Federal Goods and Services Tax (GST)
The GST is a federal tax levied at a rate of 5% on the supply of most property and services made in Canada. It is a value-added tax (VAT) applied at each level in the manufacturing and marketing chain. However, the tax does not apply to supplies that are zero-rated (i.e. taxed at 0%) or exempt (e.g. used residential real property and most health care, educational, and financial services). Examples of zero-rated supplies include basic groceries, medical and assistive devices, prescription drugs, feminine hygiene products, agriculture and fishing, and most international freight and passenger transportation services.
Generally, registrants charge GST on their sales and pay GST on their purchases, and either remit or claim a refund for the amount of net tax reported (i.e. the difference between the GST charged and the GST paid). Suppliers are entitled to claim input tax credits for the GST paid or payable on expenses incurred relating to making fully taxable and zero-rated supplies (i.e. commercial activity), but not on expenses relating to the making of tax-exempt supplies.
Harmonised Sales Tax (HST)
Five provinces have fully harmonised their sales tax systems with the GST and impose a single HST, which includes the 5% GST and a provincial component. HST applies to the same tax base and under the same rules as the GST. There is no need to register separately for GST and HST because both taxes are accounted for under one tax return and are jointly administered by the CRA. The HST rates follow.
|Province||HST rate (%)|
|Newfoundland and Labrador||15|
|Prince Edward Island||15|
GST/HST and the digital economy
Non-resident vendors that are considered to be ‘carrying on business in Canada’ are generally required to register for GST/HST, regardless of whether they have a physical presence in Canada. GST/HST rules that relate to non-resident vendors that do not have a physical presence in Canada:
- generally require foreign-based digital businesses that supply intangible personal property and services to consumers in Canada to register for and collect GST/HST under a simplified GST/HST regime
- apply GST/HST to all supplies of short‑term accommodation by private residential property owners that are facilitated through digital platforms, which could impact non‑resident accommodation platforms, and
- apply GST/HST to transactions involving goods for sale that are located at fulfilment warehouses in Canada and sold to purchasers in Canada by:
- non‑resident vendors that sell directly to consumers in Canada on their own account, and
- online marketplace platforms that facilitate the sale of these goods by non‑registered vendors to consumers in Canada.
Provincial retail sales tax (PST)
The provinces of British Columbia, Manitoba, and Saskatchewan each levy a PST (in addition to the 5% GST) at 7%, 7%, and 6%, respectively, on most purchases of tangible personal property, software, and certain services.
PST generally does not apply to purchases of taxable goods, software, and services acquired for resale; registered vendors can claim this resale exemption by providing to their suppliers either their PST number or a purchase exemption certificate. Certain exemptions also exist for use in manufacturing, farming, and fisheries.
PST is administered by each province’s tax authority, separate from the CRA. Unlike GST/HST, PST is not a VAT and could apply to a business’ inputs that are not acquired for resale (e.g. charges for telecommunications services). Therefore, any PST paid on purchases by a business cannot generally be claimed as a credit or otherwise offset against PST charged on sales.
Alberta and the three territories (the Northwest Territories, Nunavut, and the Yukon) do not impose a retail sales tax. However, the GST applies in those jurisdictions.
British Columbia PST
British Columbia requires certain out-of-province vendors to register for PST. Non-residents of British Columbia located:
- in Canada that sell taxable goods, or
- in or outside Canada that sell software and telecommunication services,
to customers for consumption or use in British Columbia are generally required to register for BC PST if their annual revenue from sales in the province exceeds CAD 10,000.
Businesses that facilitate sales or leases of certain goods, services, or software for third parties through their online platform, including accepting payment from a consumer (known as marketplace facilitators), are required to collect and remit BC PST on those sales and leases made in British Columbia. Marketplace facilitators are also required to charge BC PST on marketplace services they provided to resellers.
Manitoba requires certain businesses that do not have a physical presence in the province to register for PST. Businesses providing:
- audio and video streaming services
- sales of taxable goods by third parties through online marketplaces, and
- bookings of taxable accommodation through online platforms,
to Manitoba consumers are required to register for Manitoba PST, regardless of whether they have a physical presence in Manitoba.
Saskatchewan has broad registration requirements for out-of-province sellers. Businesses that operate online selling platforms are required to register for and collect Saskatchewan PST if they:
- create or facilitate the marketplace in which retail sales of tangible personal property, taxable services, or contracts of insurance for consumption or use in or relating to Saskatchewan take place, and
- collect payment from a consumer or user of the tangible personal property, tax, taxable services, or contract of insurance and remit the payment to a marketplace seller.
