Tax Management Portfolio, Business Operations in Canada, No. 7050, contains general information and tax rules to enable United States and other foreign businesses to understand the commercial and tax law likely to be of concern to them in their business dealings with Canada. To view this Portfolio, visit Bloomberg Tax for
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Tax Management Portfolio, Business Operations in Canada, No. 7050, contains general information and tax rules to enable United States and other foreign businesses to understand the commercial and tax law likely to be of concern to them in their business dealings with Canada.
Among the non-tax matters covered in the Portfolio are the formation and operation of business entities, anti-trust or combines law, NAFTA and legislation dealing with review of foreign investment in Canada, which may be of particular interest to foreign businessmen.
The rules of income taxation are covered with particular emphasis on problems likely to be encountered by foreign businesses. The discussion of individual and corporate income taxes is based upon the federal Income Tax Act. The discussion of income taxes is directed toward a basic explanation of the Canadian tax system, special rules applicable to corporations, and the taxation of nonresidents. Other sections deal with tax avoidance, the computation of income, and administration of the income tax legislation.
Among the Worksheets are the forms commonly used in connection with the Income Tax Act. For convenience, the text of the Canada-United States Tax Convention (1980) is also reproduced in the Worksheets.
This Portfolio may be cited as Marley and Wooles, 7050 T.M., Business Operations in Canada.
Patrick Marley, B.Comm., Queen's University; LL.B., University of Western Ontario; LL.M., New York University; Barrister and Solicitor of the Bars of Ontario and New York; Tax Partner, Osler, Hoskin & Harcourt LLP.
Sue Wooles, B.Comm., Queen's University; J.D., University of Toronto; LL.M., New York University; Barrister and Solicitor of the Bars of Ontario and New York; Bank of Montreal.
Table of Contents
Detailed Analysis I. Canada and the Canadian Legal System A. Introduction B. The Country, Its Government, and Legal System II. Operating a Business in Canada A. Investment Control — Investment Canada Act 1. General 2. Reviewable Transactions a. Thresholds b. The Substantive Test – Net Benefit to Canada c. Review Process and Timeline 3. Notification 4. National Security Review 5. Competition (Antitrust) – Competition Act a. Overview b. Criminal Offenses c. Reviewable Practices d. Merger Notification and Substantive Review (1) Notification Thresholds (2) The Substantive Test – Substantial Lessening or Prevention of Competition (3) Review Process and Timeline (4) Remedies B. Trade and Commerce Regulation 1. Import-Export a. General b. Import Regulations c. Export Regulations d. Government Programs 2. North American Free Trade Agreement C. Immigration 1. General 2. Temporary Entry 3. Permanent Residents III. Establishing a Business A. Types of Business Organizations 1. General 2. Sole Proprietorships 3. Partnerships, Joint Ventures and Licensing/Franchising 4. Corporations 5. Unlimited Liability Companies B. Financing 1. Securities Legislation 2. Personal Property Security C. Employment Legislation 1. No “At Will Employment” 2. Minimum Standards Legislation 3. Workers' Compensation 4. Human Rights Legislation 5. Privacy 6. Labor Law 7. Employment Equity and Pay Equity 8. Occupational Health and Safety 9. Unemployment, Pension and Health Premiums D. Environmental Legislation 1. Environmental Assessment of Impacts of Proposed Projects 2. Environmental Control of the Operation of Established Facilities E. Consumer Protection Legislation F. Government Disclosure G. Language Legislation IV. General Private and Commercial Law A. Real Property B. Intellectual Property 1. Patents 2. Copyright 3. Trademarks 4. Industrial Designs 5. Semi-Conductor Chips 6. Trade Secrets/Confidential Information C. Bankruptcy Law 1. Creditor Reorganization 2. Liquidation D. Conflicts of Laws V. Regulated Sectors Introductory Material A. Financial Services B. Communications 1. Broadcasting 2. Telecommunications C. Energy and Natural Resources VI. Principal Taxes Introductory Material A. Income Tax B. Estate Tax, Succession Duty and Gift Tax C. Commodity Taxes 1. Federal Customs Duty 2. Anti-Dumping Duty 3. Goods and Services Tax/Harmonized Sales Tax 4. Federal Excise Tax and Excise Duty 5. Provincial Retail Sales and Commodities Taxes D. Corporate Capital Taxes E. Payroll Taxes 1. Canada and Quebec Pension Plans 2. Employment Insurance 3. Provincial Payroll and Health Fund Taxes F. Land Transfer Taxes 1. Ontario Land Transfer Tax 2. Quebec Land