How corporation taxation works in Canada, including examples, policies, etc

1. Corporation Taxation Canada
By: Paul Young, CPA, CGA

2. Corporate Tax Analysis

3. Attracting business investments
• Attracting business investment is based on the following factors:
• Taxation (Corporate, Payroll, consumption taxes)
• Regulations
• Input costs (labor, hydro, raw materials, overhead)
• Infrastructure
• Harper’s policies
• New Trade/Investment deals with China, CETA, South Korea, etc.
• Lowered GST and Corporate Tax rates
• Improve/streamlined red tape
• Issues out of Harper’s control
• Hydro Rates,
• New taxation (carbon, payroll, etc)
• Training and skills development

4. NDP Comments / Tax Policies

5. NDP Comments / Tax Policies

6. NDP Comments / Tax Policies

7. NDP Comments / Tax Policies• Mulcair’s policies
Articles
• http://www.ndp.ca/news/tom-mulcairs-speech-economic-club-canada
• http://www.macleans.ca/politics/ottawa/mulcairs-secret-meetings-with-the-tories/
Commentary on the NDP
• I guess Mulcair admired Harper so much that he copied the policies as part of the NDP action plan for the economy
• Mulcair’s speech - http://www.thestar.com/news/canada/2015/01/27/ndp-leader-thomas-mulcair-promises-boost-for-manufacturing-small-
businesses.html
• NDP main planks
• Reduced small business taxes to 9% from 11% (Harper has reduced taxes to 11% with plans over the next few years to bring the rate down
9%) - http://www.cfib-fcei.ca/english/article/7211-budget-2015.html
• Emphasize R&D/Innovation - (Harper has various funds designed to support advance manufacturing, renewable energy, etc. -
http://www.slideshare.net/paulyoungcga/federal-government-programs-canada or http://www.wd.gc.ca/eng/16.asp or
http://www.feddevontario.gc.ca/eic/site/723.nsf/eng/home or
http://www.thestar.com/news/canada/2014/12/07/ottawa_investing_millions_in_pratt_and_whitney_maintaining_and_creating_1500_job
s.html

8. NDP Comments / Tax Policies• Mulcair’s policies
• Focus on small manufacturers - NDP approach is too narrow as you support hiking corporate tax up to 22% for medium to large corporation
and reducing small business tax by 2% over two years. Where is your analysis to support this will help small business -
https://www.ic.gc.ca/eic/site/061.nsf/vwapj/KSBS-PSRPE_July-Juillet2012_eng.pdf/$FILE/KSBS-PSRPE_July-Juillet2012_eng.pdf. It seems to
me that only 1/3 of manufacturers in Canada would be small business, right? So how is NDP program going to help the other 2/3? CME
already complimented Harper on his 2015 Budget - http://www.cme-mec.ca/?action=show&lid=JCKNC-E742G-
1W6JA&comaction=show&cid=X4NX7-CPP8J-8EJNG.
• So, how is the NDP plan not Harper lite? It seems to me that Mulcair is stealing programs from Harper and not introducing anything major in
terms of shift that will impact the economy. FYI – How come Mulcair always talks about information at summary level and not the details:
http://www.slideshare.net/paulyoungcga/key-industry-and-market-indicators-for-may-2015-canada-and-north-america. Yet, exports in
energy have been improving along with other areas. Does Mulcair ever do proper research?
http://www.canadianmanufacturing.com/financing/ndp-leader-mulcairs-corporate-tax-policy-needs-clarity-150026/
• Source:
• Green Technology - http://www.slideshare.net/paulyoungcga/federal-policy-analysis-green-technology-canadaa
• Government Programs - http://www.slideshare.net/paulyoungcga/federal-government-programs-canada