Out-of-province sellers do not have to register for Saskatchewan PST if they only make sales to customers in Saskatchewan through online accommodation platforms or marketplace facilitators that are registered for Saskatchewan PST.
Quebec sales tax (QST)
Quebec’s sales tax is a VAT structured in the same manner as the GST/HST. The QST is charged in addition to the 5% GST and is levied at the rate of 9.975% on the supply of most property and services made in the province of Quebec, resulting in an effective combined rate of 14.975%. Registrants charge QST on taxable supplies (that are not zero-rated) and can claim input tax refunds for QST paid or payable on their expenses incurred and/or purchases made in the course of their commercial activity. The resulting net tax is reported to Revenu Québec (Quebec’s tax authority) and is either remitted or claimed as a refund. Revenu Québec also administers the GST/HST on behalf of the CRA for most registrants that are resident in the province.
The mandatory QST registration rules also apply to non-residents of Quebec. Suppliers that are not residents of, and have no physical or significant presence in, Quebec, and that make digital and certain other supplies to ‘specified Quebec consumers’ may be required to register for QST under a specified registration system.
The requirement to register also applies to digital property and services distribution platforms in regards to taxable supplies of incorporeal moveable property or services received by specified Quebec consumers if these digital platforms control the key elements of the transaction.
Quebec has harmonised its QST system with the federal GST/HST measures on the digital economy (see above). Operators of distribution platforms that sell foreign goods located in fulfilment warehouses in Canada and operators of short-term accommodation platforms are required to register and collect QST on certain sales made to Quebec consumers.
Customs and import duties
Customs tariffs (also known as duties) are levied on goods imported into Canada. The amount of customs duty that applies to imported goods depends on a number of factors, including the nature of the duty (i.e. ad valorem or specific), tariff classification, country of origin, and value for duty declared. The Tariff Schedule to the Customs Tariff, which is based on the World Customs Organization’s Harmonized Commodity Description and Coding System, sets out the customs duty rates for goods imported into Canada. Goods that originate from most countries with which Canada does not have a free trade agreement (FTA) or other preferential tariff arrangement will generally attract the ‘Most Favoured Nation’ (MFN) duty rate or tariff treatment. North Korea, Russia, and Belarus are currently not eligible for MFN, and imports of goods originating in these countries would normally be subject to a standard 35% duty rate (certain exceptions to the 35% rate may apply – rate may be higher or lower in limited cases for the General Tariff).
Canada has a number of FTAs that may present benefits to eligible traders. Of special note, the Canada-United Kingdom Trade Continuity Agreement allows Canada and the United Kingdom (UK) to preserve benefits that were available to both when the United Kingdom was part of the European Union (EU) and that were relinquished upon Brexit. This agreement will serve as an interim 'stop-gap' until a new agreement can be fully negotiated. Canada's most significant FTA is the Canada-United States-Mexico Agreement (CUSMA). The CUSMA applies to goods imported from both the United States (US) and Mexico, and exports from Canada to those countries as well. Most goods that originate in the CUSMA territory and qualify as originating for the CUSMA are eligible for duty-free treatment when imported into Canada from another CUSMA partner (some exceptions apply).
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) entered into force on 30 December 2018 between Canada, Australia, New Zealand, Mexico, Singapore, and Japan; on 14 January 2019 with Vietnam; on 19 September 2021 with Peru; on 29 November 2022 with Malaysia; and on 20 February 2023 with Chile. The remaining member country (Brunei) will enter into force once it completes its ratification process and notifies the repository in New Zealand. The United Kingdom has also submitted notification of intent to begin the CPTPP accession process.
Canada’s other FTAs are with Chile, Colombia, Costa Rica, the European Free Trade Association (which includes Iceland, Liechtenstein, Norway, and Switzerland), the European Union, Honduras, Israel, Jordan, the Republic of Korea, Panama, Peru, and Ukraine. Under these FTAs, the originating goods imported from these countries may be eligible for reduced tariff benefits at rates more favourable than the MFN rate.
Canada is also in negotiations with several other countries (e.g. Japan, India, and Dominican Republic) or country groupings (e.g. the Mercosur countries, consisting of Argentina, Brazil, Paraguay, Uruguay, and the Association of South Asian Nations [ASEAN], which includes Malaysia, Indonesia, and Singapore). Like the CUSMA, these FTAs will set out the rules of origin for determining whether goods are eligible for preferential tariff treatment, among other things. Exploratory discussions have also taken place with China, Turkey, Philippines, and Thailand, but progress may be stalled at the present time.
