Corporate tax in Canada

In 2019, the total revenue from income taxes totaled $223.6 billion, with corporate income tax accounting for $50.4 billion, personal income taxes accounting for $163.9 billion, and non-resident income taxes accounting for $9.4 billion. Seasonally adjusted corporation profits before taxes for all corporations totalled $224.3B in Q1 2019, $243B in Q2, $230.8B in Q3, $225B in Q4, and $212B in Q1 2020, according to Statistics Canada. "Canadian corporate profits finished 2019 at an all-time high" in 2019. "[O]perating profits for non-financial corporations hit an all-time high of $297.6 billion in 2019", according to National Bank Financial Inc. (NBF). ==Federal tax rates==

Currently, the "basic rate of Part I tax is 38% of taxable income and 28% after federal tax abatement". Businesses that are eligible for the federal small business deduction (SBD) are also eligible for the lower corporate tax rate at the provincial and territorial levels. The SBD is based on "small business limits". All businesses that are not eligible for the SBD are taxed at the higher rate, which applies to all other income. ==Small business taxation==

In 2017, the overall small business tax rate was reduced from 11% to 9%. Controversial changes to small business taxation, proposed in 2017, were introduced when Bill Morneau was Finance Minister under Prime Minister Justin Trudeau. Changes included restricting several tax planning strategies that were frequently used by small businesses, such as passive investment income and income-sprinkling for private corporations. Small business deduction (SBD) Canadian-controlled private corporations (CCPCs) reduce the corporate tax rate on their active business income by using the Small Business Deduction (SBD). This passive income can be significant for large corporations. Under these rules, corporations are no longer able to "recover their RDTOH balance through the payment of eligible dividends" because the individuals receiving the dividends would see their taxes increase from 6% to 14% based depending on the province. 5,500 hours minimum From January 1, 2017 onward in Québec, a 5,500 minimum number of hours paid criterion was established for the provincial small-business deduction, which meant that CCPCs' employees had to have paid work for at least 5,500 hours annually in order for the CCPC to be eligible for the SBD. This applies to some sectors, including primary sectors such as agriculture, forestry, fishing, hunting, some resource-based sectors, and manufacturing and processing sectors (M&P) sector. "Special conversion rules apply to take into consideration hours worked (but not necessarily paid in the form of wages) by actively engaged shareholders who hold, directly or indirectly, shares of the corporation that carry more than 50% of the voting rights." ==Provincial and territorial corporate tax rates==

CRA listed tax rates According to the current CRA web page, in Newfoundland and Labrador corporate tax rates span from 3 per cent at the lowest rate to 15 per cent at highest rate; in Nova Scotia from 3% to 16%, in New Brunswick from 2.5% to 14%, in Prince Edward Island from 3%to 16%, in Ontario from 3.2% to 11.5%, in Manitoban 12% in Saskatchewan, from 2% to 12%, in British Columbia from 2% to 12%, in Nunavut from 3% to 12%, in the Northwest Territories, from 4% to 11.5%, and in Yukon from 2% to 12%. Québec has three levels—the rate for the first level is c. 4% to 5%, for the second level it is 11.50%, and for the third level it is 11.50%. British Columbia In British Columbia the lower rate of corporate income tax is 2%. Effective January 1, 2018, the higher rate is 12%. Previously, it was 11%. Manitoba In Manitoba, the lower rate of Manitoba's provincial corporation income tax is 0% and the higher rate is 12%. New Brunswick In New Brunswick the lower rate of corporate income tax is 2.5%. Prior to April 1, 2018, it 3%. The higher rate is 14%. The "New Brunswick business limit is not be subject to the federal passive income business limit reduction that applies to tax years starting after 2018." Newfoundland and Labrador The lower rate of Newfoundland and Labrador income tax is 3% and the higher rate is 15%. "These rates also apply to income earned in the Newfoundland and Labrador offshore area." Northwest Territories The lower rate of Northwest Territories income tax is 4% and higher rate is 11.5%. Nova Scotia Effective April 1, 2020, Nova Scotia's lower rates decreased from 3% to 2.5% and the higher rate from 16% to 14%. These "rates also apply to the income earned in the Nova Scotia offshore area." Nunavut The "lower rate of Nunavut income tax is 3% effective July 1, 2019. It was previously 4%...The higher rate of Nunavut income tax is 12%." Ontario The Ontario basic income tax rate is 11.5% and the lower rate is 3.2% effective January 1, 2020. It was lowered from 3.5% in 2018 and from 4.5% in 2017. Prince Edward Island The lower rate of Prince Edward Island income tax is 3% effective January 1, 2020, a decrease from 3.5% in 2018, and from 4.5% before 2018. The higher rate of income tax is 16%. Saskatchewan The lower rate of Saskatchewan income tax is 2% and the higher rate is 12% effective January 1, 2018. Previously, it was 11.5%. Saskatchewan is the only province to have raised its SBD levels from $500,000 to $600,000. Yukon The lower rate of Yukon income tax is 2% and the higher rate of tax is 12%. Alberta On June 29, 2020, Premier Jason Kenney announced that the corporate tax rate would be lowered to 8% from 10% on July 1, 2020. Historically, during World War II, the provinces had temporarily ceded some of their provincial tax regulations to the federal government in "exchange for "tax rental" payments". In the 2010s, the Alberta Chamber of Commerce "advocated a return to the harmonized corporate base, citing in particular a 2006 Ontario study estimating that Ontario businesses would save $90 million annually in tax, and an additional $100 million annually in compliance costs." Québec Québec has three levels of corporate tax rates—the rate for the first level is c. 3% to 5%, for the second level it is 11.50%, and for the third level it is 11.50%. ==Corporate tax avoidance==

