doing business in canada - what you need to know
DESCRIPTION
Are you based in another country and thinking about expanding your business into Canada? Looking to understand the legal & tax related issues? On Tuesday, February 25th, 2014, highly experienced professionals Mona Tessier, Don Scott, & Jamie Hollingworth provided 60 minutes of detailed advice for how to conduct business in Canada. To view this Welch LLP webinar (and others), click here: http://www.welchllp.com/resource-centre/videos/webinars/TRANSCRIPT
Welcome to Today’s Webinar
What you need to know
Questions
• Attendees are in listen-only mode• This webinar is being recorded for future on-demand playback• Your participation represents acknowledgement that we are recording• Tweet questions & comments to: #WelchCanada
Windows Mac Tablet
Ground Rules
Presenters
Mona Tessier, CPA, CASenior Manager, Indirect [email protected]/pub/mona-tessier/30/a3b/98
Jamie HollingworthAssociate of [email protected] www.gowlings.comca.linkedin.com/in/jamiehollingworth
Don Scott, FCATax Partner, Director of Tax [email protected]/pub/don-scott-fca/24/714/256
What we will cover today
• Sales Tax Regimes in Canada
• Carrying on Business in Canada
• Corporate Income Tax
• Business Structures
• Sales Tax Considerations
• Employee Considerations
• Other Legal Issues
Sales Tax Regime in Canada
There are two levels of sales taxes:
Level OneNational sales tax called Goods & Services Tax or GST• applicable to most transactions
occurring within Canada• same rules regardless of where
the transaction occurs within Canada.
Sales Tax Regime in Canada
Level TwoProvincial Sales Tax• Applies to transactions that occur within specific
provinces in Canada.• Varies from province to province.• Some provinces have no provincial sales tax. • Other provinces have harmonized their provincial
sales tax with the federal GST. o The harmonized tax regime is called HST. o HST is exactly like GST except the rate is
higher to provide for a provincial component.
• QST is a provincial sales taxo Only applicable to transactions occurring in the
province of Quebec.
GST Registration Requirements
• Requirement to register and collect GST/HST if making taxable supplies in Canada while carrying on a business in Canada.
Carrying on business in Canada
• Canada Revenue Agency policy statement publication P-051R2. • List of factors used to determine whether a non-resident person is carrying on business in
Canada for GST/HST purposes:
the place where agents or employees of the non-resident are located; the place of delivery; the place of payment; the place where purchases are made or assets are acquired; the place from which transactions are solicited; the location of assets or an inventory of goods; the place where the business contracts are made; the location of a bank account; the place where the non-resident's name and business are listed in a directory; the location of a branch or office; the place where the service is performed; and the place of manufacture or production
Carrying on business in Canada
• If in doubt, voluntary registration is an option.
• Risk associated with not registering
when required deemed to have collected the tax
even if not collected • Permanent establishment is not
necessary to be considered to be carrying on a business in Canada for GST/HST purposes.
Corporate Income Tax
• Carrying on business in Canada
• Tax treaty
• Physical Presence
• Permanent Establishment (P.E.)
• U.S. – “Services” Provisions
Corporate Income Tax
• No P.E. / Not taxable in Canada
• Must file tax return
• Annual Penalty - $2,500
• Regulation 105 withholding tax
Corporate Income Tax
• Yes P.E. / Taxable in Canada
• File tax return
• Tax rate 25-31% (Depending on Province)
• Lower tax rate if 50% Canadian ownership
1. Sole Proprietorship
2. Partnership
3. Corporation
4. Branch Operations
Business Structures
1. Sole Proprietorship• Simple, easy to establish
• Profits flow through to the
individual owner
• Liability of the Business is the
liability of the individual operating
the business
• Limited tax planning possibilities
Business Structures
2. Partnership• Two or more individuals or entities carrying on business together for profit
• Under provincial jurisdiction
• Partnership not a distinct entity for tax purposes
• 2 main types:
o General Partnership
o Each partner liable for the debts and obligations of the partnership (unlimited)
o Limited Partnership
o Composed of at least one general partner and any number of limited partners
o General partner manages affairs and has unlimited liability
o Liability of limited partners limited to amount of capital contribution
Business Structures
3. Corporation• Most common business structure
• Distinct legal entity with all legal abilities of a natural person
• Limited liability for shareholders, ease of transfer of assets,
and perpetual existence
• Incorporate Federally or Provincially
• Residency Requirements for Directors
o 25% Canadian for Federal and Ontario Corporations
Business Structures
3. Corporation (cont’d)• Director Liability
o Personal liability for unpaid employee wages and vacation pay, failure by corp. to remit
source deductions and EI/CPP contributions, misrepresentations in public disclosure
documents etc.
