Canada has a strong economic relationship with the United States, thanks in part to sharing borders, values, and interests. These close connections help to explain why, according to the Office of the United States Trade Representative, trade between these two countries totaled over $900 billion in 2022. Canada’s competitive tax rates help to form another reason for the enduring success of this trade arrangement, as Canadian tax policy makes Canada an ideal place for many international companies, including American firms, to do business. To learn more about how a Canadian tax attorney with Jeremy Scott Law can assist Canadian and international businesses with Canadian concerns in navigating the global tax landscape, schedule a consultation by calling (902) 403-7201.
Understanding Canada’s Tax Landscape
Canada’s comprehensive tax regime helps fund the country’s public social and health services for the benefit of its citizens. Below is an overview of two of the main Canadian taxes related to firms, namely corporate and sales tax:
- Corporate tax: Canadian corporations, including inactive firms and non-profits, make profit- and capital-based tax payments at both the provincial and the federal levels. In addition to varying between provinces, corporate tax levels in Canada depend on the corporation’s size and the entity type; for instance, provinces tax sole proprietorships at a fixed rate that can be as high as 50%, whereas for limited partnerships, each partner pays personal taxes depending on how many shares they own, and corporations pay a fixed federal tax rate following the general tax reduction.
- Sales tax: Another main business-related tax in Canada involves taxing the majority of consumable products and services. Typically, an advertised price of a good or service does not include these taxes, which means a customer could pay between 5% and 15% more (depending on the product or service type and province) when completing the transaction.
Consumable Taxes Explained
Businesses operating internationally can sometimes find Canada’s sales tax system complex, but it is in some ways more streamlined than those of comparable nations. Here is a summary of Canada’s primary business sales taxes:
- GST: The Goods and Services Tax (GST) refers to a 5% federal tax collected by the Canada Revenue Agency (CRA) and levied on the majority of completed Canadian product and service sales. GST applies to all goods and services unless the product or service is exempt or zero-rated. Vendors generally charge GST when completing sales and then remit the amount to the CRA afterward. Examples of exempt goods and services include most financial, healthcare, and educational services; zero-rated examples encompass prescription drugs, feminine hygiene goods, most transportation services, medical devices, and basic groceries.
- PST: In Manitoba (6%), British Columbia (7%), and Saskatchewan (7%) a Provincial Sales Tax (PST) is due on most sales of software and tangible goods, as well as specific services. The provincial tax authorities are responsible for the regulation of PST and, unlike HST (below) and GST, PST may apply to company inputs not obtained for resale. Not all provinces impose a PST, but the GST still applies in these regions.
- HST: Five Canadian provinces, including New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, and Ontario, have opted to blend federal sales tax with their own tax system, resulting in a single Harmonized Sales Tax (HST) that includes the provincial sales tax component in addition to GST. HST applies in the same manner as GST. Registering separately for HST and GST is unnecessary since the CRA administers both and accounts for them in the same tax return.
Learn more concerning Canada’s competitiveness in the global tax landscape and discover how a Canada tax attorney can be of assistance to firms by arranging a consultation with Jeremy Scott Law.
Where Does Canada Rank in the World for Taxes?
Per the Tax Foundation, in 2022, the highest rates of corporate tax in the world ranged from 50-36% while the lowest rates were between 0% and 9%; the global average statutory rate of corporate tax was 23.37%, whereas the top level of corporate tax in the G7 was 32% and 23.57% among OECD economies. Canada’s highest level of statutory corporate tax in 2022 was 26.21%. These figures put Canada just above the average in terms of statutory corporate tax; entrepreneurs and investors should remember, however, that Canada also offers numerous tax incentives to qualifying companies.
Benefits of Canada’s Tax Regime
Canada’s streamlined system for orchestrating taxes can have a number of advantages for commerce, depending on the industry and scale of a business. Outlined below are some of the most broadly applicable advantages of Canada’s competitive tax regime.
Low Corporate Tax
One crucial benefit of Canada’s tax regime for businesses concerns its relatively low rates of corporate tax. To attract international firms and foster economic growth, Canada has reduced its corporate tax rate over the last few years, resulting in a highly competitive rate, particularly among developed nations, to the point that it is one of the lowest in the G7 and ranks close to the middle of the OECD economies. Canada started to drop its corporate tax in 2012, consistent with many other countries around the world, but has continued to do this at a faster rate than many other countries, encouraging businesses to expand their operations to Canada.
Trade Arrangements
Firms thinking of doing business in Canada could benefit from the nation’s extensive trade network. Thanks in part to trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the North American Free Trade Agreement (NAFTA), Canada is in a position to provide businesses with access to diverse, global markets. Canada was also one of the first G20 nations to introduce initiatives to remove all tariffs for industrial manufacturing, making the country a free-trade zone for companies looking to import manufacturing resources.
Provincial Rules Considerations
Running a business in Canada offers numerous benefits, but those looking to expand their operations to Canada should take note of Canada’s provincial rules. Each province has its own government, taxes, and regulations, meaning companies must think about these in addition to federal tax regulations.
Contact a Nova Scotia Tax Attorney Today
Alongside sharing strong trade links, Canada and the United States both invest heavily in one another. This is due in large part to Canada’s competitive tax rates, sound banking systems, favorable free trade agreements, natural resources availability, and highly educated workforce, highlighting how Canada is an ideal choice for international business expansion not merely for businesses from the United States but for enterprises looking to expand internationally from all ports of call. Learn more about Canada’s competitiveness in the global tax landscape and explore how a Nova Scotia tax attorney can help businesses with Canadian business tax compliance by contacting Jeremy Scott Law at (902) 403-7201.