Canada's corporate tax summary reflects all 2019 federal, provincial, and territorial budgets. The 2019 federal budget continues the focus on improving the fairness and integrity of the tax system by tightening perceived loopholes or inequities, and by cracking down on tax evasion and tax avoidance. It proposes to invest an additional 150.8 million Canadian dollars (CAD) over five years to fund new Canada Revenue Agency (CRA) initiatives and extend existing programmes to further combat tax evasion and tax avoidance. Additionally, the budget proposes to spend CAD 65.8 million over five years to improve the CRA's information technology systems so that the infrastructure used to fight tax evasion and aggressive tax avoidance continues to evolve.
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.
100% first-year deduction for certain newly acquired property
Recently-enacted legislation allows an immediate 100% capital cost allowance (CCA) deduction for:
- manufacturing and processing and specified clean energy equipment acquired after 20 November 2018, and
- zero-emission vehicles purchased after 18 March 2019,
if available for use before 2024. The 100% deduction is gradually phased out for property that becomes available for use after 2023 and before 2028. In addition, an increased first-year CCA deduction is available on most other eligible depreciable property acquired after 20 November 2018 and available for use before 2028. See Depreciation and amortisation in the Deductions section for more information.
Draft legislative proposals amend the definition of 'derivative forward agreement' to prevent fully taxable ordinary income from being recharacterised into more favourably taxed capital gains under these agreements, in certain cases, for transactions generally entered into after 18 March 2019. See Derivatives in the Income determination section for more information.
Foreign affiliate dumping rules
Draft legislative proposals extend the foreign affiliate dumping rules to Canadian-resident corporations controlled by non-resident individuals, non-resident trusts, or a group of non-resident corporations, individuals, and/or trusts who do not deal with each other at arm's length, for transactions or events occurring after 18 March 2019.See Foreign affiliate dumping rules in the Income determination section for more information.
Draft legislative proposals introduce a new ordering rule to prioritise transfer pricing adjustments, and broadens the definition of a 'transaction' for purposes of the extended reassessment period that applies to non-arm's-length cross-border transactions, for transactions beginning after 18 March 2019. See Transfer pricing in the Group taxation section and Statute of limitations in the Tax administration section for more information.
Cross-border securities lending arrangements (SLAs)
Draft legislative proposals modify the withholding tax (WHT) rules for dividend compensation payments that a Canadian borrower makes to a non-resident lender under an SLA, to address planning undertaken by certain non-residents that attempts to avoid the Canadian dividend WHT, for dividend compensation payments generally made after 18 March 2019. See Cross-border SLAs in the Income determination section for more information.
Mandatory Quebec Sales Tax registration for non-residents of Quebec
The mandatory Quebec Sales Tax (QST) registration rules are expanded 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 new specified registration system, starting:
- 1 January 2019, for non-residents of Canada, and
- 1 September 2019, for residents of Canada that reside outside Quebec.
See Provincial retail sales tax in the Other taxes section for more information.