Personal taxation in Toronto
Effective personal income tax rate
Teleport city rankings for personal income tax
Canadian residents are taxed at the federal and provincial levels on their worldwide income. Certain income of controlled foreign affiliates is taxed on an accrual basis. Taxation also can arise in respect of investments in certain nonresident trusts and offshore investment funds. Nonresidents are taxed on Canadian-source income and on gains from the disposition of taxable Canadian property.
An individual is resident in Canada if he/she resides in Canada or is ordinarily resident in Canada. A nonresident individual will be deemed to have been resident in Canada if he/she spends at least 183 days in Canada in a calendar year. Except for Quebec provincial tax purposes, domestic residency status may be overridden by a tax treaty.
There are no family income tax returns in Canada. Family members must each compute their income tax liability separately. However, attribution rules may require an individual to report income earned by a family member from property transferred by the former to the latter.
Federal tax rates are progressive up to 33% for 2016 (27.56% for residents of Quebec); up to 29% for 2015 (24.215% for residents of Quebec). Provincial/territorial tax rates also are progressive, with the maximum rate in the range of 11.25%-25.75% for 2015. Ontario also imposes a surtax of up to 56%.
Deductions and allowances
Subject to certain restrictions, deductions or nonrefundable tax credits are granted for various outlays, including payments to registered retirement savings and pension plans, certain moving expenses, union and professional dues, child care expenses, medical expenses, charitable and political donations and investment carrying charges. Tax credits may be available for spouses, age, disability and certain dependents.
Employment income (including most employment benefits), certain investment income and profits earned from a business or profession are taxable at the individual's applicable personal tax rate. Dividends received from a Canadian corporation are subject to a more favorable tax regime.
Fifty percent of capital gains, less allowable capital losses, are included in income and taxed at the individual’s applicable income tax rate.
Other taxes on individuals
Real property tax
Municipal authorities levy taxes on the occupation of real property.
There is no formal inheritance tax in Canada. However, a person who gives property as a gift is deemed to dispose of the property for proceeds equal to its fair market value. There is no formal estate tax, but a deceased taxpayer generally is deemed to have disposed of all property owned immediately before the time of death at fair market value.
Employed persons and their employers are required to make employment insurance and government pension plan contributions, with the amount based on the particular employee's earnings. Self-employed persons also must make government pension plan contributions.
Compliance for individuals
Penalties apply if returns are filed late. Interest is payable on any late balance owed, compounded daily. Where installment payments were required, penalties and interest may apply for late or missed payments.
Filing and payment
Tax on employment income is withheld by the employer and remitted to the tax authorities; however, a taxpayer may be required to make installment payments as well. The deadline to file an individual tax return and pay the outstanding tax liability is 30 April. Individuals and their spouses or common law partners that operate a business or profession have their filing deadline extended to 15 June; however, the tax liability still is due by 30 April.
Corporate taxation in Toronto
Teleport city rankings for corporate income tax
Residents are taxed at the federal and provincial/territorial levels on their worldwide income. Certain income of controlled foreign affiliates is taxed on an accrual basis. Taxation also can arise in respect of investments in certain nonresident trusts and offshore investment funds. Nonresidents are taxed on certain types of Canadian-source income.
Taxation of dividends
Private corporations: Dividends received from a taxable Canadian corporation or a corporation resident in Canada are deductible in computing corporate income tax. However, dividends from nonconnected corporations are subject to an additional tax, which is refunded when the corporation pays out taxable dividends to its shareholders. Dividends received from a foreign company generally are subject to tax, but deductions are available in respect of dividends from foreign affiliates. Where the payer is not a foreign affiliate, a credit for withholding tax generally is available.
A corporation is resident in Canada if it is incorporated in Canada or if its central management and control is located in Canada.
Trading losses may be carried back for three years and carried forward for 20 years. Capital losses may be carried back for three years and carried forward indefinitely.
The federal general corporate income tax rate is 15%. Provincial and territorial general corporate income tax rates range from 11% to 16%.
No, but dividends received by corporate shareholders out of the exempt surplus of foreign affiliates are not taxable.
Foreign tax credit
Foreign nonbusiness and business income tax paid in another country may be credited against Canadian tax on the same profits, but the credit is effectively limited to the amount of Canadian tax otherwise payable on the foreign business income. Excess foreign business income tax paid that cannot be claimed may be carried over on a per-country basis and applied against foreign business income of other years. The excess credit may be carried back three years and carried forward 10 years. Excess foreign nonbusiness income tax may be claimed as a deduction in computing income.
Corporation tax is imposed on a company's profits, which consist of business/trading income, investment income and capital gains. Normal business expenses may be deducted in computing taxable income.
Fifty percent of capital gains, less allowable capital losses, are included in income and taxed at the normal corporate income tax rate.
Other taxes on corporations
See “Other,” below.
Real property tax
Municipal authorities levy taxes on the occupation of real property. This tax is deductible in calculating the corporate tax liability.
Both the employer and the employee are required to make employment insurance and government pension plan contributions, with the amount based on the employee's earnings.
There is no federal or provincial general corporation capital tax. (Note, however, that a number of provinces and the federal government do impose a capital tax on financial institutions. The territories do not impose this tax.)
Manitoba, Quebec, Ontario, Newfoundland, the Northwest Territories and Nunavut impose a formal payroll tax (called by different names) ranging from 1.95% to 4.3% of the annual gross wages, salary and other remuneration paid by an employer.
Compliance for corporations
Consolidated returns are not permitted; each corporation is required to file a separate return.
