The Leading Edge - Winter 2009 - (Page 13)

4 Foreign corporations do not need to file Canadian tax returns Canada has an extensive treaty network. Following the Organization of Economic Co-operation and Development model treaty, a foreign corporation that is a resident in a treaty country is exempt from Canadian income taxes on business profits if it does not have a permanent establishment in Canada. If the corporation has an establishment in Canada it is subject to tax on income earned through that establishment. Foreign corporations resident in a nontreaty country are subject to tax on income earned in Canada even if it has no permanent establishment. In 1999 Canada adopted rules in its Income Tax Act that require non-resident companies that are exempt under a tax treaty to file a federal corporation income tax return to disclose that they are carrying on business in Canada and the basis by which they are claiming exemption from Canadian tax. Failure to file a required tax return can result in penalties being assessed against the nonresident corporation. Many non-resident corporations are unaware of this requirement and surprised when assessed non-compliance penalties of $2,500 for each year of noncompliance. of the population of Canada lives within 93 miles of the Canada-U.S. border. Average winter and summer temperatures across Canada vary by location. Winters can be harsh in many regions of the country, particularly in the north and Prairie provinces, where daily average temperatures are near 5°F but can drop below 40°F with severe wind chills. Southern Ontario experiences a moderate winter with average daily temperatures around 14°F Coastal British . Columbia enjoys a temperate climate with a mild and rainy winter. While winters can be cold, summers in many parts of Canada can be quite warm. Summer high temperatures range from 75 to 85°F with occasional extreme heat in some interior locations exceeding 104°F . than English or French. A significant portion of the population speaks Chinese, Italian, German and Punjabi. More than 50 percent of the people living in Toronto, Canada’s largest city, were born outside of Canada. 9 Canada is mostly focused on trade with the United States. 7 Canada’s economy is primarily based on resources. 5 Foreign businesses can sell to Canadians without concern for Canadian sales taxes. Canada has a national sales tax, the Goods and Services Tax. Non-residents who are carrying on business in Canada are required to register, collect and remit this tax. As a valueadded tax they may be eligible to claim tax credits for GST that they pay on their inputs. Canada collects tax on all importations of goods. This applies to non-residents that act as the importer of the goods. Without proper planning the non-resident may be incurring non-recoverable tax when selling goods to Canadians. Canada is one of the world’s most important suppliers of agricultural products (wheat, canola and other grains) as well as one of the few developed nations that are net exporters of energy. Canada has vast deposits of natural gas and oil and is the world’s largest producer of zinc and uranium. It is also a world leader in many other natural resources such as gold, nickel, aluminum, and lead. Yet, with all of these resources the Canadian economy is dominated by the service industry, which employs about three quarters of working Canadians. Canada has a highly skilled workforce and many universities known for their business, engineering and computer science programs. Companies such as Research In Motion, producer of BlackBerry™ wireless communication, are the product of these universities. While Canada’s primary trading partner is in the United States, in recent years Canada has increased trade with other countries. China has increasingly become an important trading partner. Aside from the North American Free Trade Agreement that Canada has entered into with Mexico and the United States, Canada has entered into similar free trade agreements with Peru, Costa Rica, Israel, Chile, the European Free Trade Association (consisting of Iceland, Norway, Liechtenstein and Switzerland) and Columbia. By reducing trade barriers Canada has not only opened its doors to the world, it has opened foreign markets to Canadian-based companies. Foreign companies looking to reach into these markets may wish to establish manufacturing operations in Canada to gain lower cost access to these markets. 10 Canadians enjoy free health care. 6 8 all Canadians speak French. Canada’s climate is cold. Canada is the second largest country in the world (only Russia is larger). Much of this land mass is in the north where population is sparse. Approximately 75 percent Canada has two official languages, English and French. English is spoken by more than 85 percent of Canadians and French is spoken by just 30 percent of Canadians. Eighty-five percent of Frenchspeaking people live in the province of Quebec. Other than Quebec, only New Brunswick has a statement of official bilingualism. Canada is a multicultural society. More than 5 million residents list their first language as other Canada has a nationalized health care system. The federal government ensures access to health care through the Canada Health Act. This act provides criteria provinces must meet to be eligible for federal transfer payments. Federal transfers are important for the provinces because as they are constitutionally responsible for providing health care services. Without federal transfers many of the provinces would be unable to raise sufficient funds to operate their health care system. For the federal government to be in a position to provide the necessary transfer payments to the provinces it must raise significant tax revenues. Canadian individuals have not experienced the significant tax reductions that corporations have seen in recent years. Universal health care is provided to all Canadians at the cost of higher personal taxes. e If you would like to discuss any of the above in detail or would like further advice about setting up business in Canada, please contact Gordon Jessup at (416) 645-6508 or gjessup@fullerlandau.com. ThE LEadIng EdgE 13

Table of Contents Feed for the Digital Edition of The Leading Edge - Winter 2009

The Leading Edge - Winter 2009 Contents Stay on the Climb New Business Often Hinges on an Exceptional Proposal 2009: What’s Ahead and What's Behind for Businesses, Consumers and More Top 10 Misconceptions of Doing Business in Canada In a Nutshell: Q&A The Leading Edge Alliance

The Leading Edge - Winter 2009

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