Canada

Canada's corporate tax summary reflects all 2023 federal, provincial, and territorial budgets. This summary is based on enacted and proposed legislation and assumes that the proposed legislation will become law. Generally, budget proposals and draft legislation are enacted into law, even with a minority federal government, which is currently the case. For more details of the proposed new business tax measures noted in the summary, see our Tax Insights on the 2023 federal budget at www.pwc.com/ca/budget.

'Green' investment tax credits

The 2022 and 2023 federal budgets had introduced five 'clean economy' refundable investment tax credits (ITCs) for: carbon capture, utilisation, and storage (CCUS); clean technology; clean hydrogen; clean technology manufacturing; and clean electricity generation. Draft legislation has been released to implement the ITCs for CCUS and clean technology. See Other federal environmental incentives in the Tax credits and incentives section and our Tax Insights 'Clean economy investment tax credits (Fall 2023 update)' at www.pwc.com/ca/taxinsights for more information.

Tax on equity repurchases

Draft legislation implements a 2% corporate-level tax, which would apply on the net value of equity repurchased in a taxation year by a Canadian resident public corporation. See Tax on equity repurchases in the Other taxes section for more information.

Mandatory disclosure rules

Recently enacted legislation enhances Canada’s mandatory reportable transaction disclosure rules, with various implementation dates. See Mandatory disclosure rules in the Tax administration section and our Tax Insights ‘Mandatory disclosure rules: Taxpayers, advisers and promoters need to prepare' and 'Mandatory disclosure rules: Canada Revenue Agency officially designates first set of transactions for notifiable transactions regime' at www.pwc.com/ca/taxinsights for more information.

Transfer pricing

The government released a consultation paper to gather stakeholder input on various questions and proposals related to modernisation of Canada’s transfer pricing legislation. See Transfer pricing in the Group taxation section and our Tax Insights ‘Finance launches consultation on reforming and modernizing Canada’s transfer pricing rules’ at www.pwc.com/ca/taxinsights for more information.

Interest deductibility limits

Draft legislation limits the amount of net interest and financing expenses that a corporation may deduct in computing its taxable income to a fixed ratio of its ‘tax EBITDA’ (taxable income before interest expense, interest income, income tax, and deductions for depreciation and amortisation), with an election to instead use a ratio based on the 'book EBITDA' of its group, effective starting with taxation years beginning after 30 September 2023. See Interest deductibility limits in the Group taxation section and our Tax Insights ‘Bill C-59: Excessive interest and financing expenses limitation (EIFEL) regime' at www.pwc.com/ca/taxinsights for more information.

Additional taxes on banks and life insurers

Banks and life insurers and their related financial institutions are subject to a new additional 1.5% income tax for taxation years ending after 7 April 2022 (exemptions are available) and a one-time 15% tax for the 2022 taxation year. See Banks and life insurers in the Taxes on corporate income section and our Tax Insights 'Finance releases draft legislative proposals: Taxation of insurance contracts under IFRS 17' at www.pwc.com/ca/taxinsights for more information.

Taxation of insurance contracts

Effective 1 January 2023, in response to the new accounting standard (IFRS 17), the taxation of insurance contracts has changed. See Taxation of insurance contracts in the Income determination section and our Tax Insights ‘Finance releases draft legislative proposals: Taxation of insurance contracts under IFRS 17' at www.pwc.com/ca/taxinsights for more information.

Hybrid mismatch arrangements

Draft legislation (the first of two legislative packages) eliminates the tax benefits from hybrid mismatch arrangements, which are generally cross-border transactions that are characterised differently under the tax laws of different countries. The first package of proposed rules will apply for payments generally arising after 30 June 2022. See Hybrid mismatch arrangements in the Group taxation section and our Tax Insights ‘Canada introduces first package of hybrid mismatch rules' at www.pwc.com/ca/taxinsights for more information.