Canada also extends preferential tariff rates to many (but not all) products imported from certain countries via the General Preferential Tariff, the Least Developed Countries Tariff, the Commonwealth Caribbean Countries Tariff, the Australia Tariff, and the New Zealand Tariff. To qualify for preferential tariff rates, goods must meet various requirements with respect to the rules of origin and transshipment, among other things.
Canada Border Services Agency (CBSA) Assessment and Revenue Management (CARM)
The CBSA has launched a new initiative, the CARM, to transform and modernise the collection of duties and taxes for commercial goods being imported into Canada. The initiative targets the revenue and cash management systems that are currently in place for assessing and collecting duties and taxes and replaces them with a simplified process that includes electronic payment options. Participation in the CARM will be mandatory for all Canadian-resident and non-resident businesses that import goods into Canada and their trade chain partners that interact with the CBSA. Importers that do not participate will be prohibited from bringing goods into Canada. The CARM is expected to be operational in October 2023.
Other import duties and levies
Importations into Canada may also be subject, in certain cases, to anti-dumping duties and/or countervailing duties, excise duties, and excise taxes. In limited circumstances, Canada may also impose a surtax on certain imports, as evidenced by retaliatory tariffs on certain US origin goods (e.g. certain steel and aluminium) that were imposed in July 2018 and eliminated in May 2019.
Supply chain transparency and Canada’s Modern Slavery Act
Reporting standards and stakeholder activists are increasing the pressure for organisations to proactively identify and mitigate forced and child labour risks from their supply chains. The impact and exposure from supply chain disruption and regulatory complexity has made human rights due diligence a key priority for executives, both to act ethically and mitigate impact to the bottom line. In Canada, the Fighting Against Forced Labour and Child Labour in Supply Chains Act, which received royal assent on 11 May 2023, imposes a series of disclosure requirements on both government institutions and companies with connections to Canada. This legislation will come into force on 1 January 2024, and affected entities will be required to produce their first annual Slavery Report by 31 May 2024.
Generally, an entity that makes, buys, or imports goods produced outside Canada, or distributes, sells physical goods, or conducts business in Canada, must comply with these new rules. Entities impacted by the legislation include those:
- listed on a Canadian stock exchange, or
- that have a connection to Canada and meet at least two of the following conditions:
- Assets of CAD 20 million or more.
- Revenues of CAD 40 million or more.
- Employs an average of 250 or more employees.
Obligated entities must annually report the steps taken during the previous financial year to prevent and reduce the risk that forced labour or child labour is used at any step in the supply chain. All reports must be publicly available on the entity’s website and must disclose:
- structure, activities, and supply chains
- policies and due diligence processes
- identification of areas that carry risk and measures taken to remediate it, and
- employee training.
The consequences for non-compliance are serious and include financial penalties and criminal prosecution. Moreover, an importer’s goods may be deemed prohibited to enter Canada if they are found to be mined, manufactured, or produced wholly or in part by child or forced labour.
Excise taxes and duties
Excise duties are levied at various rates on spirits, wine, beer, malt liquor, tobacco, and vaping products. When these goods are manufactured or produced in Canada, duty is payable on the goods at the point of packaging and not at the point of sale. When these goods are imported into Canada, duty is generally payable by the importer at the time of importation. Manufacturers who produce alcohol and tobacco in Canada must be licensed. Excise duties also apply to cannabis products, now that non-medicinal cannabis is available for legal sale. Persons who manufacture, produce, and/or sell cannabis products in Canada must be licensed.
Excise tax is imposed on automobile air conditioners and fuel-inefficient automobiles, in addition to aviation fuel, gasoline, and diesel fuel. A 10% federal excise tax is imposed on premiums paid for insurance against a risk in Canada if the insurance is placed by insurers through brokers or agents outside Canada or with an insurer that is not authorised under Canadian or provincial/territorial law to transact the business of insurance. Premiums paid under contracts for life, personal accident, marine, and sickness insurance, as well as reinsurance and insurance not available in Canada, are exempt.
