Canada Accounting and Tax Services
By engaging Tetra Consultants for Canada accounting and tax services, you can be confident that you will be in the best hands. Our team of Chartered Accountants will ensure that your firm’s financial statements, corporate tax returns and audits are timely completed without the need for you to travel.
Additionally, outsourcing your accounting and tax needs to Tetra Consultants will allow you to reduce overhead costs while be ensured of timely reporting and filings. Before the start of the engagement, our Chartered Accountants will also keep you updated on all the required deadlines and expectations. Thereafter, we will prepare all required filings in advance to ensure that the stipulated deadlines are met.
Overview of Canada Tax system
There are four main taxes imposed in Canada:
- the income tax which levied on the income earned by individuals residing in Canada;
- the corporate tax which is applied to the income generated by companies in Canada;
- the sales tax which is also known as the Harmonized Sales Tax or Value Added Tax;
- the property tax which is applied to the income derived from owning residential property.
What are the core legislations governing Canada’s income tax regime?
Both foreign and local entrepreneurs and individuals residing in Canada must abide by the following laws related to taxation:
- The Income Tax Law which is the main act governing taxation at federal and regional levels;
- The Tax Rebate Discounting Law which provides for the refund of taxes paid in Canada;
- The Income Tax Conventions Interpretations Law which provides for the tax agreements signed by Canada;
- The Income Tax folios which is a set of regulations establishing the taxation of special categories of taxpayers.
Annual Reporting Requirements
- Generally, a newly incorporated company can choose any tax-year end as long as its first tax year is not more than 53 weeks from the date of incorporation
- The corporation must file its income tax returns within 6 months of the end of its fiscal period.
- Typically, businesses can adopt the accrual method of accounting.
- Under which, income have to be reported in the fiscal period you earn it in spite of when the income was received.
- Allowable expenses incurred in the fiscal period can be deducted even if they are unpaid for yet.
- All corporations are also mandated to keep their accounting records for 6 years after the end of the financial period to which each record relates to.
Canada Corporate Income Tax
- The net federal tax rate is held at 15%.
- For various Canadian-controlled private corporations, you can claim for a deduction if you are operating a small business. This will effectively reduce the tax rate you are liable for.
- Based on where your business is located at – you may be subjected to 2 different income tax rates. The lower rate will apply to income-eligible for the federal small business deduction while the higher rate will apply to all other sorts of income.
- Provincial Tax Rate, Provinces and territories apply two tax rates that is, a low rate and a high rate. The low rate applies to business income that qualifies for small business deduction (varying between 0% and 8%). The high rate applies to all other income (varying between 11.5% and 16%).
- Corporations resident in Canada are subject to taxation on their worldwide income. Foreign non-resident companies are subject to taxation on Canada-sourced income and on capital gains arising upon the disposition of taxable Canadian property. On the other hand, they benefit from some exemptions.
Capital Gains Taxation
- 50% of capital gains is included in taxable income for the year in which the gains are realized and is subject to the normal rate of tax. Capital gains deriving from the disposal of qualified small business corporation shares are exempt up to CAD 892,218 (for 2021 – adjusted every year).
- Non-resident corporations are subject to corporate income tax on taxable capital gains arising on the disposition of taxable Canadian property (50% of capital gains less 50% of capital losses).
Other Corporate Taxes
- Taxes on natural resources, namely oil and gas, mineral and timber are applied across Canada. Federal and provincial resource royalties and taxes are collected on resource production on federal and provincial Crown lands respectively.
- Certain rental payments and management fees are also subject to a 25% withholding tax, unless otherwise agreed upon in a tax treaty.
- Property taxes are levied by municipalities on the estimated market value of real property within their boundaries and by provinces and territories on land not in a municipality.
- All provinces and territories impose on insurance companies a premium tax on life and non-life insurance, ranging from 2% to 5%. Insurance companies are subject to a tax on capital in Quebec and Ontario.
- Quebec also levies a compensation tax on insurance premiums at the rate of 0.48% (reduced to 0.30% between 2022 and 2024, will be abolished from 1 April 2024).
- The federal government levies a Financial Institutions Capital Tax on banks, trust and loan corporations, and life insurance companies when taxable capital employed in Canada exceed CAD 1 billion, at a rate of 1.25%.
- All provinces and territories charge a land transfer tax or registration fee on the purchaser of real property within their boundaries, calculated on the sale price or the assessed value of the property sold at rates varying between 0.02% to 3% (higher rates may apply for non-residents).
- Employers need to contribute to social security on behalf of their employees, with rates varying according to the territory. The maximum pensionable earnings under the Canada Pension Plan (CPP) for 2021 will be CAD 61,600.
- Payroll taxes are charged at a minimum rate between 1.95% and 4.26%.
- Provinces and territories implement carbon taxes in accordance with the Greenhouse Gas Pollution Pricing Act.
Consumption Taxes – GST, HST & PST
Nature of the Tax
- There are three types of sales taxes in Canada, depending on the province: the GST (Federal Goods and Services Tax), the HST (Harmonized Sales Tax) and the PST (Provincial Sales Tax).
- Some provinces do not levy a PST or levy a single-incidence retail sales and use tax (a type of excise duty).
- The federal GST standard rate is 5%.
- The PST general rates are as follows: BC, 7%; SK, 6%
- Some provinces (New Brunswick, Newfoundland, and Labrador, Nova Scotia, Ontario, Prince Edward Island) have fully harmonized their sales tax systems with the GST and impose a single HST (at 15% – 13% for Ontario).
- Quebec is not a participating province and levies a separate tax, the QST (Quebec Sales Tax) at a 9.975% rate, bringing the combined effective rate to 14.975% in Quebec.
- Other non-participating provinces include Manitoba (combined rate of 12%) and Saskatchewan (combined rate of 11%), which levy their own retail sales tax, and Alberta, which does not levy a retail sales tax.
Canada Goods and Services Tax (GST)
- All businesses will be liable to charge GST. The rate of tax is primarily dependent on the place of supply.
- Place of supply refers to where the sale, lease or other supply is made.
- This will largely depend on the province or territory your business is located at.
- Generally, a person (e.g. an individual, a corporation, a trust, an association) is required to register and collect GST/HST if the person makes taxable supplies in Canada and the value of its taxable supplies made inside or outside Canada, including taxable supplies of any associated entities, exceeds 30,000 Canadian dollars (CAD) in the last 4 calendar quarters or in a single calendar quarter.
- If the value of those supplies is below this registration threshold, the person can choose to register voluntarily for GST/HST purposes. Once registered, the person must collect GST/HST on all its taxable sales.
- Under the Greenhouse Gas Pollution Pricing Act, fuel charges will apply in certain provinces and territories.
- Generally, for persons who operate business activities in Alberta, Manitoba, Nunavut, Ontario, Saskatchewan, or Yukon, you will have to register and be liable for fuel charges.
- Fuel charge returns are due by the last day of the calendar month following your reporting period.