Penalties are levied for the late filing of returns, omission of amounts required to be included in computing income in a return or for furnishing false or negligent statements. Penalties also apply for failure to withhold and remit taxes as required.
Subject to specific exclusions, the federal tax authorities will issue an advance income tax ruling to taxpayers, which is a written statement on how they will apply a particular section of the tax law to a definite transaction that has not yet occurred. Once issued, the ruling is binding, provided all the facts—which remain confidential—have been presented by the taxpayer to the tax authorities.
The tax year of a corporation is its fiscal period, which is the period for which the accounts of the business are ordinarily made up. A tax year may not exceed 53 weeks.
Federal and provincial tax authorities require monthly or other periodic installment payments on account of the current year tax liability. Final tax payments generally are due within two months of year end. The corporate tax return should be filed within six months of the end of the taxation year.
Other taxation in Toronto
Goods and services tax
Filing and payment
For a GST/HST and QST monthly or quarterly filer, the return is due on the last day of the month following the end of the reporting period. For an annual GST/HST or QST filer, the return is due three months after the end of the fiscal year for most annual filers (six months after year end for annual-filing listed financial institutions). Quarterly installments are required by all annual filers. For SK and MB PST filers, the return is due on the 20th day of the
The federal GST rate is 5% and the HST rate is 13% for goods and services supplied in the provinces of NB, NL and ON, 14% for PEI and 15% for NS. The QST rate is 9.975%. The PST general rates are as follows: BC, 7%; SK, 5%; and MB, 8%. Only the 5% GST is levied in Alberta and the territories.
A federal value added tax (Goods and Services Tax (GST)) is levied on the provision of most goods and services in Canada. The province of Quebec levies a value added tax (Quebec Sales Tax (QST)) on the provision of most goods and services in Quebec. The QST generally is harmonized with the GST but is administered separately by the province.
GST/HST registration generally is required for every person engaged in a commercial activity in Canada. Registration is not required for small suppliers (i.e. persons who have under CAD 30,000 in worldwide taxable sales) or nonresidents of Canada who do not "carry on business" in Canada. QST registration generally is required for every person engaged in a commercial activity in Quebec, but is not required for small suppliers or nonresidents of Quebec who do not "carry on business" in Quebec. The vendor registration rules for each PST province vary, and some provinces have “reach out” provisions to require registration by out-of-province vendors selling taxable property into the province.
There are numerous anti-avoidance rules to address specific perceived abuses and a general anti-avoidance rule (GAAR), which is meant to be an all-encompassing anti-avoidance rule where no specific rule applies.
When a taxpayer enters into transactions to buy or sell goods or services with a nonarm's length nonresident, the price charged should be the price that would have been set between persons dealing at arm's length. If the price charged differs from an arm's length price, upward or downward adjustments will be made to ensure the price charged reflects an arm's length price. Proper documentation must be maintained to support the transfer pricing methodology used. If contemporaneous documentation is not prepared, penalties may apply if adjustments exceed specified amounts.
Canadian corporations, trusts and individuals that hold or acquire investments outside of Canada are required to report any holdings that are in excess of CAD 100,000 to the Canadian tax authorities on an annual basis. In addition, Canadian corporations, trusts and individuals are required to report to the Canadian tax authorities any transfers or loans made to, distributions received from or indebtedness to a nonresident trust.
Controlled foreign companies
Canadian residents must pay Canadian income tax on a current basis to the extent of their share of foreign accrual property income (FAPI) earned by a controlled foreign affiliate. The definition of “controlled foreign affiliate” is broad, and an anti-avoidance rule may apply if shares are acquired or disposed of and the principal purpose is to avoid this status.
There are limitations on the deductibility of interest on outstanding debts to specified nonresident persons. The amount of interest-bearing debt owed by a Canadian corporation to related nonresident persons can be no greater than 1.5 times the amount of its equity, or a portion of the interest deduction will be disallowed.
Foreign exchange control
None. No restrictions are imposed on borrowing from abroad; the repatriation of capital; or the ability to remit dividends, profits, interest, royalties and similar payments from Canada.
Accounting principles/financial statements
Canadian GAAP requires a Publically Accountable Enterprise to use IFRS. A non- Publically Accountable Enterprise may use IFRS or Accounting Standards for Private Enterprises. Financial statements must be prepared annually.
Principal business entities
These are the corporation, unlimited liability company, sole proprietorship, partnership, joint venture, trust and branch of a foreign corporation.
Royalties paid by a Canadian resident to a nonresident are subject to a 25% withholding tax, unless the rate is reduced under a tax treaty. Copyright payments made in respect of literary, dramatic, musical or artistic works are exempt from withholding tax under domestic law. The domestic law exemption does not apply to payments for a right in, or for the use of, motion picture films or films, videotapes or other means of reproduction for use in connection with television.
Dividends paid by a Canadian resident corporation to a nonresident are subject to a 25% tax, unless the rate is reduced under a tax treaty.
Branch remittance tax
A 25% branch profits tax is levied, unless the rate is reduced under a tax treaty.
Depending on the facts, certain rental payments and management fees may be subject to a 25% withholding tax, unless the rate is reduced under a tax treaty.
Interest paid by a Canadian resident to a nonresident is generally subject to a 25% tax, unless the rate is reduced under a tax treaty. Certain exemptions apply, including an exemption for nonparticipating interest paid to arm's length foreign lenders.
Technical service fees
Depending on the facts, certain technical service fees may be subject to a 25% withholding tax; however, treaty relief generally is available.
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