air Canada had been government owned until 1990 when its shares were sold to the public.
There are a number of smaller private airlines in Canada as well as international airlines serving parts
of Canada.
Much of the generation of electricity is in the hands of provincial power commissions. Telephone
service is provided by a number of companies, the largest of which are Bell Canada and Telus.
Broadcasting in Canada is carried on by a mixture of public and private stations; the industry is regulated
by a federal agency, the Canadian Radio-Television and Telecommunications Commission. The principal
public broadcasting system, both in radio and television, is the Canadian Broadcasting Corporation (and
its French language sister services, Radio-Canada). The major private corporation is CanWest Global
Communications Group, which has radio, television and newspaper media under its umbrella of companies.
Because of the width of the country, Canada is divided into six time zones. From east to west, the six
time zones are: Newfoundland and Labrador (half an hour ahead of the Atlantic), Atlantic, Eastern,
Central, Mountain and Pacific. The time in each zone (except Newfoundland and Labrador) is an exact
number of hours behind Greenwich Mean Time (GMT). Thus Vancouver (on Pacific Time) is three hours
behind Toronto or Montreal (both on Eastern time) and eight hours behind GMT. Most parts of the
country observe Daylight Savings Time in the summer.
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Economic Regions
As an affluent, high-tech industrial society in the trillion-dollar class, Canada resembles the US in its
market-oriented economic system, pattern of production, and affluent living standards. Since World
War II, the impressive growth of the manufacturing, mining, and service sectors has transformed the
nation from a largely rural economy into one primarily industrial and urban. The 1989 US-Canada Free
Trade Agreement (FTA) and the 1994 North American Free Trade Agreement (NAFTA) (which includes
Mexico) touched off a dramatic increase in trade and economic integration with the US, its principal
trading partner. Canada enjoys a substantial trade surplus with the US, which absorbs nearly 80% of
Canadian exports each year. Canada is the US’s largest foreign supplier of energy, including oil, gas,
uranium, and electric power. Given its great natural resources, skilled labor force, and modern capital
plant, Canada enjoyed solid economic growth from 1993 through 2007. Buffeted by the global economic
crisis, the economy dropped into a sharp recession in the final months of 2008, and Ottawa posted its
first fiscal deficit in 2009 after 12 years of surplus. Canada’s major banks, however, emerged from the
financial crisis of 2008-09 among the strongest in the world, owing to the country’s tradition of conservative lending practices and strong capitalization.
The ten provinces can be separated into five economic regions: Atlantic, Quebec, Ontario, Western
and Northern. The table below sets out the principal economic characteristics of each region.
Ontario
Western
Atlantic
Quebec
Northern
Population
12,800,000
10,114,644
2,343,000
7,700,000
108,211
Major Population
Centres
Toronto, Ottawa,
Hamilton
Calgary,
Edmonton
Saint John;
Montreal;
Halifax; St. John’s Quebec City
Yellowknife;
Whitehorse
Total Labour Force
7,044,000
5,411,300
1,176,700
4,150,000
48,400
Major Employment
Industries
Sales and
Services,
Business Finance
and Administrative, Trades and
Transport
Trade, Health
Care, Construction; Accommodation & Food
Services
Retail Trade;
Healthcare;
Manufacturing; Educational
Services
Manufacturing;
Construction
Service
processing;
International Export USA, EU Asia
Market
USA, China,
Japan
USA; Germany
USA; EU; Asia
U.K.; U.S.;
Belgium
Major International
Exports
Oil, Gas & Energy; Wood and
Paper Products;
petrochemicals
Energy Products;
forestry
Products;
Industrial Goods
Aircraft;
Aluminum
Seafood
Motor Vehicles,
parts and
accessories;
Electrical
Machinery and
Mechanical
Appliances;
Nickel
Sources: C.I.A. World Factbook; Government of Canada, Invest in Canada Bureau
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Population
Over 50% of the population lives within 200 miles of the Canadian-United States border; 6,416
kilometres (3,987 miles) long, this border runs east and west between the two countries (there is also a
north-south boundary of 2,478 kilometres (1,540 miles) between Canada and Alaska).
Only Six metropolitan areas have a population of more than a
million:
Toronto, Ontario......................................5.11 million
Montreal, Quebec...................................3.64 million
Vancouver, British Columbia....................2.12 million
Ottawa, Ontario-Gatineau, Quebec ........1.13 million
Calgary, Alberta.......................................1.08 million
Edmonton, Alberta..................................1.03 million
Three other metropolitan areas have a population of more
than half a million:
Quebec City, Quebec................................72 million
Winnipeg, Manitoba................................69 million
Hamilton-Burlington, Ontario ..................69 million
There are only seven other centres with populations over 300,000 each, with all remaining centres
having populations under 300,000.
Those of French origin live predominately in Quebec and to some degree in New Brunswick, Manitoba, southwestern Nova Scotia and eastern and northern Ontario. Throughout the rest of Canada the
predominant language is English.
Government
Canada follows the parliamentary system of government. The federal government, headed by a Prime
Minister, is responsible to the elected House of Commons (lower house). There is also an appointed
house, the Senate. The federal government, under the British North American Act, has jurisdiction
over foreign investment, foreign relations, trade with other nations, national defence, banking, postal
system, transportation and communications between provinces, patents and copyrights. There are no
restraints on federal parliamentary powers over taxation.
The provincial government systems are similar to the federal system. Each province has its own parliament and premier. The provincial government has jurisdiction over property, civil rights, education,
justice and the administration of public lands. Unlike the federal government, the provincial governments are restricted to direct taxation. This restriction on taxation has caused friction between the
provinces and the federal government in recent years as the rising costs of education and health care
out-pace the provinces’ ability to generate revenue. Conversely, the federal government desires a
greater share of the revenues derived from natural resources. This has created the meeting ground
through which it is expected they will resolve their differences.
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The municipal or local government is responsible for fire, police, schools, hospitals, roads and local land
use. The municipalities are governed usually by an elected council headed by a mayor, and derive their
revenue mainly from taxes on property (realty taxes) and on places of business (business use taxes).
Political Parties
Federal Elections: Number of seats held in Parliament 1997 - 2004
Liberals
(Progressive)
Conservative*
1997155
2000172
2004135
2006103
200877
NDP
Bloc
Quebecois
20 21
12 13
97 21
124 29
144 36
Reform/Canadian
Alliance*
44
38
54
51
47
Independent
60
66
*
*
*
1
1
1
2
* In 2003, the Progressive Conservative and Reform/Canadian Alliance Party merged together to form the new
Conservative Party of Canada.
As a phenomenon of the early 1990’s, a group of Quebec based members of parliament broke ranks
with the conservative government, forming the Bloc Quebecois. The Bloc Quebecois follows an agenda
whose intent is to facilitate the independence of Quebec.
There has historically been a great deal of dissent between the federal government and its provincial
counterparts and this has proven especially true in the 1980’s and early 1990’s. After the repatriation
of the constitution at the beginning of the 1980’s, Quebec was the only province which would not ratify
the constitution. An agreement was reached between all the provinces and the federal government
in 1986, the Meech Lake Accord, which brought Quebec into the fold, but that province’s harsh stand
on language rights has caused the new governments of several provinces to withhold consent to the
agreement and the Accord did not become law by the 1990 deadline.
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Chapter 2 Import and Export Regulations
Imports
The importation of goods into Canada is administered by the Public Safety and Emergency Preparedness Department under the Canada Border Service Agency (CBSA). Most goods are allowed to enter
Canada free of any import quotas, although a handful of items are prohibited entry. The Import Control
List, established under the Export and Import Permits Act, comprises a list of goods, some of which are
only controlled for certain countries of origin; all goods contained in this list require an import permit.
Imports may also be subject to the requirements of other federal government departments and may
need permits, certificates and examinations. The Canada Border Service Agency administers the import
portions of legislation on behalf of these departments. Imported goods are held by customs until such
permit or certificate is obtained.
The calculation of the value of duty can become complicated in special cases but in general it is
calculated on the transaction value which is the price paid or payable for the goods. This can include
such things as invoice price, storage expenses, warranty payments and other miscellaneous costs.
The rates used or the specified amounts set at duty vary according to the classification of the exporting
country. Countries are classified into one of several tariff groups depending on the country of origin.
Under the Special Import Measures Act, the Canadian Government may impose countervailing duties on
imported goods that cause injury to Canadian industry through subsidies in the country of origin. Antidumping duties may also be assessed on goods imported into Canada at prices that are less than their
selling price in the country of origin.
Importers can take advantage of drawback, refund,
and remission programs, which are collectively
known as relief programs. Drawback programs allow
eligible claimants to receive a full or partial drawback
of duties paid on items which are imported into Canada and are subsequently exported or used in the
manufacture in Canada of products subsequently exported.
Under the duty deferral program, importers can defer paying duties on goods for export or goods that
will undergo further processing before export. However, importers must apply to the CBSA to participate in this program.
Refunds of full or partial duties are granted on exported or destroyed goods, defective goods, shortages,
or equipment removed from the goods and returned to the manufacturer for credit.
Due to the complexity of tariff regulations and the frequent changes to tariffs enacted by Parliament,
anyone considering starting a business in Canada should consult a professional customs broker for up-
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to-date information on applicable rates and for assistance in acquiring advance rulings from CBSA on
applicable tariff rates in cases of uncertainty.
A National Customs Ruling is given at the request of any importer or agent acting on behalf of an
importer. It is a written statement to an importer or its agent outlining how provisions of existing
legislation will be applied to an importation of a specific commodity. A National Customs Ruling is
provided as an administrative service for the convenience and guidance of importers and remains binding as long as all conditions specified in the original request have not changed. It is the obligation of the
importer to provide complete, accurate and relevant information. Rulings should not be requested for
hypothetical situations or for importations under appeal.
Exports
Generally, the Canadian Government imposes no restrictions on exports. However, the Export Control
List and the Area Control List were established under the Export and Import Permits Act. The Export
Control List is a list of goods that require an export permit. Examples of goods subject to export controls are agricultural products such as refined sugar and peanut butter, textiles and clothing, , military
and strategic goods and technology and unprocessed logs The Area Control List is a list of countries for
which export permits are required to export any goods.
Exporters are required to report exports under the Customs Act. The export reporting program’s three
main objectives are to:
• collect accurate information on Canadian exports;
• control the export of strategic, embargoed, and dangerous goods; and
• control the outbound movement of goods in transit through Canada.
Investment Canada
The establishment of Investment Canada in 1985 signalled a major policy shift in Canada towards a
more favourable and liberal investment climate. The mandate of Investment Canada is to:
• Promote investment in Canada by Canadians and non-Canadians;
• Undertake research and to provide policy advice on matters relating to investments; and
• Review major foreign investments to determine if they are likely to be of net benefit to Canada.
The emphasis of Investment Canada is to encourage foreign investment in Canada, even though it also
has the mandate to review foreign investments. Investments subject to the review provision include,
for non WTO investors, direct acquisitions of businesses in Canada with assets exceeding $5 million and
indirect acquisitions of Canadian businesses with assets exceeding $50 million. For WTO investors the
threshold is calculated annual, in 2010 the threshold is $299 million.