Transfer Tax 3. British Columbia Property Purchase Tax 4. Manitoba Land Transfer Tax 5. New Brunswick Real Property Transfer Tax 6. Nova Scotia Deed Transfer Tax 7. Other Provinces and Territories G. Municipal Taxes H. Natural Resource Taxation VII. Administration Introductory Material A. Returns B. Records C. Inspection of Records D. Inquiries E. Assessment F. Payment G. Penalties H. Objection and Appeal I. Advance Rulings J. Fairness Rules K. Functional Currency Reporting VIII. Income Taxation A. Provincial Income Tax B. The Canadian Tax Net 1. Taxation by Residence a. Individual Residence b. Corporate Residence c. Residence of Trusts 2. Tax Base for Canadian Residents 3. Tax Base for Nonresidents of Canada a. Business Income b. Employment Income c. Gains d. Nonresident Withholding Tax e. Part-Time Residents C. The Computation of Income 1. Employment and Similar Income a. Benefits and Remuneration (1) Benefits Generally (2) Automobile Use (3) Interest-Free and Low-Interest Loans (4) Lump-Sum Payments (5) Stock Options b. Deductions in Computing Employment Income c. Deferred and Special Compensation and Tax-Free Savings Accounts d. Termination of Employment 2. Income from Business or Property a. Accounting for Profit b. Taxation Year c. Inventory d. Statutory Inclusions (1) Interest (2) Imputed Interest (3) Contingent Payments (4) Restrictive Covenant Payments e. Deductions in Computing Income (1) Interest and Related Charges (2) Reserves (3) Capital Cost Allowances (4) Goodwill and Other Intangibles (5) Scientific Research f. Ceasing to Carry on Business 3. Capital Gains a. What Is a Capital Gain? b. Taxation of Capital Gains c. Transitional Rules d. Deemed Dispositions e. Rollovers f. Property Receiving Special Treatment g. Capital Losses D. Computation of Taxable Income 1. Personal and Similar Deductions 2. Employee Stock Options 3. Charitable Gifts 4. Part VI.1 Tax 5. Capital Gains Exemption 6. Losses a. Noncapital Losses b. Net Capital Losses c. Farm Losses d. Limited Partnership Losses e. Acquisition of Control f. Corporate Reorganizations g. Nonresident Taxpayers 7. Intercorporate Dividends E. Computation of Tax 1. Individuals 2. Trusts 3. Corporations a. The Basic Rate b. The Small Business Deduction c. Manufacturing and Processing Deduction d. General Corporate Rate Reduction 4. Tax Credits a. Individual Personal Tax Credits b. Investment Tax Credit c. Political Contributions d. Foreign Tax Credit IX. Taxation of Partnerships, Trusts, Corporations A. Partnerships 1. Allocation of Income or Loss 2. Cost of Partnership Interest 3. Transfers of Property Between Partner and Partnership B. Trusts 1. General 2. Deemed Disposition 3. Distributions of Trust Property 4. Nonresidents 5. Specified Investment Flow-through Tax Rules C. Corporations and Their Shareholders 1. Dividends and Distributions a. Taxable Dividends (1) Corporate Recipients Generally (2) Term Preferred Shares (3) Guaranteed Shares (4) Collateralized Shares (5) Taxable Preferred Shares (6) Short-Term Preferred Shares (7) Special Refundable Tax (8) Individuals Receiving Taxable Dividends b. Stock Dividends c. Pre-1972 Surplus Accounts d. Capital Dividends e. Integration f. Corporate Distributions Tax g. Shareholder Benefits and Loans 2. Capital Alterations and Reorganization a. Return or Alteration of Capital b. Liquidation c. Share-for-Share Exchange d. Foreign Share-for-Foreign Share Exchange e. Share Conversions and Reorganizations f. Amalgamation g. Transfer of Property for Shares h. Anti-Surplus Stripping i. Foreign Spin-Offs j. Divisive Reorganizations 3. Special Corporations D. Tax-Exempt Persons 1. Charities 2. Pension Plans 3. Qualified Investments 4. Special Taxes X. Taxation of Resource Income Introductory Material A. Capital Cost Allowance B. Exploration and Development Expenses 1. Canadian Exploration Expense 2. Canadian Development Expense 3. Canadian Oil and Gas Property Expense 4. Recovery of Expenses 5. Foreign Resource Expenses C. Disposition of Resource Properties D. Flow-Through Shares E. Prospectors F. Government Royalties G. Reorganizations XI. Tax Avoidance, Tax Evasion and Income Imputation A. Tax Evasion and Tax Avoidance B. Substance, Form, Business Purpose and Statutory Interpretation C. The General Anti-Avoidance Rule 1. Section 245 2. GAAR Cases 3. Information Circular 88-2 4. The GAAR Committee 5. Quebec General Anti-Avoidance Rule D. Other Statutory Anti-Avoidance Provisions 1. The Fair Market Value Rule 2. Capital Gains and Losses a. Deemed Proceeds or Capital Gain b. Superficial Losses c. Stop Loss d. Attribution 3. Expenses 4. Benefits and Income Imputation 5. Transfer Pricing a. 1997 and Prior Years b. 1998 and Subsequent Taxation Years (1) Penalty Provisions (2) Documentation Requirements (3) Information