Canada

Canada's corporate tax summary reflects all 2024 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 2024 federal budget at www.pwc.com/ca/budget.

'Clean economy' investment tax credits

The 2022, 2023, and 2024 federal budgets introduced multiple 'clean economy' refundable investment tax credits (ITCs) for: carbon capture, utilisation, and storage (CCUS); clean technology; clean hydrogen; clean technology manufacturing (which includes electric vehicle supply chain investment); and clean electricity generation. Recently enacted legislation implements the ITCs for CCUS, clean technology, clean hydrogen, and clean technology manufacturing and applications are now being accepted. Draft legislative proposals introduce the ITC for clean electricity generation. See Federal environmental incentives in the Tax credits and incentives section and our Tax Insights 'Clean economy investment tax credits (August 2024 update)' and 'Finance releases draft legislation for the clean hydrogen and clean technology manufacturing investment tax credits' (5 June 2024 update) at www.pwc.com/ca/taxinsights for more information.

Capital gains inclusion rate

Draft legislative proposals increase the capital gains inclusion rate, from one half to two thirds, for dispositions after 24 June 2024. See Capital gains in the Income determination section and our Tax Insights 'Finance releases draft legislation to increase the capital gains inclusion rate' (28 August 2024 update) at www.pwc.com/ca/taxinsights for more information.

Tax on equity repurchases

Recently enacted 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.

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

Recently enacted 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' (28 August 2024 update) at www.pwc.com/ca/taxinsights for more information.

Hybrid mismatch arrangements

Recently enacted 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 rules applies 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).

Recently enacted legislation implements Pillar Two in Canada, which is generally effective for fiscal years of MNEs that begin after 30 December 2023; draft legislative proposals implement a backstop charging rule that will come into effect for fiscal years of MNEs that begin after 30 December 2024. The multilateral convention to implement Pillar One has been delayed, and the federal government has recently enacted legislation to implement a Digital Services Tax (DST) in Canada that retroactively applies 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 Global Minimum Tax Act' (21 June 2024 update), 'Finance releases draft legislation to implement the undertaxed profits rule' and 'Canada's Digital Services Tax Act is now law: What is next and how can you prepare?' (5 July 2024 update) at www.pwc.com/ca/taxinsights for more information.

Digital services tax (DST)

Recently enacted legislation implements a tax on certain corporations that provide digital services in Canada. The tax would only have been imposed if a multilateral convention implementing Pillar One (see Global minimum tax and the new international tax framework above) had not come into force by the end of 2023, and since a multinational convention has not been signed, the DST applies effective the 2024 calendar year, retroactively 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 'Canada's Digital Services Tax Act is now law: What is next and how can you prepare?' (5 July 2024 update) 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 (the 180-day transition period for the Release Prior to Payment program will run from 21 October 2024 to 19 April 2025). 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! (October 2024 update)' at www.pwc.com/ca/taxinsights for more information.

General Anti-Avoidance Rule (GAAR)

Recently enacted 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.