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Chapter 3 Government Business Incentives
The following is a summary of several government assistance programs currently available. Due to ever
changing government policy and budgetary considerations, programs are constantly under review and
subject to change. Consultation with a professional advisor should be made to explore the alternatives
at any particular point in time.
Programs to assist businesses in Canada are offered by both federal and provincial governments. Some
programs are administered directly by governmental departments and agencies while others are delivered by crown corporations formed to meet a specific need. The programs are usually designed to
achieve one or more of the following objectives:
• create and maintain jobs in Canada
• improve exports
• develop new products
• improve Canada’s competitive position in world markets
• locate industries in areas of Canada requiring economic development.
• Canada has low business costs relative to the international competition in areas such as
starting a business, production, corporate taxes, technology and research and development.
Federal Incentives
Scientific Research & Experimental Development (SR&ED)
The Canadian Income Tax Act allows taxpayers to deduct 100% of
eligible current and capital expenditures incurred in carrying on scientific research and experimental development activities in Canada.
Additionally, the program provides cash refunds and/or tax credits of
20% or 35% of eligible expenses incurred in SR&ED. Refundable tax
credits and the 35% rate are generally available only to small Canadian controlled private corporations.
The SR&ED program is administered by the Canada Revenue
Agency (CRA), a department of the Canada Border Services Agency.
Industrial Research Assistance Program (IRAP)
Delivered through the National Research Council of Canada, the IRAP program offers financial and technical assistance with respect to research and development projects carried on by Canadian small and
medium sized (less than 500 employees) enterprises. More specifically, the program provides both
repayable and non-repayable contributions of eligible project costs incurred in respect of projects directed at the development and commercialization of innovative, technology driven, new or improved
products, services or process in Canada.
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Collaborative Research and Development Grants (CRD)
The Natural Sciences and Engineering Research Council of Canada provides cash grants to Canadian
post secondary institutions with respect to research and development projects carried on in partnership
with Canadian private sector businesses. Private sector businesses benefit from the program by having
access to the results of the research and only having to fund a portion of the project cost. Applications
for grants under the program are evaluated based on several criteria including ability to commercially
exploit the results of the research within a reasonable time frame.
Canadian Small Business Financing Program (CSBF)
The Canadian Small Business Financing Act facilitates loans made to Canadian small businesses to purchase or improve capital assets. Loans of up to $500,000 are provided through participating financial
institutions. Loan interest rates cannot exceed the prime lending rate by more than 3.00% and personal
guarantees are limited to 25% of the principal amount of the loan.
Export Development Canada (EDC)
Export Development Canada provides financial assistance to Canadian exporters by insuring up to 90%
of accounts receivable, arising from exported goods or services, and by providing loan assistance to foreign purchasers of Canadian capital goods. Additionally, EDC provides guarantees to chartered banks to
assist Canadian exporters with pre-shipment financing and access to increased lines of credit through
an assignment of foreign accounts receivable.
Business Development Bank of Canada (BDC)
A crown corporation, the BDC offers financial services, consulting services, subordinate financing and
venture capital to Canadian small and medium sized businesses, focusing on technology and export sectors of the economy. The BDC does not provide grants or subsidies but generally offers increased access
to financing and more flexible repayment terms than traditional lenders.
Film Tax Credit Programs
The CRA also administers film tax credit programs to help the film industry in Canada, especially to U.S.
and other foreign film production companies.
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Provincial and Regional Incentives
A number of Canadian provinces and territories have organizations and programs that provide
assistance to industry. Additionally, the federal government provides regional assistance programs to
encourage economic development.
The programs are constantly evolving as the various provincial and
territorial governments react to changing economic conditions in their
attempt to attract new industry.
As a result of those constantly evolving programs detailed examples
are not useful. Any business considering relocating to or within
Canada or expanding their Canada operations should consult the
various federal, provincial and territories websites at that time to
obtain the most current information. However provincial, regional and
territorial incentives generally cover programs such as:
• Scientific research and experimental development activities;
• Financing or loan guarantees for start up businesses
or expansion funds;
• Mineral exploration and development;
• Farming related activities;
• Provincial income tax holiday credits;
• Tax credits for apprenticeship programs;
• Tax credits for equity investors in qualifying businesses;
• Film production costs;
• Financial assistance to small and medium sized enterprises in the Atlantic
provinces to start up, expand, modernize and become more competitive.
• Tax credits in respect of provincial crown royalties.
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Chapter 4 Banking and Finance
Overview
Canada has a well-developed, strong and reliable banking system that is regulated by the federal
government. It is dominated by five major banks, with several smaller regional banks and foreign banks.
All banks are connected by a reliable and effective system for transfers, cheque clearing and other
correspondence. As well as banks, there are other similar institutions including Credit Unions, which are
generally small, cooperatively owned consumer financial institutions.
Many foreigners are surprised at the dominance of the five major banks, all of whom have a wide
market presence right across the country. Most of these banks have substantial international dealings,
with ownership of operations in other countries as well.
Because of the importance of finance to the Canadian economy, the federal government has restricted the ownership of Canadian banks by foreigners and also the presence of foreign-owned banks in
Canada. To encourage a strong degree of competition, the government has also intervened against bank
mergers it considered to be against the public interest.
Anyone doing business in Canada can count on Canadian banks for a wide range of services, effectively
and honestly carried out, backed by up-to-date technology and practices.
The Structure of the Banking Sector
A high service level among Canadian banks is encouraged through a highly competitive situation, with
14 Domestic banks, all of which offer a wide range of services to both businesses and individuals.
The Five Largest Banks by Assets (February 2010)
BankAssets
(C$ billions)
Royal Bank of Canada.............................................. 672
Toronto-Dominion Bank.......................................... 575
Scotia Bank.............................................................. 506
Bank of Montreal.................................................... 431
Canadian Imperial Bank of Commerce.................... 341
Source: Canadian Bankers Association.
There are also 19 foreign bank subsidiaries and 17 foreign bank branches operating in Canada, which
have all the powers of a Canadian bank, but with some restrictions on size and the number of branches.
These are generally of two kinds:
• Commercially-oriented institutions, largely involved in high-end, complex transactions and which generally have little or no consumer banking presence;
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• Banks based in countries with populations that have immigrated to Canada, primarily serving the consumer and business banking needs of these immigrant communities.
The cornerstone of the Canadian banking system is the branch network operated throughout Canada
by the chartered banks. This network began in the early years of banking and has expanded with the
population. There are approximately 8,000 branch offices providing banking services in every corner of
Canada. This system is unlike the unit system operated in the United States and some other countries,
where branch operations are prohibited or limited in size.
A Canadian chartered bank is both a savings and commercial institution. The primary source of funds is
from its depositors. Types of accounts include:
•
•
•
•
•
•
•
•
Savings accounts
Personal chequing accounts
Current accounts
Other deposit instruments
Deposit receipts
Foreign currency deposits
Term notes
Savings certificates
The chartered banks supply operating credit or working capital for primary producers, industry, institutions, municipalities, governments and corporations. Many of the larger banks have developed a personal finance and brokerage capacity, in most cases through acquisition or merger.
Two of the major controversies affecting the Canadian financial services sector today are:
Insurance services, including property & casualty, and life & health services: some members of the
insurance sector claim that allowing banks to offer insurance services through their branches would be
an unfair competitive advantage, and decrease competition in the financial services sector. Currently,
the federal government has agreed to restrict the ability of banks to offer insurance services.
Bank mergers: Some members of the business community take the position that to compete
internationally, Canada’s banks need more market strength coming from greater size – and mergers
would be the way to build this capacity. The federal government believes that controlling mergers,
particularly among the Big Five banks, decreases the threat of too much domestic market domination
by any one entity.
A major trend affecting the Canadian banking sector is the rise of electronic banking methods. Canada
leads the world in numbers of Automated Banking Machines per capita (well over 20,000 installed)
and in their use. Canada also leads the world in use per capita of debit cards, Internet banking and
telephone banking.
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Government Controls
The Bank of Canada is the country’s central bank, formed in 1935 as an arm of the federal government. It performs many of the roles of the Federal Reserve in the United States, or the Bundesbank in
Germany. The Bank of Canada has these powers:
• to act as fiscal agent and banker for the federal government
• to issue paper money
• to act as custodian of all gold held by the government
• to sell and purchase government securities on the open market
• to determine primary and secondary requirements for the chartered banks
• to provide advances to the chartered banks
• to influence bank interest rates
It is through these powers that the country’s money supply and the outstanding credit of the chartered banks are controlled. As well as the influence that the Bank of Canada
has over the chartered banks, the federal government’s Minister of Finance monitors the banks to see
that their strength and stability is maintained.
Monitoring the banks themselves is done by the Inspector General of Banks, who meets with bank
officials and studies the monthly statements that each bank is required to file.
To further protect the public’s interest, the Canada Deposit Insurance Corporation insures deposits up
to a maximum of $100,000 per depositor.
Foreign Exchange
There are no foreign exchange controls in Canada. A foreign investor may freely move funds in and out
of the country.
To combat money laundering, terrorism and organized crime, the government has enacted reporting
rules regarding large financial transactions.
Ownership
The Canadian-owned chartered banks are owned almost exclusively by people in the private sector
through widely held shares traded on stock exchanges. A large majority of the banks’ shareholders are
residents of Canada.
To ensure that banks are widely held, the Bank Act prevents any one interest from holding more that
10% of the shares of any existing bank.
The 1980 Bank Act provided for the establishment of “Schedule II” banks. These include all foreign
banks operating in Canada, and Canadian-owned banks which are controlled by one or a small number
of shareholders. Different rules apply to these institutions.
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Other Financial Intermediaries
In addition to the chartered banks, there are the normal lending institutions providing similar services
in Canada as in other countries. The more important of these are:
• trust companies
• mortgage loan companies
• sales finance companies
• asset-based lenders
• credit unions
• savings and loan companies
• consumer finance operations offering services such as payroll advances, money transfer
and cheque cashing through storefront locations
• foreign exchange providers
These financial intermediaries do not fall under the Bank Act, but are incorporated under their own
legislation.
Securities Industry
Securities firms fall into two main divisions:
• Investment dealers, who bring together the supply of capital and the demand for capital through the merchandising of “new issues” of bonds or stocks;
• Stockbrokers, who act as an agent in the buying and selling of outstanding (previously
issued) securities
To protect the public interest, provincial securities commissions regulate the entry of firms and individuals into the securities industry.
These Commissions also monitor trading of securities. Every corporation selling securities to the public
must file a prospectus with the securities commission in the province in which it plans to sell them. This
prospectus must make full disclosure of all material facts and provide up-to-date financial information.
Continued disclosure is also required after the securities have been sold, including interim and annual
financial statements.
To further protect the public, the Investment Dealers’ Association and each stock exchange are also
required by legislation to regulate their members.
The Canadian financial sector markets a wide range of mutual funds through banks and other financial
institutions. These funds meet a wide range of investment philosophies, risk tolerances and other factors.