Global minimum tax and the new international tax framework

138 countries, including Canada, have committed to fundamental changes to the international corporate tax system that support the Organisation for Economic Co-operation and Development (OECD) Inclusive Framework's 'Tax Challenges Arising from Digitalisation' project. The changes would provide new taxing rights that:

• reallocate some portion of the profits of large multinational enterprises (MNEs) to countries where the MNE's customers are located (Pillar One), and
• adopt a global minimum effective tax rate of 15% (Pillar Two).

Draft legislative proposals will implement Pillar Two in Canada, which is expected to generally begin coming into effect in 2024. The multilateral convention to implement Pillar One has been delayed beyond 2023, and Canada has introduced draft legislation that would implement a Digital Services Tax (DST) in Canada to retroactively apply to Canadian digital services revenue earned since 1 January 2022. See Global minimum tax and the new international tax framework in the Taxes on corporate income section and our Tax Insights 'Canada releases draft Global Minimum Tax Act' and 'Digital Services Tax: One step closer to becoming a reality' at www.pwc.com/ca/taxinsights for more information.

Digital services tax (DST)

Draft legislation would implement a tax on certain corporations that provide digital services in Canada. However, the tax would only be imposed if a multilateral convention implementing Pillar One (see Global minimum tax and the new international tax framework above) has not come into force by the end of 2023; in that event, the new tax could come into effect as early as 1 January 2024 and would apply in respect of in-scope revenues earned since 1 January 2022. See Digital services tax (DST) in the Other taxes section and our Tax Insights 'Digital services tax: One step closer to becoming a reality' at www.pwc.com/ca/taxinsights for more information.

Canada Border Services Agency (CBSA) Assessment and Revenue Management (CARM)

Canadian-resident and non-resident businesses that import goods into Canada and their trade chain partners that interact with the CBSA are required to participate in the CARM, which is now operational for systems testing and software certification. The CARM will come into force in May 2024, at which point the 180-day transition plan for the Release Prior to Payment program is expected to begin. See Canada Border Services Agency (CBSA) Assessment and Revenue Management (CARM) in the Other taxes section and our Tax Insights ‘Businesses importing goods into Canada must register for CARM – Action required!' at www.pwc.com/ca/taxinsights for more information.

Exchange of tax information on digital economy platform sellers

For calendar years beginning after 2023, recently enacted legislation requires certain digital platform operators, which provide support to reportable platform sellers for relevant activities, to determine the jurisdiction of residence of these sellers and report to the Canada Revenue Agency (CRA) specified information about those sellers. This information would be exchanged with a partner jurisdiction that has implemented similar reporting requirements on platform operators and has agreed to exchange information with the CRA on reportable platform sellers. See Exchange of tax information on digital economy platform sellers in the Tax administration section and our Tax Insights ‘New reporting rules for digital platform operators: Will they affect your business’ at www.pwc.com/ca/taxinsights for more information.

Supply chain transparency and Canada's Modern Slavery Act

The recently enacted Fighting Against Forced Labour and Child Labour in Supply Chains Act requires government institutions and certain companies to report annually on their efforts to combat forced and child labour. Fines of up to 250,000 Canadian dollars (CAD) per individual and entity for failing to comply could also be imposed. See Supply chain transparency and Canada’s Modern Slavery Act in the Other taxes section and our Today’s Issues ‘How new modern slavery reporting requirements affect Canadian companies’ at www.pwc.com/ca/en/today-s-issues/compliance-transformed.html for more information.

General Anti-Avoidance Rule (GAAR)

Draft legislation amends the GAAR by:

• introducing a preamble to guide the interpretation of the GAAR
• lowering the avoidance transaction standard and introducing an economic substance rule, and 
• applying a three-year extension of the normal reassessment period and implementing a 25% penalty.

See General Anti-Avoidance Rule (GAAR) in the Tax administration section and our Tax Insights ‘Bill C-59: Changes to the general anti-avoidance rule (GAAR)’ at www.pwc.com/ca/taxinsights for more information.