o Can limit liability using unanimous shareholder agreement (or shareholder declaration)
and indemnity agreements
• Director and Shareholder meetings
o In person or via written resolution (must be signed by all)
• Unlimited Liability Companies
o Alberta, BC and Nova Scotia only
o Shareholders personally liable for all liabilities of the company
Business Structures
4. Branch Operations• Foreign company can conduct business in Canada
through a branch operation (may require a license
or business registration)
• Not a distinct legal entity – parent company
exposed to debts, liabilities & obligations of
Canadian branch
Business Structures
Corporate Income Tax
• Branch (if no Canadian Sub.)
• Transfer pricing
• Repatriating profits
Branch
• Determine profit of branch
• Allocation of expenses
• Foreign entity registers with CRA / Files tax returns
• Branch Tax
Transfer Pricing
• Respective governments concerned
about shifting profits
• Various methods
• Contemporaneous documentation
• Transfer Pricing Study
• Management Fees
o Withholding tax – 25%
o Not if cost recovery
Repatriating Profits
• Branch tax
• Interest paid to foreign owner
o Thin Capitalization
o Withholding tax - 25% / 10% / 0%
• Dividends paid to foreign owner
o Withholding tax – 25% / 15% / 5%
Sales Tax Considerations
• GST/HST returns must be reported in Canadian currency
• Security requirements when no permanent establishment = one half of the net tax for a year.
Provincial sales tax considerations
• Four Canadian provinces have a separate provincial sales tax regime.
Quebec British Columbia Saskatchewan Manitoba
A National View – January 1, 2014
GST 5%
PST 7%
GST 5%
GST 5%PST 5%
GST 5%RST 8%
HST 13%
GST 5%QST 9.975%
HST 13%
HST 13%
HST 15%
HST 14%
GST 5%
Employee Considerations
General rule: employment income earned in Canada is taxable in Canada regardless of whether the person is employed by a Canadian employer or a non-resident employer. Tax treaty may override the general rule
Example:Canada US treaty – employment income will not be taxed in Canada if…a) Total earnings of the employee while in Canada does not exceed $10,000
per calendar year; orb) The employee does not spend more than a total of 183 days in Canada in
any twelve month period and whose remuneration is not paid by the Canadian subsidiary and the cost is not borne by any permanent establishment in Canada.
Other treaties may also come into play for example social security agreements
Employment Relationship
• More favourable towards the employee
• Employment relationship based on contract (or assumed contract)
Termination of Employment
• No employment “at will” concept in Canada
• Termination Without Cause
o Must provide reasonable notice or pay in lieu
o statutory minimums
o common law
o contract
• Termination With Cause
o Difficult for employer to prove
• Resignation
• Resignation due to constructive dismissal
Employment Law
Restrictive Covenants
• Non-solicitation and Non-competition clauses
o Difficult to enforce in Canada (especially non-compete)
o Must be reasonable in terms of duration, scope and
geographical limits
o Strong public policy interest in Canada in permitting
individuals to work freely in the marketplace
Other Employment Issues:
• Employment Standards legislation
• Human rights codes
• Employment Equity legislation
• Public Health Insurance (medicare)
o Payroll tax in Ontario and Quebec
• Quebec Charter of the French language
Employment Law
Other legal issues to be aware of when doing business in Canada:• Immigration and Work Permit Considerations
• Advertising and Marketing (packaging and labelling)
• Competition and Anti-trust law
• Regulation of Foreign Investments
• International Trade (import/export, anti-dumping, controlled goods etc)
• Environmental Protection
• Intellectual Property
• Privacy Law
• Bankruptcy and Restructuring
• Franchise Law
Visit http://www.gowlings.com/Services/doing-business-in-canada for more information.
Other Legal Issues
Q & A
Mona Tessier, CPA, CASenior Manager, Indirect [email protected]/pub/mona-tessier/30/a3b/98
Jamie HollingworthAssociate of [email protected] www.gowlings.comca.linkedin.com/in/jamiehollingworth
Don Scott, FCATax Partner, Director of Tax [email protected]/pub/don-scott-fca/24/714/256