Prior to the 1990s, corporations minimized interprovincial taxes by "locating income in provinces with lower rates." General Anti-Avoidance Rule (GAAR) Effective on September 13, 1988, the Government of Canada's General Anti-Avoidance Rule (GAAR) was introduced as a section of the Income Tax Act. In 2005, the federal GAAR, "was substantially amended to apply to a wider array of abusive transactions" and the amendments were retroactive to 1988. In 1993, Gulf Canada won its case against the federal government regarding the reassessment of its FY 1974 and FY 1975 corporate income taxes, which resulted in a loss of about billion to the public. Aggressive tax planning (ATP) Aggressive tax planning (ATP) is a "global phenomenon that threatens the integrity of national tax systems and has a negative effect on public finances", according to a 2009 Québec Department of Finance working paper. The OECD's 2006 "Seoul Declaration", which had expanded the 2004 Corporate Governance Guidelines on "tax and good governance", called for OECD members to create a "directory of aggressive tax planning schemes so as to identify trends and measures to counter such schemes." The OECD said that with the liberalisation of trade and capital, along with "advances in communications technologies" has made "enforcement of national tax laws "more difficult". This had led to the rise of "structures which challenge tax rules, and schemes and arrangements by both domestic and foreign taxpayers to facilitate non-compliance with our national tax laws." The 2009 Québec Finance paper referred to the 1996 Québec Shuffle—that made it possible for corporations to avoid paying any provincial tax—and the 1998 and 2006 Truffles, as examples of ATP schemes. The case dated back to July 2002, when a company used a tax planning structure that resulted in the company avoiding paying $1,175,249 of tax on the "taxable capital gain that would otherwise have been taxed in B.C." By 2007, Ontario, Québec, and Alberta worked collaboratively to "enhance anti-avoidance provisions". Then Alberta Premier Ed Stelmach, introduced the Alberta Corporate Tax Amendment Act. Prior to the closing of these loopholes, Through the so-called Ontario shuffle, corporations that were based in Alberta could reduce their taxable income by making "interest payments to related companies based in Ontario", which in some cases meant they only paid federal, not provincial taxes. The Québec truffle referred to a scheme whereby Québec corporations based in Alberta, shifted their income earned in Alberta to "trusts based in Québec, making them immune to Alberta taxes". Ontario Finco structure The Ontario Finco structure, Historically, under Canadian corporate tax laws, high-earning individuals could incorporate their professional corporations to take advantage of tax benefits, by including family members with a lower income in a lower tax bracket as non-voting shareholders, and pay them dividends. Prior to 2018, under the "tax on split income" (TOSI) rules, taxes of dividends that corporations paid to family members who were "under the age of 18 would be subject to "kiddie tax" and were taxed at the highest individual tax rates." In January 2018, TOSI amendments were expanded so that the highest individual tax rates applied to "all family members, regardless of their age." In a 2017 paper, the Royal Bank of Canada (RBC) described how the proposed changes would limit "income sprinkling" to "family members receiving "reasonable" compensation from a private corporation." It would also "limit the multiplication of claims to the lifetime capital gains exemption." ==References==