doing business in canada - Davies Ward Phillips & Vineberg LLP

TAX REPORTINGAnnual Tax ReturnsCanadian resident taxpayers are generally required to file an annual income tax return. Partnerships that carryon business in Canada or that are "Canadian partnerships" (i.e., partnerships all of the members of which areCanadian residents) are generally required to file an annual information return.Any non-resident of Canada who, in a taxation year, has a taxable capital gain or disposes of taxable Canadianproperty (even absent a gain) is generally required to file a Canadian tax return in respect of that year.A non-resident corporation is required to file a Canadian tax return for any taxation year in which it carries onbusiness in Canada directly or through a partnership. A non-resident individual carrying on business in Canadadirectly or through a partnership is also required to file a Canadian income tax return, but only in respect of ataxation year in which Canadian tax is owing by the non-resident on such business income.The filing obligation applies regardless of whether the non-resident is entitled under an applicable tax treaty torelief from Canadian taxation.Section 116 CertificatesThere is a reporting and tax collection mechanism that applies to dispositions of most kinds of taxable Canadianproperty by non-residents. A non-resident vendor must notify CRA in writing of such a disposition, providingparticulars of the transaction, and is entitled to obtain a certificate (commonly referred to as a "Section 116Certificate") from CRA, upon satisfying CRA that no Canadian tax is owing (e.g., because there is no gain orbecause any gain is exempt under an applicable tax treaty), or by paying 25% of the gain to CRA on account ofthe ultimate tax liability, or by posting acceptable security.In addition, any person, whether a resident or non-resident of Canada, acquiring taxable Canadian property froma non-resident is required to withhold and remit to CRA 25% of the purchase price or, where the non-residentvendor provides a Section 116 Certificate, 25% of the amount, if any, by which the purchase price exceeds thelimit indicated in the Section 116 Certificate. The rate is increased to 50% for certain types of property,including depreciable property (e.g., machinery and equipment, and buildings). If the property is "taxableQuébec property", an additional withholding applies (at a rate of 12% (30% where the 50% federal rate applies))and a separate certificate (equivalent to a Section 116 Certificate) must be obtained from the Québec taxauthority. Failure to obtain a satisfactory Section 116 Certificate from the non-resident vendor or, in thealternative, to make the required withholding and remittance, will make the purchaser liable for the amountsthat should have been withheld and remitted.These requirements do not apply to certain excluded property, such as listed shares, units of a mutual fund trustand debt securities and any "treaty-protected property" (as defined in the Tax Act). A purchaser is exempt fromthe withholding obligation under section 116 in respect of the acquisition of taxable Canadian property (otherthan certain specified taxable Canadian property, such as depreciable property) from a non-resident personwhere (i) the purchaser concludes after reasonable inquiry that the non-resident person is, under a tax treatybetween Canada and a particular country, resident in the particular country, (ii) any gain from the disposition ofthe property would be exempt from Canadian income tax by virtue of such treaty and (iii) where required, thepurchaser provides CRA with notice of the acquisition within a specified period.Notification requirements apply in respect of dispositions of taxable Canadian property that is “treaty-protectedproperty” to a related person.82 Tax Considerations