Tax on equity repurchases
The federal government proposes to introduce a corporate-level 2% tax that would apply on the net value of equity repurchased in a taxation year by a Canadian resident public corporation (exclusions apply). A de minimus CAD 1 million exemption is available, which is determined on a gross basis (i.e. ignoring share issuances). The tax will apply to repurchases of equity that occur after 31 December 2023.
Property taxes are levied by municipalities in Canada on the estimated market value of real property within their boundaries and by provinces and territories on land not in a municipality. In most provinces and territories, a general property tax is levied on the owner of the property. Some municipalities levy a separate business tax, which is payable by the occupant if the premises are used for business purposes. These taxes are based on the rental value of the property at tax rates that are set each year by the various municipalities. School taxes, also generally based on the value of real property, are levied by local and regional school boards or the province or territory.
British Columbia speculation and vacancy tax (SVT)
In British Columbia, an annual SVT is imposed on residential property in certain urban centres in British Columbia (i.e. Metro Vancouver Regional District, Capital Regional District, Kelowna-West, Kelowna, Nanaimo-Lantzville, Abbotsford, Chilliwack, Mission, and, starting 1 January 2023, North Cowichan, Duncan, Ladysmith, Lake Cowichan, Lions Bay, and Squamish (with declarations commencing in January 2024); most islands in British Columbia are excluded, except Vancouver Island. The SVT targets foreign and domestic homeowners who do not pay income tax in British Columbia, including those who leave their homes vacant. The tax rate, as a percentage of the property’s assessed value on 1 July of the previous year, is:
- 2% for foreign investors and satellite families.
- 0.5% for British Columbians and all other Canadian citizens or permanent residents who are not members of a satellite family.
Up-front exemptions are available for most principal residences and for qualifying long-term rental properties and certain special cases. A non-refundable tax credit may also be available in varying amounts (depending on the type of owner) for owners subject to the SVT.
Federal tax on Canadian housing owned by non-residents
Starting 1 January 2022, an annual 1% federal underused housing tax applies on the value of non-resident, non-Canadian owned residential property considered to be vacant or underused. Certain residential property owners in Canada are required to file an annual declaration for each Canadian residential property they own for the prior calendar year, by 30 April of the following calendar year, even if they claim an exemption from the tax. Failure to file the mandatory declaration could result in significant penalties. The tax generally applies to owners (other than Canadian citizens or permanent residents, in most cases), but exemptions are available to those who lease their properties to qualified tenants for a minimum period in a calendar year. The application of penalties and interest for the 2022 calendar year will be waived for any late-filed returns and for any late-paid tax, provided the return is filed or the tax is paid by 31 October 2023 (effectively extending the deadline for the return and payment by six months).
Land transfer tax
All provinces and territories levy a land transfer tax or registration fee on the purchaser of real property within their boundaries. These levies are expressed as a percentage, in most cases on a sliding scale, of the sale price or the assessed value of the property sold and are generally payable at the time title to the property is registered. Rates generally range from 0.02% to 5%, depending on the province or territory, but may be higher if the purchaser is a non-resident. Some exemptions (or refunds) are available. Additional land transfer taxes apply for properties purchased in the municipalities of Montreal or Toronto. Other municipalities may also impose these taxes and fees.
In British Columbia, a 20% land transfer tax (in addition to the general land transfer tax) is imposed on foreign entities (i.e. foreign nationals and corporations and certain Canadian corporations controlled by such foreign persons) and certain trusts and/or their trustees that have a foreign connection (a taxable trustee) that purchase residential property in the Metro Vancouver Regional District (but excluding residential property located on the Tsawwassen First Nations treaty lands), the Capital Regional District, the Regional District of Central Okanagan, the Fraser Valley Regional District, and the Regional District of Nanaimo. Failure to pay this tax or file the required forms can result in interest, plus significant penalties, and/or imprisonment. Anti-avoidance rules capture transactions that are structured to avoid this tax.
Relief from the additional land transfer tax is available to property acquired on behalf of a Canadian-controlled limited partnership.
Refund from the additional land transfer tax is available, subject to certain qualifying conditions, to:
- foreigners who become Canadian citizens or permanent residents within one year of purchasing a principal residence, or
- foreign workers coming to British Columbia under the British Columbia Provincial Nominee Program who purchase a principal residence on or after their confirmation.
In an effort to stop tax evasion when property ownership is hidden behind numbered companies and trusts, the British Columbia government requires trustees, partners of a partnership, and corporations that acquire property to identify all individuals with a beneficial interest in the trust, a partnership interest, or significant interest in the corporation on the property transfer tax return. For beneficiaries of trusts that are corporations, information about each director must be disclosed. This applies to all property types, including residential and commercial, with exemptions for certain trusts (e.g. charitable trusts) and corporations (e.g. hospitals, schools, and libraries).
