Doing Business in Canada - What you Need to Know


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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.

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  • Darryl
  • Mona TessierBefore joining Welch LLP in 1997, Mona’s public accounting background included four years as an Auditing & Accounting Manager and GST specialist at BDO Dunwoody plus an additional 8 years at a small local accounting firm.Currently, Mona provides commodity and payroll tax advice to her clients in various industries. Mona has worked on commodity tax reviews for several national and Ottawa based not-for-profit organizations as well as some for-profit organizations. In addition, she has given presentations through various organizations on Income Tax for the Self-Employed & Financial Accounting for Small Businesses. Mona has also instructed GST/HST courses on behalf of the Institute of Chartered Accountants of Ontario.Don, a partner & Director of tax services at Welch LLP, is nationally recognized for his extensive knowledge in the area of Personal and Corporate Tax Planning. He is responsible for creating Welch LLP’s quarterly newsletter, INSIGHTS-a tax and financial planning guide for current and potential Welch LLP clients. Don authors the annual Income Tax Update course, which is taught nationally through the CA professional development program and teaches various specialized tax courses for the CICA and ICAO. He is a mentor to students within the firm that are working towards their CA designation and most recently has taught an introductory tax course at the University of OttawaJamie’s practice focuses on corporate finance transactions and mergers and acquisitions, primarily involving technology companies. He has experience representing venture capital and private equity investors in debt and equity financings and exit transactions. He also has experience representing companies at various stages, from start-ups to large public corporations, assisting them with their corporate governance requirements and day-to-day legal needs.Prior to joining Gowlings, Jamie worked as in-house counsel at a large wireless communications company primarily focusing on mergers and acquisitions. Previously he was an associate in the corporate law group of a national law firm in its Ottawa, Ontario office.
  • MonaRequirement to register to collect sales taxes in Canada will depend on level of activity in Canada. Opening - Are there requirements for a non-resident company to register for sales tax?
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  • Don (transitioning from sales tax to income tax)
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  • MonaDarryl – ask – What if the business wants to bring employees into Canada?
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  • 1. Don mentioned a PE services provision in the US/CDA tax treaty – could he provide a little more detail about that provision?2. It was noted that, in most cases, there is no withholding tax on cross-border interest payments – when would there be a withholding tax?3. Are there any situations where a non-resident would be required to register for GST even if the non-resident is not carrying on a business in Canada?4. What if I register my company for GST and then stop doing business in Canada?               
  • Doing Business in Canada - What you Need to Know

    1. 1. Welcome to Today’s Webinar What you need to know
    2. 2. Ground Rules Questions Windows • • • • Mac Tablet 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
    3. 3. Presenters Mona Tessier, CPA, CA Senior Manager, Indirect Tax Don Scott, FCA Tax Partner, Director of Tax Services Jamie Hollingworth Associate of Gowlings
    4. 4. 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
    5. 5. Sales Tax Regime in Canada There are two levels of sales taxes: Level One National 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.
    6. 6. Sales Tax Regime in Canada Level Two Provincial 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 tax o Only applicable to transactions occurring in the province of Quebec.
    7. 7. GST Registration Requirements • Requirement to register and collect GST/HST if making taxable supplies in Canada while carrying on a business in Canada.
    8. 8. 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
    9. 9. 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.
    10. 10. Corporate Income Tax • Carrying on business in Canada • Tax treaty • Physical Presence • Permanent Establishment (P.E.) • U.S. – “Services” Provisions
    11. 11. Corporate Income Tax • No P.E. / Not taxable in Canada • Must file tax return • Annual Penalty - $2,500 • Regulation 105 withholding tax
    12. 12. 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
    13. 13. Business Structures 1. Sole Proprietorship 2. Partnership 3. Corporation 4. Branch Operations
    14. 14. 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
    15. 15. 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 o Each partner liable for the debts and obligations of the partnership (unlimited) 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
    16. 16. 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
    17. 17. 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
    18. 18. 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
    19. 19. Corporate Income Tax • Branch (if no Canadian Sub.) • Transfer pricing • Repatriating profits
    20. 20. Branch • Determine profit of branch • Allocation of expenses • Foreign entity registers with CRA / Files tax returns • Branch Tax
    21. 21. 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
    22. 22. 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%
    23. 23. 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.
    24. 24. Provincial sales tax considerations • Four Canadian provinces have a separate provincial sales tax regime.     Quebec British Columbia Saskatchewan Manitoba
    25. 25. A National View – January 1, 2014 GST 5% GST 5% GST 5% GST 5% PST 5% GST 5% RST 8% HST 13% GST 5% QST 9.975% PST 7% HST 13% HST 14% HST 13% HST 15%
    26. 26. 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; or b) 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
    27. 27. Employment Law 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 o common law o • statutory minimums contract Termination With Cause o Difficult for employer to prove • Resignation • Resignation due to constructive dismissal
    28. 28. 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
    29. 29. Other Legal Issues 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 for more information.
    30. 30. Q&A Mona Tessier, CPA, CA Senior Manager, Indirect Tax Don Scott, FCA Tax Partner, Director of Tax Services Jamie Hollingworth Associate of Gowlings