Summary
Canada’s financial system is well-regulated and sound. At the same time, it shows a strong willingness
to introduce and support new products, services and technologies for serving customers. The result is a
service offering that can support any company doing business in Canada.
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Chapter 5 Business Organization and Formation
A non-resident business person wishing to start a business in Canada may do so through any one of the
following structures:
• sole proprietorship
• partnership
• limited company
• branch operation
The structure chosen will depend on many factors including the
following:
• anticipated size of Canadian operation
• ease of arranging finances
• liability exposure
• market identification
• profit potential
• taxation
Sole Proprietorship
This is an unincorporated business structure run by the individual owner who is personally liable for all
debts of the business. The owner is also entitled to all the profits of the business, which are taxed at the
personal rather than corporate business tax rates. There is little protection afforded to the businessperson under this structure. It has traditionally been used by professionals (doctors, lawyers, accountants)
in business by themselves and by the entrepreneurial business persons running a very small business,
one that depends to a large degree on their personal services.
Many new businesses start off as sole proprietorships, incorporating into limited companies after the
profits and financial risks grow.
The sole proprietorship is not required to be registered with the governing authorities unless it uses a
trade name other than the name of the owner.
Partnerships
As another form of an unincorporated business structure, partnerships represent the joining together
of two or more business persons in a common venture with a view to making a profit. Partnerships
are usually based on an agreement (preferable written) that sets out the terms of the partnership as
to capital participation, profit sharing and any other information that would clarify the interests and
responsibilities of the partners. A partnership may be formed covering commercial, trading, manufacturing and mining operations but cannot be formed to carry on the business of banking, insurance or a
public utility; such businesses require incorporation under the appropriate legislation. Most provinces
have partnership legislation governing the formation, operation and dissolution of partnerships. For
example, in Quebec, partnerships must be registered. Partnerships can be formed using any combination of general partners and limited partners.
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General partners usually take an active role in the management of the business and are responsible for
the debts of the business jointly and severally with all other general partners. Limited partners take no
active role in the management of the business and are responsible only for the debts of the partnership
up to the amount of their capital investment. A limited partner may become a general partner and be
liable for all the debts of the partnership if any one of the following occurs:
• the limited partner commences participation in the management of the business
• registration of the limited partnership is not carried out prior to commencement of business
• registration is not completed after the change in any of the following:
• change in names of partners
• change in nature of business
• change in capital structure of partnership
• time originally fixed for duration of limited partnership has expired.
The partnership itself as a business entity is not subject to taxes on income. The income of the partnership is allocated to the partners according to the partnership agreement and is included in each
partner’s income and taxed in the case of an individual at personal tax rates and in the case of a limited
company at corporate tax rates.
Limited Companies
A limited company is an incorporated business structure. Capital to operate the business may be raised
through the sale of treasury shares to investors. As shareholders, the investors may or may not be
directly involved in the management of the business. The corporation is operated by a board of directors. Other than the election of the board of directors elected annually by the shareholders of the
corporation, the approval of the financial statements and the appointment of the auditors at the annual
meeting, the shareholders have little responsibility toward the actual running of the business. They are
generally not jointly or severally liable for the debts of the corporation and have at risk only the amount
of their original investment in the capital stock of the business.
In Canada, a company may be incorporated in one of the following ways:
• under the federal Canada Business Corporations Act
• under one of the provincial acts respecting companies
• by a special act of the Parliament of Canada or of one of the provincial legislatures, ie – the Bank Act is the Federal Act under which all banks are issued their charter.
Companies incorporated under the federal law are entitled to carry on business throughout each province in Canada, basically subject only to the general provincial laws applicable to the holding of land,
liability for taxes and the regulation of contracts. Provincial incorporation entitles a company to carry
on business in the province of incorporation only. In order to operate in another province, it is necessary that the company become licensed or registered to do business in that province.
The advantages of a limited company to a foreign investor are as follows:
• liability limited to the amount invested in capital stock of the corporation
• flexibility in arranging the finances of the business through a corporate structure
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• market identification under a Canadian company
• ownership may be transferred at a later date without affecting a corporation’s continued
existence or operations.
Branch Operations
A foreign company may carry on business in Canada through branches of the foreign parent. The foreign parent will be liable for all debts of the Canadian branch operation incurred by its employees,
agents and representatives. Each branch must be registered and licensed to do business in the province
in which the branch is located. Accounting records of all business transacted by the Canadian branches
must be maintained in Canada and the Canadian operation is required to file the required tax and the
government returns similar to those required by Canadian incorporated companies.
Personal Liability of the Directors of a Corporation
Under certain circumstances, the directors of a corporation are personally liable for certain debts
such as unpaid wages (up to 6 months), unpaid payroll withholding taxes as well as unremitted Goods
and Services Taxes and Provincial Sales Taxes, non-resident withholding taxes and environmental
remediation costs.
Also, directors who authorized the payment of dividends or the redemption of shares when a corporation is insolvent could be formally liable for the amount of those payments.
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Chapter 6 Accounting and Auditing Principles
and Practice
Corporate Framework
Companies are classified either as public or private companies, the main distinction being that the
shares of a public company may be traded on the open market. All companies have limited liability for
their shareholders (subject to certain director personal liability).
Under the various statutes of incorporation, the majority of companies, whether public or private, are
required to have independent auditors report upon their annual financial statements. However, in the
case of private companies, there are certain other exemptions based on the dollar value of assets and
revenue, or number of shareholders. In many of these smaller private companies, the independent auditors will act in the role of an accountant and prepare annual financial statements without an audit. In
such circumstances, the accountant may perform a review, consisting of enquiry, analytical procedures
and discussion, to satisfy himself that the statements are plausible in the circumstances. The independent accountant is still required to ensure that all statements with which he is associated, either as an
auditor or as an accountant, are prepared in accordance with the rules in effect in Canada, and to report
any divergence from these principles that comes to his attention.
The CICA Handbook is the authoritative source of generally accepted accounting principles in Canada.
In 1976, the Government of Canada issued a revised Canada Business Corporations Act, which set out
the rules and regulations for operating a federally incorporated business in Canada. The Canada Business Corporations Act (the “CBCA”) and the Regulation thereunder have been significantly amended
effective November 24, 2001. One section of this act states that “The financial statements and the auditors’ report, except as otherwise provided, be prepared in accordance with the recommendation of the
Canadian Institute of Chartered Accountants set out in the CICA Handbook.”
In the majority of the provinces, a Chartered Accountant (CA) is the only one authorized to perform
the attest function. However, there are other accounting bodies in Canada and certain provinces have
allowed these bodies to act in the capacity of a public accountant. The CA in his role as independent
auditor reports to the shareholders of the company, and he does not take direction from or report to
any governmental agencies. There are many other users of financial statements that place reliance on
the auditor’s report.
The Accounting Profession in Canada
In Canada, the history of the accounting profession descends directly from Scottish and English practices. In 1880, Canadians saw the Association of Accountants form in Montreal. Early in the twentieth
century, a small group of accounting practitioners, representing communities from across the country,
met to establish a definite relationship among the provincial associations, which until then had shown
little unified thrust. On May 15, 1902, Royal Assent was given to an act incorporating the Dominion
Association of Chartered Accountants. Only two changes have been made to the Act since then: one in
1938 to enlarge the maximum size of the governing body, the other in 1949 to change the name to the
Canadian Institute of Chartered Accountants (CICA). Every chartered accountant in Canada is a member
of a provincial institute, as well as a member of CICA. This interlocking membership has continued since
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1902, with the provincial and the national institutes both assuming their own unique functions, which
are described briefly below.
Following the financial scandals in the financial sectors of the last decade, new governance rules have
been implemented throughout the world. The accounting profession in Europe and Canada have
reviewed their standards to address better disclosure and comparability of financial statements.
Some significant recent developments of the CA profession in Canada are as follows:
• After December 14, 2010, new auditing standards known as Canadian Auditing standards
(CAS) came into effect, and are designed to be aligned with International Standards on
Auditing. The changes are mainly prevalent in the auditors report, related party transactions, use of experts and going concern assumption amongst others.
• Effective January 1, 2011 publicly accountable enterprises are required to use International
Financial Reporting Standards (IFRS). For Private Enterprises (PE) a choice can be made to adopt IFRS or PE GAAP. The choice is not straightforward as it has widespread impact. Each
economic entity must be evaluated.
• As a result of the new standards Fair Value accounting is now allowed so that for example
certain assets such as land and buildings can be re-valued and the increment recorded as part of retained earnings.
• The new standards have far reaching impact such as metrics on key financial ratios existing in contracts, compensation arrangements and contractual relationships.
The Canadian Institute of Chartered Accountants (CICA)
The most important standards setting bodies and role are the
Auditing and Assurance Standards Board (AASB) and the Accounting Standards Board (AcSB) of the CICA, is the issuance of
auditing and accounting recommendations for the CICA Handbook. Only these committees have been given the authority to
issue pronouncements with reference to the Board of Governors
of the Institute. Because of this, and the significance of their respective pronouncements within the business community, both
the accounting committee and the auditing committee have established comprehensive procedures for
development of their recommendations.
The educational responsibility for entrance to the profession rests with the provincial institutes. However, before gaining the designation of chartered accountant, all students must pass a set of uniform
final examinations, which are the responsibility of the CICA. A uniform standard of admission is thus
maintained across the country.
The Provincial Institutes
The provincial institutes are responsible for setting and maintaining professional rules of conduct and
ethics. Therefore, the profession not only sets its own high standards but is responsible for ensuring
that members adhere to these standards. Thus, the Institute has the power of discipline and may even
expel members in exceptional circumstances. By maintaining their own standards of excellence in their
matters, the Institutes have kept governmental regulation of the profession to a minimum.
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The provincial institutes are also responsible for setting admission standards for new members entering the profession and for setting up and monitoring the curriculum that the students must follow in
order to be eligible to write the uniform final examinations. The majority of the academic training is
conducted through accredited university courses.
The provincial institutes work closely in conjunction with the CICA in developing and presenting a wide
range of professional development courses for the graduate chartered accountant. Although these
courses are not mandatory, their wide acceptance and good attendance indicates their success as a
continuing educational program.
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PART II
TAXATION
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Taxation
Chapter 7 Company Taxation
The Scope of Corporation Tax
Taxable Entities
Companies are liable for corporation tax on their taxable income. “Company” for this purpose includes
any incorporated entity whether incorporated in Canada or elsewhere, and any incorporated association. It does not include a partnership or sole proprietorship. Income taxes are levied by the Federal
government and by the government of the provinces where business is carried on.
Resident Companies
A company which is resident in Canada is liable to corporation tax on its worldwide income from all
sources, including 50% of all realized capital gains net of capital losses, as discussed further below.
A company is resident in Canada for tax purposes if:
• it is incorporated in Canada; or
• its central management and control is situation in Canada.
Non-Resident Companies
A company which is not resident in Canada is liable for corporation tax on the net income from a business carried on in Canada. Net income also includes 50% of realized capital gains net of capital losses
on certain classes of Canadian capital property, including but not limited to business assets and all real
estate located in Canada. There is also a 25% branch tax on Canadian business profits which is similar
to the withholding tax on dividends paid by resident companies.