9. Corporation Taxation / Federal

10. Corporate Tax impact

11. Corporation Taxation impact – Small Business

12. Corporation Taxation – Large Corporation

13. Corporate Tax – Tax Policies

14. Corporation Tax Policies
• Here are some tax treaties or tax policies
• http://canada.marsh.com/NewsInsights/ThoughtLeadership/Articles/ID/4862/Canada-Enters-into-Tax-Agreements-with-Bermuda-
and-Cayman-Islands.aspx
• Tax competitiveness : http://www.kpmg.com/ca/en/issuesandinsights/articlespublications/press-releases/pages/canada-remains-
most-competitive-business-tax-environment.aspx
• Declaration of Foreign Property http://www.fraserandpartners.ca/cra-wants-to-know-more-about-your-foreign-property/
• CRA/CPA Joint Work- http://www.cra-arc.gc.ca/rprsnttvs/cra-cpa-frmwrk/frmwrk-eng.html
• Canada follows the OECD rules with Transfer Pricing -
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/global-transfer-pricing-review/Documents/canada.pdf
• Tax Treaties - http://www.fin.gc.ca/treaties-conventions/treatystatus_-eng.asp
• Withholding Taxes - http://www.doingbusinessincanada.com/legal-guide-0/income-tax-considerations-1/withholding-taxes-120
• World-Wide Taxation - http://www.pwc.com/gx/en/paying-taxes/assets/pwc-paying-taxes-2014.pdf
• CISCO Deal - http://newsroom.cisco.com/release/1298889/Cisco-and-the-Province-of-Ontario-Collaborate-to-Plan-O_2
• Companies go through a combination can do what is called section 85 roll over. http://www.cra-arc.gc.ca/E/pub/tp/ic76-19r3/ic76-
19r3-e.html

15. Corporation Tax Policies
• Tax Rules:
• Timing differences (GAAP –vs – ITA differences)
• Permanent Differences (deductions allow for GAAP, but denied for
ITA)
• Small Business Deduction
• Manufacturing Processing Tax Credits
• R&D Credits

16. Tax Treaties
• http://www.fin.gc.ca/treaties-conventions/in_force--eng.asp
• UK -
http://www.mondaq.com/canada/x/329606/tax+treaties/Canada+and+UK+Agree+to+Pr
otocol+to+Amend+Tax+Treaty
• Tax Treaty Information - http://law.ucalgary.ca/files/law/nov19-2014_primer-on-tax-
treaties-and-current-tax-treaty-issues.pdf
• Cayman Island - http://www.fin.gc.ca/treaties-conventions/cayman-agree-eng.asp

17. Tax Treaties

18. Canada Tax Ranking

19. Corporation Taxation – Flow (Federal Level)

20. Loblaws

21. Loblaws

22. Canadian Tire

23. Canadian Tire

24. Small Business
• Small Business talking points
• EI cuts: http://www.cfib-fcei.ca/english/article/5299-employment-insurance-helping-workers-back-to-work.html. ORPP will take the benefit
by adding up to $655 to 1,500 payroll to small business costs! http://www.cfib-fcei.ca/english/article/5860-provincial-pension-plan-an-
attack-on-small-business.htm
• Grants/Loans - http://www.niagarathisweek.com/news-story/5271622-harper-makes-small-business-announcement-in-st-catharines/.
Access to capital is one of the issues facing business, especially expansion.
• GST Cuts: The feds dropped the gst from 7% to 5% as well as the small business tax rate from 21% to 11%:
http://www.cbc.ca/news/business/jim-flaherty-praised-for-prudent-fiscal-policy-steady-hand-in-crisis-1.2577665
• Budget 2015 – rate to be reduced to 9%
• EDC - http://news.gc.ca/web/article-en.do?nid=931249. EDC supports exports as such small business have access to EDC as way to support
their exports to foreign countries
• Apprenticeship loans – This should help companies will skill trades as there are loans available for the skill trades:
http://pm.gc.ca/eng/news/2015/01/08/pm-announces-canada-apprentice-loan-program-now-accepting-applications