In Ontario, a 25% (20% before 25 October 2022 and 15% before 30 March 2022) land transfer tax (in addition to the general land transfer tax and Toronto’s land transfer tax) is imposed on foreign entities (i.e. foreign nationals and corporations and certain Canadian corporations controlled by such foreign persons) and taxable trustees (i.e. trustees of a trust that has at least one trustee or beneficiary that is a foreign entity) that purchase residential property in the province (before 30 March 2022, only for residential property in the Greater Golden Horseshoe, a defined region of Southern Ontario surrounding and including the City of Toronto). For this tax to apply, the land transferred must contain at least one, but not more than six, single family residence(s). The tax also applies to unregistered dispositions of a beneficial interest in such residential property when the purchaser of the interest is a foreign entity or taxable trustee. Failure to pay this tax can result in a penalty, fine, and/or imprisonment. Exemptions from this additional land transfer tax are available in certain circumstances (including for foreign workers coming to Ontario under the Ontario Immigrant Nominee Program or for refugees under the Immigration and Refugee Protection Act, who purchase a principal residence), and rebates of the tax can be obtained in certain situations.
In Nova Scotia, a 5% land transfer tax (in addition to municipal land transfer tax, if any) is imposed on non-residents of Nova Scotia that purchase residential real property, for agreements of purchase and sale entered into after 31 March 2022. Exemptions are available for non-resident purchasers who move to (and become resident of) the province within six months of the transaction’s closing date.
Federal capital taxes
The federal government does not levy a general capital tax. It imposes the Financial Institutions Capital Tax (Part VI Tax) on banks, trust and loan corporations, and life insurance companies at a rate of 1.25% when taxable capital employed in Canada exceeds CAD 1 billion. The threshold is shared among related financial institutions. The tax is not deductible in computing income for tax purposes. It is reduced by the corporation's federal income tax liability. Any unused federal income tax liability can be applied to reduce Part VI Tax for the previous three and the next seven years. In effect, the tax constitutes a minimum tax on financial institutions.
Provincial capital taxes
The provinces do not levy a general capital tax, but most do impose a capital tax on financial institutions. Capital taxes are deductible for federal income tax purposes. The federal government had proposed to limit the deductibility of capital taxes, but has delayed implementing this proposal indefinitely. The territories do not impose capital taxes.
Provincial capital taxes on financial institutions are imposed at the following rates for 31 December 2023 year-ends.
|Province||Banks, trust and loan corporations (%)|
|New Brunswick (2)||4 or 5|
|Newfoundland and Labrador (3)||6|
|Nova Scotia (4)||4|
|Prince Edward Island (5)||5|
- Financial institutions in Manitoba with taxable paid-up capital of an associated group under CAD 4 billion are not subject to capital tax.
- New Brunswick’s capital tax rate is 5% for banks and 4% for other financial institutions. The first CAD 10 million of taxable paid-up capital is exempt from capital tax.
- In Newfoundland and Labrador, a CAD 5 million exemption (shared with related companies) applies if taxable capital for the related group is CAD 10 million or less.
- In Nova Scotia, a CAD 30 million exemption applies to trust and loan companies that have their head office in Nova Scotia. For other financial institutions, the capital tax exemption (shared with related companies) is CAD 5 million if taxable capital for the related group is CAD 10 million or less.
- In Prince Edward Island, the first CAD 2 million of taxable paid-up capital is exempt from capital tax.
- In Quebec, financial institutions are subject to a compensation tax of 2.8% on payroll. Payroll subject to the compensation tax is limited to CAD 1.1 billion annually. For independent loan, trust, and security trading companies that, in the year, are not associated with a bank, savings and credit union, or insurance corporation, the compensation tax rate is 0.9%; and the maximum annual payroll subject to compensation tax is CAD 275 million. The compensation tax rate on insurance premiums is 0.3%.
- Saskatchewan's rate for financial institutions that have taxable paid-up capital of CAD 1.5 billion or less is 0.7%. Financial institutions that qualified for the 0.7% capital tax rate in taxation years ending after 31 October 2008 and before 1 November 2009 are subject to a 0.7% capital tax rate on their first CAD 1.5 billion of taxable capital and a 4% capital tax rate on taxable capital exceeding CAD 1.5 billion. In Saskatchewan, the capital tax exemption is up to CAD 20 million (CAD 10 million plus an additional CAD 10 million, which is shared with associated companies).