A company which is not resident in Canada may also be liable for withholding tax on certain types of
Canadian source investment income from sources not connected with trading, such as rent, dividends,
interest and royalties.
These tax principles relating to non-resident companies may be modified by treaties between Canada
and a particular country.
Tax Rates
The basic federal income tax rate in 2010 on active income is 18%. Depending on the classification of the
company and the type of income earned, certain companies may qualify for a reduction of the federal tax
payable by means of the small business deduction.
Companies not controlled by non-residents (termed
Canadian-controlled private corporations) are eligible
for a “small business deduction” which reduces the tax
to an 11% rate of federal tax on the first $500,000 of
Canadian active business income per year. Associated
corporations must share the $500,000 active business
income limit. Corporations are associated, generally,
if they have common ownership or are owned by a re-
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Taxation
lated group with at least 25% share cross-ownership. As a result, the basic federal tax rates applicable
to Canadian companies will vary from a low of about 11% to a high of about 18%. A refundable tax system applicable to investment income earned by Canadian-Controlled Private Corporations may increase
the federal tax rate above 18% but a portion would be refunded when the corporation pays taxable
dividends. Provincial rates vary from 2.5% to 16% depending on the province in which the business is
carried on and the nature of income. Provincial income taxes are not deductible from federal tax.
Annual Tax Return and Assessment
Every company, whether taxable or not, is required to file, without notice or demand, an income tax
return to Canada Revenue Agency (CRA) for each taxation year within six months of its year end. There
are no filing extensions allowed.
Corporation tax is charged by reference to the company’s accounting period (fiscal year), which may
initially be selected by the corporation. Once chosen, the fiscal year cannot be changed without the
permission of CRA. For taxation purposes, a corporation’s fiscal year cannot exceed 53 weeks.
Federal and provincial taxes are payable in monthly instalments based on a formula considering prior
years’ and current year’s income tax. Any balance of tax is due generally two months after the end of
the taxation year.
Income Subject to Tax
Income for tax purposes is calculated in accordance with Canadian generally accepted accounting principles adjusted by specific rules. All but two provinces use the Federal basis of determining taxable
income. Alberta and Quebec permit some limited variations, particularly in the case of mining and oil
and gas income.
Capital Gains and Losses
50% of all realized capital gains are taxable. The other portion of the gain is tax-free. A capital gain is
generally the excess of the proceeds of disposal over the sum of original cost, improvements, and expenses of disposal such as commissions and fees. A capital loss is similarly determined; accrued gains
and losses are not recognized for income tax purposes.
While the treatment of gains is the same for all classes of capital assets, the treatment of losses is not.
In the case of non-depreciable assets (such as land and investments in securities of other companies,
including subsidiaries), 50% of all capital losses in a year must be fully deducted to the extent of 50% of
all capital gains realized in the same year. If capital losses exceed capital gains, 50% of the excess may, at
the corporation’s option, either be carried back up to three years or forward indefinitely to subsequent
years. In turn, the only limitation in each of these years is that the maximum portion of the loss that
can be used may not exceed the lesser of that year’s taxable income before the deduction and 50% of
the net capital gains realized in that year.
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For depreciable assets (such as buildings, machinery and equipment), the capital loss concept does not
apply. Instead, losses on such property are deductible through the tax depreciation system (see “Depreciation” below).
In most cases, capital gains can be deferred (“rolled over”) on transfers to a “taxable Canadian corporation” if shares of the corporation are included as part of the consideration received and appropriate tax
elections are filed.
Dividends
Canadian dividends are not taxable when received by a
Canadian public company. For a Canadian private company, Canadian dividends are generally tax-free if received
from a connected corporation; otherwise, a refundable
33⅓% tax will apply. A connected corporation is generally
one that is controlled by the recipient of the dividend or
in which the recipient holds more than 10% of the voting
stock and share capital (by value). The refundable tax is
returned to the private company at the rate of $1.00 of
refund for every $3.00 of dividend paid out.
Foreign dividends are not taxable until received by the Canadian corporation. Once the foreign dividends are received, Canada uses a combination of an exemption and a tax credit system to determine
their taxation. Foreign dividends received by a Canadian corporation are tax-free if they are paid out of
business income earned in a treaty country by a connected foreign corporation resident therein.
Foreign dividends received from non-treaty countries or from non-connected foreign corporations are
taxable at the rates set out above under Tax Rates. A foreign tax credit will be allowed for any withholding taxes. In addition, for foreign dividends received from connected corporations, a foreign tax credit
is permitted for foreign income taxes paid on the underlying foreign income.
In the case of a controlled foreign affiliate, passive investment income (including capital gains) will be
imputed as income to the Canadian corporation when earned by the foreign corporation whether repatriated or not.
Stock/Inventory Rules
Each property included in inventory may be valued for tax purposes at the lower of cost and market value or at market value for all inventories. Various methods of inventory costing are permitted except for
LIFO which may only be used in the very rare case where it corresponds with the physical flow of goods.
Expenses
Expenses are generally deductible to the extent that they are incurred to earn income, are reasonable in
the circumstances, are not on account of capital, and relate to the period in question. However, there
are numerous exceptions.
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Depreciation
The cost of depreciable assets is deductible at varying rates under the capital cost allowance (CCA) system. Generally, the CCA system operates on a pool or class basis with each item of depreciable property
being included in one of a limited number of classes.
Interest
Interest paid or payable is generally deductible. It is generally not deductible in whole or in part when
the money:
• is loaned interest-free or at less than a reasonable rate of interest; or
• is not used to earn income directly by the borrower in his business or from a property
acquired with that borrowed money.
There is a thin capitalization provision which restricts the deductibility of interest paid or payable by a
resident Canadian company on excess debt owing to a non-resident shareholder who, together with any
related persons, owns 25% or more of the shares of any class. Excess debt is that portion of the debt
calculated at the average of the highest debt balance for each month in the taxation year, that exceeds
two times the sum of:
• the monthly average paid-up capital of all shares of the company owned by the non-resident during the year;
• the monthly average contributed surplus during the year related thereto; and
• the company’s retained earnings at the beginning of the particular year.
This provision effectively prevents non-resident shareholders or affiliates from withdrawing the profits
of the Canadian company in the form of interest payments (which would otherwise be deductible by
the Canadian company) rather than in the form of dividends (which must be paid out of earnings accumulated after Canadian tax).
Deductible Reserves
The principle reserve that is deductible is the allowance for doubtful accounts receivable. Reserves are
also deductible, up to certain limits, on gains arising from dispositions of real estate (both trading and
capital) and on other capital property which is sold subject to a debt instrument whereby the receipt of
the proceeds is deferred.
Scientific Research (R&D)
Current and capital expenditures for research and development including the cost of buildings, other structures and machinery and equipment,
are subject to very generous tax treatment in Canada. They are both eligible for a 100% write-off in the year incurred plus federal investment tax
credits of 20% to 35% of total expenditures and additional provincial tax
credits depending on the province in which the R&D is performed, and depending on location and size of the taxpayer. The rules concerning what
constitutes R&D are quite restrictive and generally exclude such things as
product development beyond the prototype stage, style changes, and any
research or development which does not have technological uncertainty.
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Non-Deductible Expenses
Provincial income taxes are not deductible in computing federal income taxes and vice versa. Other
non-deductible expenses include warranty reserves, contingencies, recreational club dues and interest
and property taxes on vacant land as well as 50% of certain promotion and entertainment expenses.
Transfer Pricing
CRA may review transactions between related parties in different countries to ensure that they occur
at an arm’s-length price. Generally, an arm’s-length price means the value that would be obtained if
the parties were not related to each other.
Losses
Business losses may be fully deducted against any income arising in the same year. If a net loss results
for the year, it may, at the corporation’s option, be carried back to any one of the previous three years
or forward to any of the subsequent seven to twenty years depending on the year the loss was incurred,
and deducted to the extent of income in any of those years. Business losses of one corporation cannot
be used to offset the income of any other corporation. However, it may be possible to reorganize the
corporate structure on a tax-deferred basis to utilize the losses.
Tax Avoidance: General Anti-Avoidance Rule (GAAR)
“Avoidance transactions” are generally transactions that result in a significant reduction, avoidance
or deferral of tax and which cannot reasonably be considered to have been carried out primarily for
non-tax purposes. This causes uncertainty in tax planning and can affect a number of transactions
or arrangements entered into by individuals or corporations in the course of carrying on business or
investing in Canada. Nexia International tax advisors should be consulted prior to undertaking any tax
planning arrangement.
Planning Points for Overseas Investor
Branch or Subsidiary
One of the important decisions to be made is whether to have a Canadian branch of your existing
company in your home country or to form a new Canadian subsidiary company.
While a branch and a subsidiary have generally the same Canadian filing requirements, a detailed
analysis based on the specific circumstances of the investment is usually required to determine the
appropriate structure. Some of the issues that need to be addressed in making the determination are:
• length of investment
• profit/loss projections for Canadian investment
• profit/loss projections for home country activities
• ability to allocate overhead and other expenses
• tax position in home country
• tax treaty considerations
• non-income tax concerns
In some circumstances, it is possible to incorporate a branch by a tax-free rollover of branch assets to
a taxable Canadian corporation.
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Investment via Shares or Loans
Particularly in a subsidiary scenario, an important decision is whether the investment will be made in
the shares of the subsidiary or by way of a loan to the subsidiary. Many issues need to be resolved
before a decision can be made. For example, will the interest be deductible, how easy will it be to repatriate the investment or the annual profits, what is the tax position of the investor in his home country,
application of the thin capitalization rules, etc.
Shares or Assets
If a business is being acquired, the issue of whether to acquire the shares of the company or the company’s assets needs to be addressed. Often the structure that offers advantages to the purchaser has
correlative disadvantages for the vendor.
Incentives
Various tax and non-tax incentives offered by government or their agencies should be considered.
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Chapter 8 Taxation of Individuals
General Principles
Individuals are taxed on a calendar year basis with returns generally due on April 30th of the following
year. Residents of Canada are taxed on their worldwide income. Non-residents are generally taxed on
their business, employment, or investment income earned in Canada, and on dispositions of “Taxable
Canadian Property”.
Taxation of Residents
Residents of Canada are subject to graduated rates of income tax on their world income, with credits
available for foreign taxes on foreign source income to the extent they do not exceed the Canadian tax
liability on the same income source.
The determination of Canadian residence is not necessarily an easy matter. In general, the tax authorities look at the sum of the individual’s ties to Canada, including personal residence, family residence,
commercial and social ties, health insurance, and so on. As well, there are certain rules which deem an
individual to be resident in Canada regardless of other considerations; the main rule is that presence
in Canada for more than 183 days in a calendar year will be conclusive evidence of residence. It is possible to be a resident of more than one country at the same time. Tax treaties will in some cases resolve
issues of dual residence.
Personal Tax Rates
Individuals subject to Canadian income tax are generally subject to both federal and provincial taxes.
An individual is considered to be a resident of the province in which he or she resided on the last day of
the calendar year or on the date of giving up Canadian residence.