Circular IC 87-2 (4) Advanced Pricing Arrangements E. Foreign Income 1. Foreign Accrual Property Income a. Nonresident Corporations b. Nonresident Trusts c. Offshore Investment Funds, Foreign Investment Entities 2. Foreign Tax Credit a. Business Income b. Nonbusiness Income c. Credits Against Foreign Affiliate Income (1) Foreign Accrual Property Income (2) Dividends (3) Foreign Affiliate Dumping (4) Interest Related to Investments in Foreign Affiliates F. Nonresident Withholding Tax 1. Rate 2. Charge 3. Types of Payments a. Management or Administration Fee or Charge b. Interest c. Estate or Trust Income d. Rents, Royalties and Similar Payments e. Dividends f. Other Payments 4. Deemed Residence XII. Tax Treaties Introductory Material A. Treaty Process in Canada B. Provincial Taxation C. Treaty Interpretation D. Business Income E. Investment Income F. Canada-United States Tax Treaty 1. Withholding Taxes 2. Business Profits 3. Personal Services 4. Gains 5. Administration 6. Treaty Planning 7. Treatment of Fiscally Transparent Entities 8. Hybrid Entities — Treaty Benefit Denial Rules
Table of Worksheets Worksheet 1 Form 1 — Articles of Incorporation Worksheet 2 Form 3 — Notice of Registered Office Worksheet 3 Form 6 — Notice of Directors Worksheet 4 Form 4 — Articles of Amendment Worksheet 5 Form 9 — Articles of Amalgamation Worksheet 6 Form 11 — Articles of Continuance Worksheet 7 Form 17 — Articles of Dissolution Worksheet 8 Form 22 — Annual Return Worksheet 9 Schedule II — Ownership Worksheet 10 Schedule IV — Transfer of Technology Worksheet 11 Form T1 — General Income Tax and Benefit Return — Common (Except Newfoundland and Labrador, Quebec, Ontario, Yukon, Northwest Territories and Non-Residents) Worksheet 12 Form T1 — General Income Tax and Benefit Return — Newfoundland and Labrador Only Worksheet 13 Form T1 — General Income Tax and Benefit Return — Quebec Only Worksheet 14 Form T1 — General Income Tax and Benefit Return — Ontario Only Worksheet 15 Form T1 — General Income Tax and Benefit Return for Non-Residents and Deemed Residents of Canada Worksheet 16 Form T2 Short — Return for Eligible Corporations Worksheet 17 Form T2 — Corporation Income Tax Return Worksheet 18 Form T3 — Trust Income Tax and Information Return Worksheet 19 Form T400A Objection — Income Tax Act Worksheet 20 Form T2023 — Election in Respect of Loans from Non-Residents Worksheet 21 Form T2057 — Election on Disposition of Property by a Taxpayer to a Taxable Canadian Corporation Worksheet 22 Form T2058 — Election on Disposition of Property by a Partnership to a Taxable Canadian Corporation Worksheet 23 Form T2061A — Election by an Emigrant to Report Deemed Dispositions of Property and Any Resulting Capital Gain or Loss Worksheet 24 Form T2062 — Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property Worksheet 25 Form NR4 — Statement of Amounts Paid or Credited to Non-Residents of Canada Worksheet 26 Form T4A-NR Summary — Return of Amounts Paid or Credited to Non-Residents of Canada Worksheet 27 Form NR6 — Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real Property or Receiving a Timber Royalty Worksheet 28 Form NR7-R — Application for Refund of Nonresident Part XIII Tax Withheld Worksheet 29 Form NR73 — Determination of Residency Status (Leaving Canada) Worksheet 30 Form NR74 — Determination of Residency Status (Entering Canada) Worksheet 31 Form RC1 — Request for a Business Number Worksheet 32 1980 Canada-United States Income and Capital Tax Treaty (In force) Worksheet 33 1995 Protocol to 1980 Canada-United States Income and Capital Tax Treaty, as Amended by 1983 and 1984 Protocols (In force) Worksheet 34 1997 Protocol to 1980 Canada-United States Income and Capital Tax Treaty, as Amended by 1983, 1984 and 1995 Protocols (In force) Worksheet 35 2007 Protocol to 1980 Canada-United States Income and Capital Tax Treaty as Amended by 1983, 1984, 1995 and 1997 Protocols (In force) Worksheet 36 IRS Notice 96-31 Clarifying Application of U.S.-Canada Income Tax Treaty Issued May 10, 1996 Worksheet 37 Publication 597, Information on the United States-Canada Income Tax Treaty Worksheet 38 List of Countries with Which Canada Has In Force Income Tax Treaties and Other Tax-Related Agreements as of March 31, 2018 Worksheet 39 Form T1134–A — Information Return Relating to Foreign Affiliates That Are Not Controlled Foreign Affiliates Worksheet 40 Form T1134–B — Information Return Relating to Controlled Foreign Affiliates Worksheet 41 Form T1141 — Information Return in Respect of Transfers or Loans to a Non-Resident Trust Worksheet 42 Form T1142 — Information Return in Respect of Distributions From and Indebtedness to a Non-Resident Trust Worksheet 43 [Reserved.] Worksheet 44 Tax Reference Table
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