Canadian tax compliance requirements
Generally, all non-resident corporations carrying on business in Canada are required to file an
annual Canadian corporate income tax return. Canadian corporate tax returns are due six
months after year-end (for example, a June 30 due date for a December 31 year-end). While the
Treaty (or another tax treaty) may grant a company relief from Canadian income taxes, the requirement under the Act to file a Canadian income tax return still exists if the company is carrying on business in Canada. In such cases, the company should file a Canadian corporate
income tax return, claiming the treaty exemption, by the filing due date.
A non-resident of Canada who carries on business in Canada through a PE is subject to the
ordinary principles contained in the Act for the calculation of taxable income and must pay
corporate income tax on any taxable income attributable to the PE.
The business income of a US company’s Canadian PE should be calculated as if the PE were
a separate and distinct person engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the head office and with any other person related to the company.19 Accordingly, the transfer pricing policies should be applied to
ensure that the income of the PE correctly reflects compensation for the PE’s activities in Canada.
In addition to being subject to Canadian corporate income taxes, a non-resident corporation
carrying on business in Canada through a PE (branch) will also be subject to a branch tax of
25%20 on any after-tax profits that have not been reinvested in qualifying property in Canada.21
This branch tax essentially replaces the dividend withholding tax that would be payable on
dividends if the non-resident carried on business in Canada through a Canadian subsidiary.
Non-residents should also be aware of the withholding taxes they could face, and should determine if they are eligible to apply for a waiver to have withholding taxes reduced. Generally,
in Canada, anyone who pays a non-resident a fee, commission, or other amount for services
rendered in Canada needs to deduct and withhold 15% tax from such payments; this includes
non-residents who pay other non-residents for services rendered in Canada.
Non-residents
should also be
aware of the
withholding taxes
they could face...
Taking stock
Non-resident companies need to understand the Canadian corporate tax rules and
review all of their activities in Canada with
the rules in mind. These activities will determine if they are carrying on business in
Canada, and if they have a PE in Canada to
which profits can be allocated. Failure to
comply with the related income tax and tax
filing requirements could lead to penalties
and interest.
ranch tax is reduced to 5% under the
B
19
Treaty Article VII(2).
20
rticle VII(2) of the Treaty.
A
TA 219(1).
I
21
Vancity Investment Management
meets high standards: your standards.
Your clients have come to expect a high standard of service. We’re proud to extend the same
standards of professionalism, expertise, and care and attention your clients deserve. Our team
of experienced and accredited portfolio managers will provide your clients with objective
advice and customized investment services, just as we have done for other high net-worth
individuals, non-profit groups, foundations, unions, and organizations for the past 20 years.
Contact Kim Ly, Investment Management Consultant, to find out how Vancity Investment
Management can help your valued clients reach their financial goals.
[email protected]
778.233.8158
vcim.ca/infocus
40 CPABC in Focus • Sept/Oct 2014
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