The provinces (except for Quebec) calculate income tax using a rate scale-applied to the federal taxable
income. Quebec calculates income tax based on taxable income calculated according to its own rules.
General
Federal income tax is calculated by applying the following rate schedule (2010) to taxable income. Taxable income is income less deductions and loss carryovers. The tax brackets below are increased annually by the percentage increase in the Consumer Price Index.
Bracket Rate
CAN$
Rate
Tax on Bracket
CAN$
Cumulative
Tax CAN$
0 – 40,970
15%
6,146
6,146
40,971 – 81,941 22%
9,013
15,159
81,942 – 127,021 26%
11,721
26,880
127,022 and up
29%
–
–
Note that personal tax credits reduce federal income tax payable. In 2010, the basic personal amount
reduces income tax payable by $1,557, effectively exempting individuals with less than $10,382 of taxable income from paying any federal income tax.
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Depending on the province of residence of the individual, the highest combined federal and provincial
marginal tax rates range from approximately 39% to 48.25%.
In short, the situation of each individual must be considered in some degree of detail to provide a reasonable projection of actual tax liability. In practice, effective Canadian tax rates are often higher than
those imposed in some other countries, notably the United States, although there are offsets in terms
of social security and health care programs.
Large corporations which have frequent executive transfers often have equalization programs to ensure
that transferred employees receive after-tax income in Canada comparable to that of their home country. Nexia International has extensive experience in establishing and administering these programs.
Income Subject to Tax
Individuals resident in Canada are subject to tax on their income from all
sources, whether earned within Canada or outside. A resident individual therefore includes in income his or her income from all sources including that from
employment, a business or property, investments and miscellaneous other
items. In addition, benefits under pension plans, Employment Insurance, the
Old Age Security Act and the Canada Pension Plan are included. Income inclusion is the typical rule for most other items.
Deductions and Tax Credits
Deductions in computing income are generally restricted to amounts incurred for the purpose of earning income and directly related to a source of income. Deductions from employment income are very
limited and are available only where the employee meets certain conditions. Commissioned sales persons are allowed broader expenses as long as they are directly related to the earning of commission
income.
There are a number of miscellaneous deductions, including union or professional dues, and interest
and other carrying charges on investments. In addition, some restrictive deductions are permitted for
moving expenses where individuals move from one part of Canada to another for the purpose of their
employment. Individuals are favoured with a deduction related to the care of their children where they
earn income from employment or self-employment.
The largest deductions generally permitted to most taxpayers in Canada relate to their contributions to
a company-sponsored pension plan or to a private pension arrangement called a Registered Retirement
Savings Plan (RRSP).
Having computed taxable income and federal income tax, as mentioned above, an individual is entitled
to a number of personal tax credits which are claimed against tax payable. The nature and amount of
these credits depend on the individual’s status as single, married, or supporting another dependant.
Other credits are available with respect to charitable donations, medical expenses and other amounts.
The credits are deducted in arriving at the individual’s Basic Federal Tax.
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Taxation of Non-Residents
A non-resident individual is only required to pay tax on income earned in Canada and on gains from the
disposition of Taxable Canadian Property. Individuals who are not residents of Canada but who are employed in Canada, or carry on business in Canada during the year, are required to compute their income
as though their only source of income was from employment or business. That income is then subjected to tax at the graduated rate schedule applicable to residents of Canada. Generally, the personal
and other credits are only available to such individuals where all or substantially all of their income for
the year is earned in Canada. Gains from the disposition of taxable Canadian property are included as
well on the personal tax returns filed by the non-resident and subjected to the same graduated rates of
taxation.
From the non-resident’s standpoint, involvement with Canadian tax is most often related to the amounts
that Canada imposes as a withholding tax on various amounts paid from Canada to non-residents. This
generally would include payments from Canada for management fees, interest, copyright royalties, dividends and rentals from renting immovable property in Canada. The general rate of withholding tax for
such payments from Canada to the non-resident is 25% although there are some favourable exemptions
for interest paid. A non-resident may also elect to be taxed on a net basis on rentals. Canada has also
established a broad network of treaties with most of the developed countries around the world for the
avoidance of double taxation. Where a tax treaty exists, the rate of withholding tax is generally lower
Immigration and Emigration
Persons taking up or giving up Canadian residence are subject to special rules in the year they come or
go. In the year of arrival, they are deemed to acquire their capital property and in the year of departure
they are deemed to dispose of their capital property (thus subjecting it to capital gains tax). There are
exceptions to the deemed disposition rules for short-term residents (five years in a ten-year period) for
property acquired prior to taking up residence, and for certain Taxable Canadian Property, which will be
subject to tax on its ultimate disposition regardless of residence.
As well, persons taking up or giving up Canadian residence are subject to special rules in the year they come or go which essentially carve
the year into two periods taxed on a separate basis. This can create tax
planning opportunities.
In general, where a person with substantial income and/or assets is taking up or giving up Canadian
residence, professional tax advice should be obtained.
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Tax Incentives
Like many other countries, Canada uses its income tax system to stimulate investment in particular sectors of the economy and to stimulate the economy as a whole. Some of the major federal incentives
are discussed below.
Investment Tax Credit (“ITC”)
Individuals who invest in certain assets or who incur certain expenditures are eligible for an ITC which
may be deducted from federal tax payable or, for some taxpayers, partially or totally refunded. Qualified property generally includes certain types of depreciable property, including machinery, equipment and buildings used in manufacturing or processing (“M&P”) as well as research and development
(“R&D”) expenditures. The amount of the credit depends on the property, the geographic region where
the property is being used and the use to which the property is put. The credit will generally only be
available for M&P activities in Atlantic Canada, as well as certain prescribed slower growth areas, and
for R&D activities.
Taxpayers are eligible for the credit in the year the property is purchased. The credit can be claimed
in full in the year with any excess carried back three years or forward 20 years. Credits claimed reduce
the cost of the asset for tax purposes and therefore reduce amounts deductible with regard to the expenditure.
Capital Cost Allowance
Most outlays of a capital nature cannot be written off when incurred. Instead, Canadian tax law permits
the cost of the asset to be charged against income over a period of time by allowing the taxpayer to
claim depreciation – known as Capital Cost Allowance (“CCA”).
The cost of depreciable assets is deductible at varying rates under the CCA system. Generally, the CCA
system operates on a pool or class basis with each item of depreciable property being included in one
of a limited number of classes.
Each class has its own CCA rate which is used to determine each year’s maximum discretionary claim.
There is no requirement to make a minimum claim. The rate is applied (generally on a diminishing basis)
to the balance in the class at the end of the year. In the year of acquisition, the CCA is generally limited
to half that otherwise permitted regardless of when in the year the asset is acquired. An available-foruse rule applies so that CCA will not be deductible until the asset is placed in service. Subject to these
rules, CCA is computed on the acquisition cost of all property included in the class less the sum of:
• the proceeds of disposal (not exceeding the original cost) of any property previously included and since disposed of; and
• the total of prior years’ CCA claimed on that class.
Examples of current CCA rates are:
Buildings 4% - 10%
Machinery and equipment
Yr 1 / Yr 2 / Yr 3
Manufacturing and processing
25%
50%
25%
Other
20%
Automotive equipment
30%
Dies, jigs, patterns, moulds
100%
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Taxation
If a pool’s balance at the year is negative, this amount is added to income. Conversely, if there is a
balance in a pool and no underlying assets, the balance is classified as a “terminal loss” and is
generally deductible in full. Special CCA rules apply to automobiles and certain industries, most notably,
real estate.
Research and Development
For information on the tax incentives of research and development, refer to the same topic in the
preceding chapter.
Trusts and Estates
Trusts (which can include the estates of deceased taxpayers) are subject to special and complicated
rules, but in essence they are treated as individual taxpayers on income they do not distribute annually
to beneficiaries. Trusts can be useful in providing for the transfer of the future growth of asset values
in the hands of heirs.
Tax Consequences on Death
Canada does not impose succession duties as such on the value of the estate of a deceased resident.
However, a resident of Canada is considered to have disposed of all his capital property on death for
proceeds equal to its fair market value at that time, and income tax will be exigible on 50% of the notional gains. Heirs then acquire the property at the fair market value. A general exception permits
property to be transferred to a spouse or spouse trust at its tax cost base, so that no gain is realized at
death. On the death of a spouse, gains will be measured from original cost to fair market value at that
time. In short, capital gains are to be measured and subjected to tax on inter-generational transfers of
property. To ensure the consistency of this system, gifts made during one’s lifetime to a spouse may
be made at the cost base of the property, but all other gifts are considered to give rise to proceeds of
disposition at their fair market value at the time of the gift.
Where a Canadian resident has assets with any substantial appreciation in value, it is essential to plan
for their distribution on death with the tax consequences in mind. This is especially true where assets
include shares in a privately held corporation, since the value and marketability of such shares may pose
serious problems.
Tax Planning Matters for Consideration
While Canada provides many incentives for the investor, it also has a number of tax provisions which
have been created to permit advantageous tax planning and discourage tax avoidance. The more significant provisions are discussed below.
Capital Gains
Capital gains are subject to tax in Canada. However, to encourage investment, only a percentage of the
capital gain (the “taxable capital gain”) is included in income. Similarly, only a percentage of a capital
loss (the “allowable capital loss”) is deductible, and only against taxable capital gains. Unused allowable capital losses can be carried back three years or forward indefinitely to be claimed against gains in
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Taxation
those years. Capital losses on the sale of shares of certain small business corporations can be deducted
against income from any source. Individuals are allowed to realize up to $500,000 in capital gains
tax-free during their lifetimes on the disposition of shares of Canadian-controlled private corporations
which meet the complex definition of a Small Business Corporation.
Employee Stock Options
Employee stock options can provide worthwhile benefits. In general, a taxable benefit equal to the
shares’ fair market value less the aggregate option price will arise when the option is exercised. Where
the shares have the attributes of common shares and the option price is no less than the shares’ fair
market value when the option was granted, a deduction of 50% of the benefit is allowed. As a result,
the net amount of the fair market value excess is included in income at 50%.
Where the employer is a Canadian-controlled private corporation, the rules are slightly different. The
taxable benefit net of the deduction is computed in the same manner but is included in income only
when the shares are disposed of, provided the shares are held for at least 2 years. Also, in this case,
there is no requirement that the option price be at least equal to the fair market value of the shares at
the time option is granted.
Tax Shelter Investments
Tax sheltered investments, such as films, computer software deals, etc. have been specifically encouraged through tax incentives. These incentives have been legislated to encourage private sector investment in high risk projects. Tax shelters are generally aimed at investors in the highest income tax bracket
so that each dollar of tax deduction will produce the greatest possible tax savings. However, as these
investments tend to be high risk, it is important they be analyzed thoroughly.
Tax Avoidance: General Anti-Avoidance Rule (“GAAR”)
For more information on GAAR, refer to the same topic in Chapter 7.
