increasingly include foreign entities that contribute funding to
the Canadian corporations that own the resources and have
the operating expertise. While these non-resident investors
may participate directly in the projects, more typically they
will participate through Canadian subsidiaries, so that all the
members of the joint venture or partnership will be Canadian
corporations.
Trusts are excellent vehicles for flowing income through
to their beneficiaries; however, trusts cannot flow losses
through to their beneficiaries. As a result, trusts are not used
frequently in active mining operations, although they may
be used as investment vehicles to purchase royalties and
other mining interests. Trusts are taxed as individuals on their
income except in respect of income that is subject to the
SIFT legislation (discussed in
Structuring Mining Investments –
Partnerships and Joint Ventures – Income Tax Consequences –
SIFT Legislation)
.
Income Taxation
Both the federal and the provincial governments levy income
taxes on corporations and individuals. In all provinces except
Québec and Alberta, a single corporate tax return is filed, and
in all provinces except Québec, a single personal income tax
return is filed, with the federal government collecting both
taxes. In Québec and Alberta, the basis for taxation is similar
to the basis for federal taxation.
Individuals, corporations, and trusts are all subject to federal
income tax under Canada’s Income Tax Act (ITA). Most
partnerships are not themselves liable to tax; instead, the
individual partners are taxed on their share of partnership income.
The basis for federal taxation in Canada is residency. Residents
of Canada are taxed on their worldwide income, whether from
sources inside or outside Canada. Non-residents are taxed
only on their Canadian-source income (subject to any available
treaty exemption). Corporations incorporated in Canada are
resident in Canada regardless of the residency or nationality
of their shareholders.
Individuals are subject to federal tax and provincial tax in the
province in which they are resident on the last day of the
calendar year (December 31). However, business income
earned through a permanent establishment is subject to tax
in the province or territory of the permanent establishment.
The ITA provides for abatement for income earned by a
corporation through a permanent establishment in a province
or territory. Where a corporation carries on business in two or
more provinces, there is an allocation formula that allocates
the income between those provinces.
The ITA also allows a 100% deduction for provincial royalties
and mining taxes payable.
The calculation of tax follows four steps. First, income (also
called net income) is calculated. Then certain deductions
are claimed to arrive at taxable income. Next, federal tax
and provincial tax are calculated on taxable income. Finally,
applicable tax credits are applied to reduce taxes payable.
Resident corporations are taxed at flat corporate rates. The
combined federal and provincial rates range from 25% to
31% for the 2013 calendar year, depending on the province
or territory. Table 2 shows the federal and provincial income
tax rates for each province and territory as at June 30, 2013.
Table 2: Federal and Provincial Corporate Income Tax
Rates as at June 30, 2013
Rates as at June 30, 2013 (%)
Federal
Provincial
Combined
British Columbia
*
15
11.0
26.0
Alberta
15
10.0
25.0
Saskatchewan
15
12.0
27.0
Manitoba
15
12.0
27.0
Ontario
15
11.5
26.5
Québec
15
11.9
26.9
New Brunswick
†
15
10.0
25.0
Nova Scotia
15
16.0
31.0
Prince Edward Island
15
16.0
31.0
Newfoundland and
Labrador
15
14.0
29.0
Yukon
15
15.0
30.0
Northwest Territories
15
11.5
26.5
Nunavut
15
12.0
27.0
* British Columbia increased its rate to 11% from 10% effective April 1, 2013.
† New Brunswick increased its rate to 12% from 10% effective July 1, 2013.
© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Overview of the Canadian Tax Regime
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