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 2023 federal budget introduces refundable investment tax credits for the production of clean hydrogen, clean technology manufacturing, and clean electricity generation. It also provides more details on the refundable investment tax credit for the development of clean technologies. These are in addition to the refundable investment tax credit for carbon capture, utilisation, and storage that was introduced in the 2022 federal budget. See Other federal environmental incentives in the Tax credits and incentives section for more information.
Tax on equity repurchases
The federal government proposes to implement 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
Draft 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' at www.pwc.com/ca/taxinsights for more information.
The government released a consultation paper to gather stakeholder input on various questions and proposals related to modernisation of Canada’s transfer pricing legislation. The consultation process provides an opportunity for stakeholders to submit comments and feedback on the proposals, the deadline for which is 28 July 2023. 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 legislative proposals limit 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 ‘Updated legislation: Excessive interest and financing expenses limitation (EIFEL) regime' at www.pwc.com/ca/taxinsights for more information.
Additional taxes on banks and life insurers
Recently enacted legislation implements, for banks and life insurers and their related financial institutions, a one-time 15% tax for the 2022 taxation year and a new additional 1.5% income tax for taxation years ending after 7 April 2022 (exemptions are available). 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), recently enacted legislation implements changes to the taxation of insurance contracts. 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 legislative proposals (the first of two legislative packages) eliminate 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).
Pillar Two is expected to generally begin coming into effect in 2024, while the multilateral convention to implement Pillar One is expected to be open for signature in mid-2023. See Global minimum tax and the new international tax framework in the Taxes on corporate income section and our Tax Insights 'The new international tax framework and Canada's digital services tax' and 'Digital Services Tax (DST): Will the DST's potential implementation affect your business?' at www.pwc.com/ca/taxinsights for more information.
Digital services tax (DST)
Draft legislative proposals 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 (DST): Will the DST's potential implementation affect your business?' 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 expected to be operational in October 2023. 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, draft 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 ‘2022 Federal budget: Encouraging affordable housing and sustainability’ 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.