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Part II
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Chapter 9 Indirect and Other Taxes
Goods and Services Tax
Introduction
The Goods and Services Tax (“GST”) is a tax introduced January 1, 1991 by the federal government to replace the manufacturer’s sales tax. The GST applies on most goods and services supplied in Canada. At
present, British Columbia, Ontario, New Brunswick, Nova Scotia and Newfoundland and Labrador (called
the harmonized provinces) have combined their sales taxes with the federal GST to form a combined tax
called the Harmonized Sales Tax (“HST”). Quebec has a parallel tax to the GST called the Quebec Sales
Tax (“QST”). Only Manitoba, Saskatchewan and Prince Edward Island still have a retail sales tax.
The GST (and HST for harmonized provinces and QST for Quebec) applies on most goods and services
supplied in Canada. Special rules apply to zero-rated transactions and exempt transactions. In general,
businesses may claim an input tax credit with respect to the GST/HST/QST paid on goods and services
acquired for commercial purposes (except GST/HST/QST-exempt business operations). As such, the
GST/HST/QST is quite similar to the value added tax in many European countries and, in effect, is a tax
borne by the end non-business user of goods and services, i.e., the consumer.
The GST/HST is levied under the Excise Tax Act (the “Act”) and is generally administered by CRA. Revenue Quebec administers GST/HST/QST in Quebec. The tax collection process works on a self assessment
basis with commercial activities being registered and acting as agents for the government to collect GST
from recipients of supplies and registrants submit regular returns (monthly, quarterly, or annually, depending upon volume and elected filing frequency) with instalment payments required more frequently
in some cases.
Basic Principles
Most businesses with commercial activities in Canada have to register for, charge, collect, and remit
GST/HST and QST in Quebec on their taxable sales or supplies of goods and services. They will be able to
recover the GST/HST/QST they pay on goods and services by claiming input tax credits (ITCs). However,
some restrictions apply to large businesses for QST and for the provincial component of Ontario and
BC HST with respect to energy costs, telecommunication services, meals and entertainment and road
vehicles.
Exceptions arise on goods and services that are zero-rated or exempt from GST/HST/QST.
There is an important difference between zero-rated and exempt GST/HST/QST transactions. In both
cases, no GST/HST/QST is charged directly on the supply of the goods or services, but if the supply is
GST/HST/QST exempt, GST/HST/QST is not recoverable by the supplier for GST/HST/QST charged on
goods or services relating to business inputs (goods and services acquired to carry on the business) by
way of an ITC. If the supply is zero-rated, the supplier may generally recover the tax paid on his business inputs.
Complications arise where both taxable, zero rated supplies and exempt supplies are made. Typically,
an allocation must be made in order to determine the amount of GST/HST/QST eligible for an input tax
credit.
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Taxation
Categories of Supplies
There are three categories of supplies for GST/HST/QST purposes:
(a) Taxable
Any recipient of a taxable supply made in Canada is subject to GST/HST/QST on the value of the consideration (fair market value) paid for the supply of goods or services unless the supply is specifically
GST/HST/QST exempt or zero-rated.
(b) GST Exempt Supplies
Schedule V of the Act provides eight categories of GST exempt supplies. They are:
• certain real property supplies such as supplies in the form of residential rents, a used
residential complex and certain supplies of farm land
• prescribed health care services
• prescribed educational services
• prescribed child and personal care services for disabled and underprivileged persons
• legal aid services – provincial government legal aid but not general legal services
• prescribed public sector supplied goods and services – certain goods and services supplied by a charity, government, non-profit organization, municipality, school authority, hospital, college
or university
• financial services (for QST purposes, financial services are zero-rated)
• ferry, road and bridge tolls.
The prescribed list of exempt supplies and those excluded from exempt supplies is complex and
particular care must be taken to establish the status of any particular supply.
(c) Zero-Rated Supplies
Schedule VI of the Act prescribes nine categories of zero-rated supplies which are:
• prescription drugs
• medical devices
• basic groceries
• agriculture and fishing related supplies
• exports
• certain tour packages
• certain transportation services
• international organizations and officials
• certain non-resident oriented financial services.
• the prescribed rules applicable to zero rated goods are rather complex and care must
be taken to properly establish the tax status of any particular supply.
• for QST purposes only - financial services
Supplies are taxable if made in Canada. There are several rules and deeming provisions to establish the
situs of a supply:
• A sale of goods is deemed to occur where the goods are delivered or made available to the
purchaser. Other supplies of goods (lease, license, etc.) are deemed to occur in different places depending on the length of contract and type of good.
• A supply of real property or related services (management, etc.) is deemed to occur where
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Taxation
the property is situated. As an example, an architectural contract with respect to a building
outside Canada would not be subject to tax even though some of the work might be done in Canada.
• Services are generally deemed supplied in Canada if the address obtained by the supplier in
the ordinary course of business is in Canada. Special rules apply with respect to
telecommunication, transport and certain other industries and activities.
• Generally, supplies made in Canada by a non-resident are treated as Canadian supplies if the supply is made in the course of a business carried on in Canada by the non-resident or if the
non-resident is a registrant for GST purposes. Special rules apply to concerts, stage
performances, sports events, etc.
• A supply of intangible personal property is deemed to occur where the property is used if
it is geographically specific. If the supply of intangible personal property is not geographically
specific, the supply is generally deemed to be made where the address obtained by the
supplier in the ordinary course of business is.
Importation
The GST legislation is dovetailed with the Customs Act such that any person who is liable for duty on
goods imported into Canada (or would be liable if the goods are dutiable) is also liable for GST on the
goods. The GST is collected pursuant to the Customs Act and Schedule VII of the GST Legislation prescribes a list of non-taxable importations.
Registration
Every person (including companies, trusts, partnerships, etc.) engaged in a commercial activity in Canada must apply (Form RC1 or RC1A) to be registered within 30 days of first making a taxable supply.
A small supplier with taxable supplies of less than $30,000 per annum is not required to register nor
collect GST/HST on its supplies although it may elect to register and thereby be eligible to claim input
tax credits. Taxable supplies include zero-rated supplies as well as taxable supplies. In establishing the
$30,000 annual sales limit, sales of all associated companies must also be considered. Similar rules apply to Quebec’s QST.
GST/HST/QST Returns
Registrants are to file monthly, quarterly or annual GST/HST/QST returns depending upon their reporting period. Non-registrants are required to file return within one month of the end of their reporting
period for which any GST/HST/QST is remittable. Generally, non-registrants have a calendar-month
reporting period.
The following table illustrates the reporting period:
Annual Taxable Sales
Over $6,000,000
Over $1,500,000 but not over
$6,000,000
$1,500,000 or less
Assigned Filing Frequency
Monthly
Quarterly
Possible Election
None
Monthly
Annual (with or without
installments)
Monthly or quarterly
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For GST/HST/QST annual filers, returns are due within three months of the fiscal year end. For quarterly
and monthly filers, returns are due within one month of the end of the quarterly or monthly reporting
period.
Penalties and Interest
Failure to file returns, provide required information or the making of false statements or omissions will
result in penalties. In addition, penalties and interest charges apply on late payments of GST/HST/QST
or any required installments.
Records
Every person engaged in a commercial activity in Canada, required to file a GST/HST/QST Return or
who makes an application for a rebate or refund of GST/HST/QST is required to keep records in English
or French in Canada (or elsewhere if specified in writing by the Minister) in form and containing such
information as to enable the determination of the GST /HST/QST liability or amount of rebate or refund.
Generally, records are required to be retained until six years after the year to which they relate.
General
There are a myriad of special rules, regulations, rebates, elections, etc. in relation to the application of
the GST/HST/QST legislation. It is advisable to seek professional advice.
Customs Duties
Customs duties are levied under the Customs Act on goods imported into Canada. The amount of duty
applicable depends upon the rate of duty applicable to the specific goods, the value of the goods for
duty purposes and the origin of the goods. There are a myriad of tariff classifications and duty relief
and exemption provisions.
Excise Taxes
Excise taxes other than the Goods and Services Tax are also levied under the Excise Tax Act and generally
apply to clocks, jewelry, large passenger vehicles and automobile air conditioners, tobacco products and
petroleum products.
In addition, taxes apply on Canadian airfares pursuant to the Air Transportation Tax Act.
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Part II
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Provincial Sales Tax
The following table illustrates provincial and territorial sales tax rates in Canada:
Sales Tax Rates in Canada after June 30, 2010
Province
GST
HST
GST in Base
Provincial
Official Rate
Provincial Effective
Rate (including HST
provincial component
Combined Rate
5%
Yes
7.5%
7.875%
12.875%
Civil year 2011
5%
Yes
8.5%
8.925%
13.925%
January 2010 and
5%
Yes
9.5%
9.975%
14.975%
N/A
7%
12%
Quebec
Before January
1,2011
after
British Colombia
5%
Yes
Alberta
5%
N/A
0%
5%
Saskatchewan
5%
N/A
5%
10%
Manitoba
5%
N/A
7%
12%
Ontario
5%
Yes
N/A
8%
13%
New Brunswick
5%
Yes
N/A
8%
13%
Nova Scotia
5%
Yes
N/A
10%
15%
Prince Edward Island
5%
10%
10.5%
15.5%
Newfoundland and
5%
N/A
8%
13%
Yes
Yes
Labrador
Yukon
5%
N/A
0%
5%
North West
5%
N/A
0%
5%
5%
N/A
0%
5%
Territories
Nunavut
In addition to provincial sales taxes and income taxes, most of the provinces levy a myriad of other taxes which generally apply to business capital, payrolls, accommodations, tobacco products,
petroleum products and mining, insurance, property taxes, financial institutions, gambling, utilities,
alcoholic beverages, business registration fees and various licenses and fees including motor vehicles,
etc. Professional advice is advisable.
Local Government Taxes
Local government (villages, towns, cities and municipalities) services are financed through a mixture of
central government grants and local taxes levied by the local authorities.
Local taxes generally include real property taxes, business occupancy taxes based upon property values
used in a business, deed transfer tax, etc.
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PART III
LABOUR REGULATIONS, WELFARE AND
SOCIAL SECURITY
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Part III
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Chapter 10 Employment and Industrial Relations
Employment and Labour Standards
Each of the provinces and territories has separate legislation regarding employment and labour
standards.
Minimum Wages and Hours of Work
Minimum Wage
Per Hour
8.75
8.80
9.25
9.50
10.25
9.65
9.50
9.65
9.30
British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
New Brunswick
Nova Scotia
Prince Edward
Island
Newfoundland & 10.00
Labrador
10.00
Northwest
Territories
Nunavut
11.00
Yukon
9.00
Effective June 01, 2011
Regular Hours
Per Day
8
8
8
8
8
-
Hours of Work Per
Week
40
44
40
40
48
40
44
48
48
Overtime After
Following Hours
8/day/ 40/wk
8/day/ 44/wk
8/day/ 40/wk
8/day/ 40/wk
44 wk
40 wk
44 wk
48 wk
48 wk
-
40
40/wk
8
40
8/day/ 40/wk
8
8
40
40
8/day/ 40/wk
8/day/ 40/wk
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Vacation and Holiday Pay
Employees are entitled to paid vacations and statutory holidays.