Additional taxes on insurers
All provinces and territories impose a premium tax ranging from 2% to 5% on insurance companies (both life and non-life). In addition, Ontario and Quebec impose a capital tax on life insurance companies. Quebec also levies a compensation tax on insurance premiums at a rate of 0.3%.
Part III.1 tax on excess designations
Federal Part III.1 tax applies at a 20% or 30% rate if, during the year, a CCPC designated as eligible dividends an amount that exceeds its general rate income pool (GRIP), or a non-CCPC pays an eligible dividend when it has a positive balance in its low rate income pool (LRIP). A corporation subject to Part III.1 tax at the 20% rate (i.e. the excess designation was inadvertent) can elect, with shareholder concurrence, to treat all or part of the excess designation as a separate non-eligible dividend, in which case Part III.1 tax will not apply to the amount that is the subject of the election.
Eligible dividends are designated as such by the payer and include dividends paid by:
- public corporations, or other corporations that are not CCPCs, that are resident in Canada and are subject to the federal general CIT rate (i.e. 15% in 2023), or
- CCPCs, to the extent that the CCPC's income is:
- not investment income (other than eligible dividends from public corporations), and
- subject to the general federal CIT rate (i.e. the income is active business income not subject to the federal small business rate).
Non-eligible dividends include dividends paid out of either income eligible for the federal small business rate or a CCPC's investment income (other than eligible dividends received from public companies).
Social security taxes
For 2023, employers are required to pay, for each employee, government pension plan contributions up to CAD 3,754.45 and employment insurance premiums up to CAD 1,403.43. However, Quebec employers instead contribute, per employee, a maximum of CAD 4,038.40 in Quebec government pension plan contributions, CAD 1,093.47 in employment insurance premiums, and CAD 629.72 to a Quebec parental insurance plan.
The government pension plan was enhanced starting 1 January 2019. Employers and employees are required to pay higher government pension plan contributions (to be phased-in over seven years).
Provincial/territorial payroll taxes
Employers in British Columbia, Manitoba, Newfoundland and Labrador, Ontario, and Quebec are subject to payroll tax. Maximum rates range from 1.95% to 4.3%. In addition, Quebec employers with payroll of at least CAD 2 million must allot 1% of payroll to training or to a provincial fund. Employers in the Northwest Territories and Nunavut must deduct from employees' salaries a payroll tax equal to 2% of employment earnings.
Withholding tax for non-resident employees
Under Regulation 102 of the Income Tax Act, employers (whether residents of Canada or not) that pay salaries or wages or other remuneration to a non-resident of Canada in respect of employment services rendered in Canada are required to withhold personal income tax (PIT) unless a waiver has been received prior to commencing work physically in Canada. There are no 'de minimis' exceptions, and this requirement applies regardless of whether the non-resident employee in question will actually be liable for Canadian income tax on that salary pursuant to an income tax treaty that Canada has signed with another country. Complying is time-consuming and administratively burdensome.
An amount paid by a ‘qualifying non-resident employer’ to a ‘qualifying non-resident employee’ is exempt from the Regulation 102 withholding requirement.
Generally, a ‘qualifying non-resident employer’ must meet the following two conditions:
- is resident in a country with which Canada has a tax treaty (treaty country), and
- is at that time certified by the Minister.
A ‘qualifying non-resident employee’ must meet the following three conditions:
- is resident in a treaty country
- is exempt from Canadian income tax under a tax treaty, and
- is present in Canada for less than 90 days in any 12-month period that includes the time of payment, or
- works in Canada for less than 45 days in the calendar year that includes the time of payment.
To become certified, a non-resident employer must file Form RC473 (Application for Non-Resident Employer Certification) with the CRA. Certification is valid for two calendar years (after which time employers must submit a new Form RC473), subject to revocation if the employer fails to meet certain conditions or to comply with its Canadian tax obligations.
The conditions to maintain non-resident employer certification include:
- track and record, on a proactive basis, the number of days each qualifying non-resident employee is either working in Canada or present in Canada, and the income attributable to these days
- evaluate and determine whether its employees meet the conditions of a ‘qualifying non-resident employee’
- obtain a Canadian Business Number
- complete and file the annual T4 Summary and slips, if required
- file the applicable Canadian CIT returns if the corporation is ‘carrying on business in Canada’, and
- upon request, make its books and records available to the CRA for inspection.