25. Small Business – 2015 Budget

26. Small Business

27. Small Business

28. OECD

29. Corporate Tax rates

30. Corporate Tax rates

31. Corporate Tax rates

32. Corporate Tax rates

33. Corporate Tax rates

34. Bahamas

35. Bahamas

36. Cayman Islands

37. Cash Hoarding Investments
• Many of you must have taken LPC or NDP economic course? I think you need to look at what is happening in the market. Companies may
be hoarding cash, but at some point they will be looking at re-investing that cash as their shareholders required more of return that 5-6%
on their investment.
• http://ww2.cfo.com/cash-management/2014/09/u-s-corporate-cash-holdings-drop-5/. Since you are too busy then let me paraphrase it for
you: “Corporate capital spending “has been rising pretty steadily since the end of the recession,” Forbes also noted:
• http://deloitte.wsj.com/cfo/2014/12/04/how-record-cash-reserves-influence-corporate-behavior/?mod=wsjcfo_hp_deloitte. Companies
are starting to spend moneys!
• Apple holds 10% of the cash reserves: http://www.marketwatch.com/story/apple-still-on-top-as-us-corporate-cash-holdings-reach-173-
trillion-2015-05-07
• Technology companies skewed the numbers: http://www.ft.com/fastft/319821/cash-hoarding-us-companies-hits-1.73-trillion. Capital
expenditures are up in 2014.
• Top 50 account for 63% of the total - http://ww2.cfo.com/cash-flow/2015/05/corporate-cash-hoard-hits-record-1-73-trillion/
• Canada needs infrastructure, like pipelines or port development or other infrastructure changes. So, why have provinces like Wynne slowing
pipelines expansion: http://www.ndp.ca/news/justin-trudeau-late-to-party-pipelines or http://www.humboldtjournal.ca/news/butting-
heads-with-eastern-provinces-over-energy-east-pipeline-1.1658820 or http://www.cbc.ca/news/business/apache-sells-stake-in-kitimat-lng-
project-to-woodside-petroleum-1.2873884

38. Cash Hoarding Investments
• Capital Investment
• My comments on cash flow is provide support that capital investment has been happening, but a slow pace. Companies are slowing re-
investing cash from balance sheet into areas like R&D, Capital Assets, share buybacks, dividends, mergers and acquisitions.
• http://online.wsj.com/articles/canadian-gdp-growth-beats-expectations-in-third-quarter-1417187115
• http://www.gbm.scotiabank.com/English/bns_econ/fxout.pdf. Companies that are focused on exports as such will be looking at spending in
capital equipment to support their growth
• Small to Medium Business Struggles - http://www.cfib-fcei.ca/cfib-documents/rr3349.pdf
• EI cuts: http://www.cfib-fcei.ca/english/article/6564-small-biz-job-credit-release.html
• Taxation 2014 - http://www.pwc.com/ca/en/tax/publications/pwc-facts-figures-2014-07-en.pdf.
• US Corporate Taxation http://taxfoundation.org/sites/taxfoundation.org/files/docs/TaxFoundation_ITCI_2014.pdf. Obama would like to
change the Corporate Tax Rates: http://www.taxjusticeblog.org/archive/2015/04/good_-_and_bad_-_ways_to_fund.php#.VU316vlVhBc.
Obama is looking at changing the rates which then would influence how Deferred Income taxes are reporting as such it would drive up
income tax payable to Obama and his government.

39. Cash Hoarding Investments
Sources:
• http://www.statcan.gc.ca/daily-quotidien/140226/dq140226a-eng.htm
• http://www.bmonesbittburns.com/economics/current/focus.pdf
• https://www.ic.gc.ca/eic/site/061.nsf/vwapj/KSBS-PSRPE_August-Aout2013_eng.pdf/$FILE/KSBS-PSRPE_August-Aout2013_eng.pdf
• http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/day-to-day/six-big-challenges-facing-small-businesses-in-
canada/article21437327/
• http://www.rbc.com/economics/economic-reports/pdf/other-reports/QA_SMEs.pdf
• Cash flow - https://scheller.gatech.edu/centers-initiatives/financial-analysis-lab/files/2014/gatech_finlab_industry_q12014.pdf
• Government programs - http://www.slideshare.net/paulyoungcga/federal-government-programs-canada