Annual Vacations
2 weeks after 1 year, 3 weeks after 5 years
2 weeks after 1 year, 3 weeks after 5 years
3 weeks after 1 year, 4 weeks after 10 years
2 weeks after 1 year, 3 weeks after 5 years
2 weeks after 1 year
2 weeks after 1 year, 3 weeks after 5 years
2 weeks after 1 year, 3 weeks after 8 years
2 weeks after 1 year, 3 weeks after 8 years
2 weeks after 1 year, 3 weeks after 8 years
2 weeks after 1 year, 3 weeks after 15 years
2 weeks after 1 year, 3 weeks after 6 years
2 weeks after 1 year, 3 weeks after 6 years
2 weeks after 1 year
British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
New Brunswick
Nova Scotia
Prince Edward Island
Newfoundland & Labrador
Northwest Territories
Nunavut
Yukon
Statutory Holidays
Name
New
Years
Day
British Columbia
X
Alberta
X
Saskatchewan
X
Manitoba
Ontario
Family
Day
Canada
Day
First
Monday
in August
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Quebec
X
*
X
New Brunswick
X
X
X
Nova Scotia
X
X
X
X
X
Prince Edward
Island
X
X
X
X
X
Newfoundland
& Labrador
X
X
X
X
Northwest
Territories
X
X
X
Nunavut
X
X
Yukon
X
X
X
Good
Friday
Victoria
Day
X
National
Aboriginal
Day
St. Jean
Baptiste
Day
X
X
Discovery Labour ThanksDay
Day
giving
Day
Remembrance
Day
Christmas
Day
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Boxing
Day
* Either Good Friday or Easter Monday
In addition to the above statutory provincial holidays, many cities have a Civic Holiday on the 1st
Monday in August. Boxing Day is a commonly given holiday by employers.
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Maternity and Parental Leave
Maternity and parental leave is unpaid leave. The various provincial laws generally require that benefits
and seniority be maintained while on leave. The employee can receive EI payments that are 55% of
gross wages and can work part time (while on parental leave) and still receive EI payments that are 25%
of gross wages.
British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
New Brunswick
Nova Scotia
Prince Edward Island
Newfoundland & Labrador
Northwest Territories
Nunavut
Yukon
Required Time
Employed
Maternity Leave
(Weeks)
Parental Leave
(Weeks)
12 months
20 weeks
7 months
13 weeks
12 months
20 weeks
20 weeks
12 months
12 months
12 months
17
15
18
17
17
18
17
17
17
17
17
17
17
37
37
37
37
37
52
37
52
35
35
37
37
37
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Part III
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Termination
Employees are required to give up to 4 weeks notice of intent to terminate depending on their length
of employment and province.
Employers are required to give the following notices of termination:
British Columbia
1 week after 3 months employment / up to 8 weeks after 8 years
Alberta
1 week after 3 months employment / up to 8 weeks after 10 years
Saskatchewan
1 week after 3 months employment / up to 8 weeks after 10 years
Manitoba
One full pay period after 30 days employment
Ontario
1 week after 3 months employment / up to 8 weeks after 8 years
Quebec
1 week after 3 months employment / up to 8 weeks after 10 years
New Brunswick
2 weeks after 6 months employment and 4 weeks after 5 years
Nova Scotia
1 week after 3 months employment / up to 8 weeks after 10 years
Prince Edward Island
2 weeks after 6 months employment and 4 weeks after 5 years
Newfoundland &
Labrador
1 week after 1 month employment and 2 weeks after 2 years
Northwest Territories
2 weeks after 3 months employment / up to 8 weeks after 8 years
Nunavut
2 weeks after 3 months employment / up to 8 weeks after 8 years
Yukon
1 week after 6 months employment / up to 8 weeks after 8 years
There are additional regulations in many of the provinces for large lay-offs of employees. Also, a large
body of common law is being developed by the judiciary for wrongful dismissal.
Additional Information
The preceding comments are a very brief summary of some of the regulations. Additional information
should be obtained from the relevant Provincial Employment Standards Boards (See Appendix “A”).
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Part III
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Chapter 11 Canadian Social Security
Canadian Social Security programs provide a range of benefits including sickness, unemployed and injured worker benefits. Major medical care is available free of charge. Old Age Security provides benefits to all Canadians 65 years and older. The Canada Pension Plan provides retirement pensions to
those who have been employed in Canada. Employment Insurance provides income to individuals who
are temporarily out of work. Receipts from Old Age Security, Canada Pension Plan and Employment
Insurance are taxable for income tax purposes. There is a current review underway of Canada’s social
security program.
Old Age Security
Previous employment is not a factor in determining eligibility nor is it necessary to be retired. To qualify,
the recipient:
• must be age 65 or over, and
• must be a Canadian citizen or a legal resident of Canada and have a minimum of 10 years of residence after reaching age 18, or
• if no longer a resident of Canada, must have been a Canadian citizen or a legal resident of Canada at the time the recipient ceased to reside in Canada, and had resided in Canada for at least 20 years after reaching age 18.
• If an individual does not meet the 10 or 20 year residence requirement, they may still
qualify; if they have lived in a country with which Canada has concluded an agreement on social
security or have contributed to the social security system of that country.
The amount of pension to be received depends upon the amount of time resided in Canada. Maximum
Old Age Security benefits are $521.62 per month as at October 2010.
Canada Pension Plan
The Canada Pension Plan (CPP) provides benefits upon retirement, disability or death. It is a contributory plan funded by employees, employers and the self-employed. Contribution is compulsory on earnings from salary or wages or on net earnings from self-employment.
The contribution rate for 2010 is 4.95% for each of the employee and employer. Self-employed individuals pay both portions, or 9.9%. Contributions are only applicable to the first $43,700 of income. The
contribution rates are reviewed every 3 years to make sure the plan continues to be financially secure.
Changes to the rate can only be made by an Act of Parliament and require the agreement of at least two
thirds of the provinces representing at least two thirds of the population.
Recently, the contribution rate and limits have increased yearly.
1. Retirement Pension for 2010
• A CPP retirement pension is earnings related. Maximum benefits are as follows:
• Maximum Monthly pension
If starting at age 60
$ 653.92
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Labour Regulations, Welfare and Social Security
If starting at age 65
$ 934.17
If starting at age 70
$ 1,214.42
• The amount depends on the level of earnings during the contributory period, and the age at which the recipient begins receiving the pension.
• The benefit is payable in Canadian funds, anywhere in the world, for the recipient’s lifetime.
• To be eligible for a CPP retirement pension, a person must have made at least one valid
contribution to the plan and be at least 65 years of age or between the ages of 60-64 and have substantially or completely stopped working.
2.
3.
Disability Benefits
• Disabled contributors under age 65 are eligible for maximum benefits of $1,126.73 per month.
Death Benefit
• CPP pays a lump sum death benefit. The current maximum is $2,500.
4. Survivor Benefits
Maximum monthly surviving spouse’s pension
if under 45 years of age
without a child and not disabled
$ 459.43
with at least one child buy not disabled $ 745.93
disabled, with or without a child
$ 776.41
If aged between 45 and 64 inclusively
$ 776.41
If aged 65 and over
$ 560.50
International Social Security Agreements
Canada is expanding its International Social Security Agreements with other countries which have been
the source of significant numbers of immigrants.
These Agreements coordinate the operation of the Old Age Security program and the Canada Pension
Plan with comparable programs of other countries to:
• remove restrictions, based on nationality, which may otherwise prevent Canadians from
receiving benefits under the legislation of the other country,
• ease or eliminate restrictions on the payment of social security benefits abroad,
• eliminate situations in which a worker may have to contribute to the social security programs of both countries for the same work, and
• assist migrants in qualifying for benefits based on the periods they have lived or worked in each country.
For details on social security agreements with specific countries, please go to:
www.hrdc-drhc.gc.ca/isp/common/intind_e.shtml.
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Employment Insurance
The new Employment Insurance system, effective June 30, 1996, replaces the Unemployment Insurance
Act and National Training Act.
The Employment Insurance Act has two parts: temporary income benefits and the creation of active
re-employment measures.
Benefits awarded are based on the number of hours worked. Depending on the unemployment rate in
each area, individuals requiring assistance must have a total of 420-700 hours of work before becoming
eligible for benefits and the maximum annual benefit rate is $39,000 for 2003.
Premiums for employers and employees will be set in the fall of 2003 for the 2004 year. Currently,
employees pay $2.10 for every $100 of earnings and employers pay 1.4 times the employee rate. Premiums are paid on the first dollar amount earned to a yearly maximum of $39,000.
Under the Pre-Employment benefit, people will be provided with benefits to assist them in returning
to work:
Targeted wage subsidies: A wage subsidy arranged with the employer to give direct work experience.
Self-Employment: Financial assistance is available to assist in commencing a new business.
Targeted Earnings Supplements: Supplements are offered to individuals who have found employment
which does not pay as much as the previous place of employment.
Worker’s Compensation
Each province administers its own program to provide coverage for workplace injuries or occupational
disease. The plans differ between provinces. The following are details of one province’s plan:
• The plan is funded by premiums collected from employers. The premium rate depends on the employer’s risk category, claims experience and size of payroll.
• The program will pay 90% of workers net earnings up to a maximum amount (currently
maximum of $58,800 gross earnings).
• There are two different payment types for permanent impairments:
• Non-economic loss payments to recognize permanent clinical impairment (one time cash
payment maximum of $63,685).
• Economic loss payments to recognize disability or the impact of work-related injury/illness may have on a worker’s capacity to earn wages (monthly payments based on short-
term impairment formula).
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Child Tax Benefit
The Child Tax Benefit is a tax-free monthly payment to help with the cost of raising children under the
age of 18. The amount of benefits received is based on the number of children in the family and on
information from the parents’ income tax returns. To direct payments to families who need them most,
CRA gradually reduces payments to families with higher income. Currently, the basic benefit is reduced
if the family income is more than $33,487.
Social Assistance
Provinces and cities provide welfare payments to individuals without adequate means of support. The
level of support depends on the ages and the number of people in the family.
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Chapter 12 Introduction to Nexia’s
Canadian Offices
Nexia Canada
A part of Nexia International, Nexia Canada is a network of five Canadian member accounting firms,
associated with one another to share information, resources, best practices, training programs and joint
marketing initiatives to enhance its members’ services to local Canadian companies. Such networking is
especially beneficial to members’ clients looking for international opportunities.
With member firms in Vancouver, Toronto, Montreal and Halifax, Nexia Canada offers a truly national
perspective and reach that extends coast-to-coast. Comprised of the leading mid-sized accounting firms
in their respective markets, the Nexia Canada members offer a cohesive team approach while providing
distinctive senior counsel and hands-on guidance.
Nexia Canada’s member firms help clients through the increasingly complex financial maze of national and international accounting and tax regulations, while offering creative solutions based strategy.
The members provide accounting, audit, taxation and business consulting services to businesses and
individuals in Canada and throughout the world.
The Canadian network includes Davidson & Company LLP; Zeifmans LLP; Nexia Friedman LLP; Perreault
Wolman Grzywacz; and Lyle Tilley Davidson.