Withholding tax on payments to non-residents for services rendered in Canada
Under Regulation 105 of the Income Tax Act, every person (including a non-resident), paying to a non-resident, a fee, commission, or other amount in respect of services rendered in Canada (excluding remuneration paid to non-resident employees that are subject to payroll withholding requirements, see Withholding tax for non-resident employees above) is required to withhold and remit 15% of the payment to Canadian tax authorities unless a waiver has been received before payment. Regulation 105 withholding is not a final tax, but an instalment payment against possible Canadian tax liability if the non-resident is determined to have a PE in Canada. A non-resident corporation that does not have a PE in Canada and is eligible under one of Canada’s tax treaties can file a ‘treaty-based’ corporate tax return to have the previously withheld Regulation 105 amounts refunded. These tax returns may result in the Canadian tax authorities challenging the non-resident’s assertion that no PE exists within Canada.
In 2019, in order to advance the objectives of the Pan-Canadian Framework on Clean Growth and Climate Change (the Framework) and reduce greenhouse gas emissions, the federal government passed the Greenhouse Gas Pollution Pricing Act (GGPPA), which established a Federal Carbon Pricing Backstop (FCPB) programme. In accordance with the Framework, all provinces and territories were required to adopt a form of carbon pricing that meets the minimum requirements under the FCPB. Each province or territory either had to implement its own programme that would meet the minimum thresholds for the FCPB programme or be subject to the carbon pricing model under the GGPPA. The provinces and territories that do not have their own programmes that meet the FCPB thresholds are called 'backstop jurisdictions'. The carbon pricing under the GGPPA has two components:
- Fuel charge: Part I of the GGPPA imposes a fuel charge on purchases, imports, and uses of certain types of fuels in certain backstop jurisdictions. The fuel charge rate started at CAD 20 per tonne of carbon dioxide equivalent (CO2e) as of 1 April 2019 and was increased by CAD 10 per CO2e tonne on 1 April each year until 2022 (and will be increased by CAD 15 per CO2e tonne on 1 April each year thereafter, until they reach CAD 170 per CO2e tonne in 2030). The current rate is CAD 65 per CO2e tonne, which is equivalent to CAD 0.1431 per litre for gasoline and CAD 0.1738 per litre for diesel. The current rate for marketable natural gas is equivalent to CAD 0.1239 per cubic metre. Generally, the fuel charge is paid by a distributor upon the sale of the fuel. However, certain businesses are either required to register to remit the tax or can register for a purchase exemption. There are different types of registration, depending upon the operations of the particular business. Each type of registration will trigger specific calculations, compliance, and reporting requirements.
- Output-based pricing system (OBPS): In addition to the fuel charge, the OBPS applies to industrial facilities whose greenhouse gas emissions exceed 50 kilotonnes CO2e of emissions under Part II of the GGPPA. Facilities that are registered under the OBPS should be able to purchase fuel for their use exempt from the fuel charge under Part I of the GGPPA. Facilities that have emissions above 10 kilotonnes CO2e may elect to opt into the OBPS programme in order to get similar treatment as their competitors and benefit from the exemption for fuel charge under Part I of the GGPPA. Entities registered for the OBPS are required to report their emissions annually.
The provincial and territorial carbon programmes vary by province or territory.
In the backstop jurisdictions, Part I of the GGPPA applies fully, but some of them have limited programmes for industrial emitters that may meet the federal standards under Part II of the GGPPA. In those jurisdictions that have a limited or full programme for industrial emitters, Part II of the GGPPA would not apply (either in a limited form or fully). The discussion below is in respect of the programmes in these jurisdictions.
- Alberta: Alberta became a backstop jurisdiction on 1 January 2020 after the province’s government repealed its carbon levy; as a result, the federal fuel charge under Part I of the GGPPA applies in Alberta. On 1 January 2020, Alberta implemented the Technology Innovation Emissions Reduction (TIER), which is mandatory for certain emitters whose greenhouse gas emissions exceed the 100 kilotonnes CO2e annual threshold but allows qualifying smaller greenhouse gas emitters (including oil and gas producers) to opt into the programme voluntarily. The TIER system meets the federal carbon pricing standards under the OBPS for those registered under the programme. Entities that are regulated under the TIER system are able to purchase the fuel exempt from the fuel charge under Part I of the GGPPA.
