doing business in canada - Davies Ward Phillips & Vineberg LLP

Tax ConsiderationsThis chapter provides a summary of certain considerations arising from Canadian income tax, sales taxes andother taxes that may be relevant to persons considering doing business in Canada.INCOME TAXLEGISLATIONIncome tax is imposed in Canada by the federal government and by the provincial and territorial governments.The federal government levies income tax under the Income Tax Act (the "Tax Act"). It covers federal incometax for individuals and other taxpayers, including corporations and trusts, whether resident in Canada or nonresident.A partnership is generally a flow-through entity for Canadian tax purposes and not generally itself ataxable entity (unless deemed to be a SIFT partnership, as further discussed below). The Tax Act is administeredby a government agency, the Canada Revenue Agency ("CRA").Each provincial and territorial government levies income tax computed on a similar basis as federal income tax,at different rates.For the remainder of this section, except where indicated otherwise, descriptions of taxation provisions referonly to the Tax Act.JURISDICTION TO TAXThe primary basis for taxation is the residence of the taxpayer. Canada does not impose tax on the basis ofcitizenship.Canadian residents are generally subject to income tax in Canada on their worldwide income, regardless ofsource, but are generally entitled to tax credits or deductions for foreign taxes paid.Non-residents of Canada are subject to taxation on Canadian source income, subject to relief by way of ratereduction or, to a limited extent, elimination of Canadian tax, under a tax treaty. Canada has an extensivenetwork of treaties, with approximately 87 treaties currently in force. Appendix I contains a complete list of theCanadian tax treaties in force current to June 1, 2010.The principal sources of income of non-residents that are subject to tax in Canada are:• income from a business carried on in Canada;• income from an office or employment performed in Canada;• gains realized on the disposition of "taxable Canadian property"; and• certain types of passive income such as dividends paid by a Canadian corporation or rent fromCanadian real estate.TAXABLE CANADIAN PROPERTYThe definition of "taxable Canadian property" is proposed to be amended, retroactive to March 4, 2010. Underthe amended definition, taxable Canadian property will generally be limited to:80 Tax Considerations