Davidson & Company, LLP – Vancouver
Davidson & Company LLP was founded in 1984 and provides auditing, accounting and taxation services to private and public companies, as well as to individuals. The firm has grown substantially over
the years, predominately due to the concentration on serving the public markets in Canada and to a
lesser extent, the United States and Internationally. Davidson & Company LLP know the procedures
and have the staff and partners necessary for taking a company public and for providing all the required
compliance services once a company becomes public. Public company clients are in various industry
sectors, with the primary focus in the resource sector. Davidson & Company LLP also have a wide base
of clients that include private companies and high profile, as well as high net worth, individuals.
Included in their client profile are professional firms such as legal, medical, dental, and engineering.
Other private company sectors serviced include manufacturing, distribution, food service, insurance
brokerage, retail, real estate and construction. They have an experienced tax department that services
owner-managed businesses, as well as clients with multinational operations.
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Zeifmans, LLP
For more than five decades, Zeifmans LLP has offered powerful financial solutions to small and medium
size companies, both privately and publically owned.
From its earliest days, the firm has maintained a steadfast dedication to forging long-lasting client
relationships with an emphasis on accessibility, cost-efficiency and staff continuity. The complementary
synergy of each partner’s specialization skills offer authoritative insight and assures the uncompromising excellence that is the hallmark of the Firm.
The Firm has an extensive local, national and international roster of clients, and among its litany of corporate appointments and positions, is a designated Panel Auditor of the Investment Dealers Association
of Canada, and Zeifmans is a participant of the Canadian Public Accountability Board and the U.S. Public
Company Accounting Oversight Board.
Nexia Friedman, LLP – Montreal
Nexia Friedman has been serving the varied needs of the Montreal business community in English and
in French for over 50 years. Its team of seasoned experts provides a broad range of Audit/Assurance,
Taxation, Financial Advisory, Business Valuation, Forensic Accounting and Litigation Support services.
Nexia Friedman’s client base includes a wide variety of businesses spanning many sectors including
manufacturing, wholesale, retail, the service sector and professional clients, and includes both private
and public companies as well as both Canadian and foreign businesses.
As business in the 21st century becomes increasingly globalized, Nexia Friedman has adapted and continues to adapt to the changing needs of its clients. Nexia Friedman is an original member of Nexia
Canada. This affiliation provides its clients with the concurrent advantages of having access to a global
source of expertise along with the benefits of personalized attention that can only come from a local
firm.
Nexia Friedman, and particularly its tax group, has attracted a team of professionals that provide
outstanding breadth and depth in serving local, national and international clients. It has developed a
particular expertise in and has become a one-stop-shop assisting and guiding foreign businesses, investors and their advisors in investing in or starting up operations in Canada.
The Nexia Friedman Forensic Accounting and Litigation support team is highly respected in the legal
community and is often called upon to determine damages, investigate questionable transactions and
testify in courts.
Nexia Friedman’s innovative thinking and unequaled commitment to understanding the complexities of
its clients’ businesses, both the challenges and potential for growth, have earned for the Nexia Friedman team a well deserved reputation for a very high standard of quality – one that our clients and other
professionals have come to appreciate and rely on.
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Perreault, Wolman, Grzywacz & Co. Montreal
Perreault, Wolman, Grzywacz & Co. has its origins over 60 years ago in Montreal, Quebec. The firm is
fully bilingual and multicultural and provides all the services to meet the needs of private companies
and their stakeholders including audit, management consulting, mergers and acquisitions, financing and
taxation. To meet these needs the firm works with a team of Bankers and Lawyers and deals with all
Government agencies and taxation authorities to benefit the successful growth potential of its clientele.
The clientele operate in all industries and professions, both internationally and locally and include many
charities and not for profit organizations.
Lyle Tilley Davidson – Halifax, Dartmouth
Lyle Tilley Davidson, organized in 1978, is a mid-sized general practice public accounting firm with a
client base spread throughout the Atlantic Provinces. They provide auditing, accounting, valuations,
business consulting and taxation services to clients that range from individuals to corporations in excess
of 200 workers and annual gross revenue in excess of $30,000,000. Their clients include all types of
businesses, including co-operatives as well as not-for-profit organizations and government bodies.
Lyle Tilley Davidson are also knowledgeable of government funding programs, have contact with major
lending institutions, government assistant bodies and other financial bodies in each province. Along
with the traditional audit and assurance services, the Partners and staff are experienced with various
tax, accounting and business advisory services including a full range or corporate and personal tax planning, business valuations, financial projections and small business accounting system implementation
and support.
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Chapter 13 Nexia International
Nexia International is a leading worldwide network of independent, high quality accounting and
consulting firms with 580 offices in over 100 countries, which helps to meet the business and financial
needs of organisations and individuals with an international outlook.
Nexia member firms provide the highest standards of audit, accounting, tax and advisory services
to help guide you through the increasingly complex global business and financial environment.
Nexia International is currently represented in the following countries:
Argentina
Australia
Austria
Azerbaijan
Bahrain
Belgium
Bolivia
Botswana
Brazil
British
Virgin Islands
Burkina Faso
Cameroon
Canada
Cayman Islands
Channel Isles
Chile
China
Colombia
Costa Rica
Cyprus
Czech Republic
Denmark
Dominican
Republic
Ecuador
Egypt
El Salvador
Estonia
Finland
France
French
Polynesia
Germany
Ghana
Gibraltar
Greece
Guatemala
Honduras
Hong Kong SAR
Hungary
India
Indonesia
Iran
Ireland
Isle of Man
Israel
Italy
Japan
Jordan
Kazakhstan
Kenya
Korea
Kuwait
Latvia
Lebanon
Liechtenstein
Lithuania
Luxembourg
Malawi
Malaysia
Malta
Mauritius
Mexico
Mongolia
Morocco
Namibia
Netherlands
Nevis
New Zealand
Nigeria
Norway
Oman
Pakistan
Palestine
Panama
Paraguay
Peru
Poland
Portugal
Puerto Rico
Qatar
Romania
Russia
Saudi
Arabia
Singapore
Slovak Republic
Slovenia
South Africa
Spain
Sri Lanka
Sweden
Switzerland
Taiwan
Tanzania
Thailand
Tunisia
Turkey
Ukraine
United Arab
Emirates
United
Kingdom
United States
Uruguay
Venezuela
Vietnam
Full contact details can be accessed at www.nexia.com or by contacting the International Secretariat:
Nexia International
4 Harley Street
London
W1G 9PB
T: +44 20 7487 4648
F: +44 20 7487 3484
E: [email protected]
Nexia International does not accept any responsibility for the commission of any act, or omission to act by, or the liabilities of, any of its
members. Nexia International does not accept liability for any loss arising from any action taken, or omission, on the basis of this report.
Professional advice should be obtained before acting or refraining from acting on the contents of these publications.
Membership of Nexia International, or associated umbrella organisations, does not constitute any partnership between members, and
members do not accept any responsibility for the commission of any act, or omission to act by, or the liabilities of, other members.
Nexia International is the trading name of Nexia International Limited, a company registered in the Isle of Man.
Company registration number: 53513C.
Registered office: 2nd floor, Sixty Circular Road, Douglas, Isle of Man, IM1 1SA.
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Part 1
General Business and Legal Requirements
APPENDICES
55
Appendices
Appendix A
Provincial Employment
Standards Boards
British Columbia
Employment Standards Branch
Ministry of Skills Development & Labour
PO Box 9571, Stn Prov Govt
#400, 3960 Quadra Street
Victoria BC V8W 9K1
Tel: (250) 952-4738
Alberta
Employment Standards Branch
Main Floor Sterling Place
9940 – 106 Street
Edmonton AB T5K 2N2
Tel: (780) 427-3731
Saskatchewan
Employment Standards Branch
Department of Human Resources
Labour and Employment
1870 Albert Street
Regina SK S4P 3Y7
Tel: (306) 787-2438
1-800-667-1783
Manitoba
Employment Standards Branch
Manitoba Labour
Room 604 - 401 York Avenue
Winnipeg, MB R3C 0P8
Tel: (204)945-3352
Ontario
Employment Standards Branch
Ministry of Labour
400 University Avenue
Toronto ON M7A 1T7
Tel: (416) 326-7160 (GTA)
1-800-531-5551 (Canada-wide)
Quebec
Direction des Decrets
Ministère du Travail
425 rue St. Anable
Quebec QC G1R 4Z1
Tel: (418) 643-4415
New Brunswick
Employment Standards Branch
Department of Training and
Employment Development
P.O. Box 6000
Chestnut Complex
470 York Street
Fredericton NB E3B 5H1
Tel.: (506) 453-2597
Nova Scotia
Employment Standards Branch
Nova Scotia Environment and Labour
5151 Terminal Road
PO Box 697
Halifax, NS B3J 2T8
Tel: (902) 424-5300
Prince Edward Island
Employment Standards Advisory Board
Department of Labour
31 Gordon Drive
PO Box 2000
Charlottetown PE C1A 7N8
Tel: (902) 368-5550
Northwest Territories
Labour Standards Board of the NWT
PO Box 2804
Yellowknife NT X1A 2L9
Phone: (867) 873-7924
56
Newfoundland & Labrador
Labour Standards Division
Department of Labour
3rd Floor, Beothuck Building
20 Crosbie Place
P.O. Box 8700
St. John’s, NL A1B 4J6
Tel: (709) 729-2743 / 729-2742
Appendices
Yukon
Labour Standards Board
Labour Services
Department of Community Services
PO Box 2073
Third Floor, Law Centre
2130 - Second Avenue
Whitehorse, YT Y1A 2C6
Tel: (867) 667-5944
57
Appendices
Appendix B
Canadian Member Firms of Nexia International
Lyle Tilley Davidson
1718 Argyle Street, Suite 720
Halifax, Nova Scotia
Canada B3J 3N6
Tel: (902) 423-7225
Fax: (902) 422-3649
Contact: Graham J. Sweett
Email: [email protected]
Web: www.ltdca.com
Nexia Friedman
8000 Decarie Blvd, Suite 500
Montreal, Quebec
Canada H4P 2S4
Tel: (514) 731-7901
Fax: (514) 731-2923
Contact: Steve Harrar
Email: [email protected]
Web: www.nexiafriedman.ca
Perreault, Wolman, Grzywacz & Co.
5250 Ferrier Avenue, Suite 814
Montreal, Quebec
Canada H4P 2N7
Tel: (514) 731-7987
Fax: (514) 731-8782
Zeifmans, LLP
201 Bridgeland Avenue
Toronto, Ontario
Canada M6A 1Y7
Tel: (416) 256-4000
3rd. Floor Fax: (416) 256-4003
4th. Floor Fax: (416) 256-4001
Contact: Larry Zeifman
Email: [email protected]
Web: www.zeifmans.ca
Davidson & Company, LLP
1200 - 609 Granville Street
P.O. Box 10372, Pacific Centre
Vancouver, British Columbia
Canada V7Y 1G6
Tel: (604) 687-0947
Fax: (604) 687-6172
Contact: Bill Davidson, FCA
Email: [email protected]
Web: www.Davidson-Co.com
Contact: Mark Strohl
Email: [email protected]
Web: www.pwgca.com
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