- Manitoba: The GGPPA applies in Manitoba. The province's plan to replace the federal fuel charge under the GGPPA by implementing a provincial carbon pricing regime at a fixed rate of CAD 25 per CO2e tonne for 2018 to 2022 did not meet the federal standards.
- New Brunswick: The province was a backstop jurisdiction from 1 April 2019 to 31 March 2020, inclusive, and will become a backstop jurisdiction again on 1 July 2023 (i.e. the federal fuel charge under Part I of the GGPPA will apply in the province); a provincial cap and trade programme is in place for certain large emitters.
- Newfoundland and Labrador, Nova Scotia, and Prince Edward Island: Starting 1 July 2023, the federal fuel charge (Part I of the GGPPA) will apply in Newfoundland and Labrador, Nova Scotia, and Prince Edward Island (i.e. those provinces will become backstop jurisdictions), because their pollution pricing systems (discussed below under Non-backstop jurisdictions) will no longer meet the federal standard; however, Newfoundland and Labrador's and Nova Scotia's pollution pricing systems for industrial emissions (see below) will continue to apply in those provinces.
- Ontario: Ontario has been a backstop jurisdiction since 1 April 2019. However, the application of the federal OBPS to Ontario businesses was removed effective 1 January 2022 when the province’s Emissions Performance Standards (EPS) programme was fully phased in.
- Saskatchewan: The province has been a backstop jurisdiction since 1 April 2019. Saskatchewan has a programme for certain qualifying large emitters, which has been accepted by the federal government to meet the emissions standards under Part II of the GGPPA for those particular emitters. However, the programme’s scope of application is limited and does not apply to all other emitters. On 1 January 2022, eligibility for the province’s OBPS programme was expanded to industrial facilities in five additional sectors.
- Yukon and Nunavut: These territories became backstop jurisdictions on 1 July 2019.
The following provinces and territories meet the federal standards under the FCPB and, as a result, Part I of the GGPPA does not apply in those provinces and territories (in certain provinces and territories, Part II of the GGPPA may apply):
- British Columbia: Carbon tax is levied at CAD 65 per CO2e tonne (CAD 50 per CO2e tonne before 1 April 2023).
- New Brunswick:* Carbon tax is levied at CAD 50 per CO2e tonne until 30 June 2023. A provincial cap and trade programme is in place for certain large emitters.
- Newfoundland and Labrador:* Carbon pricing is levied on consumers at a rate of CAD 50 per CO2e tonne until 30 June 2023. The province also imposes a performance-based system for offshore and onshore industries that will establish certain reduction targets for large industrial facilities and large-scale electricity generation.
- Northwest Territories: Carbon tax is levied at CAD 65 per CO2e tonne (CAD 50 per CO2e tonne before 1 April 2023).
- Nova Scotia:* The province has a cap-and-trade programme, which has been replaced with a new provincial output-based pricing system for large industrial emitters effective 1 January 2023, and will also be replaced by the federal fuel charge on 1 July 2023.
- Prince Edward Island:* Carbon tax is levied at CAD 50 per CO2e tonne until 30 June 2023. However, Part II of the GGPPA applies to large emitters in the province.
- Quebec: The province is a member of the Western Climate Initiative and imposes a cap-and-trade system.
* As discussed above, starting 1 July 2023, New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island will be subject to the federal fuel charge (Part I of the GGPPA); New Brunswick, Newfoundland and Labrador, and Nova Scotia will continue to implement their own pollution pricing systems for industrial emissions, and Part II of the GGPPA continues to apply in Prince Edward Island.
Digital services tax (DST)
Draft legislative proposals implement a DST, effective 1 January 2022. However, the DST would only be imposed if a multilateral convention implementing Pillar One (see Global minimum tax and the new international tax framework in the Taxes on corporate income section) has not come into effect by 31 December 2023; in that event, Canada would start imposing the DST on 1 January 2024, in respect of in-scope revenues earned since 1 January 2022.
The DST targets large global businesses earning revenue from certain digital services reliant on the engagement, data, and content contributions of Canadian users. The revenues subject to the DST are grouped into four categories: revenues earned from online marketplaces, social media, online advertising, and user data (‘in-scope revenue’). The DST will be a 3% non-income tax that will apply to in-scope revenue earned by entities (or members of a business group) with:
- global revenue from all sources of EUR 750 million or more in the previous calendar year, and
- in-scope revenue associated with Canadian users that exceed CAD 20 million in the particular calendar year.