Canadian Tax

CANADIAN CORPORATE TAXES

Tax Return Preparation

The Canadian tax system is heavily weighted towards the use of a corporation when it comes to organizing business affairs. By combining the minimization of legal and tax liability, the corporation is the most common vehicle utilized by small and large vehicles in Canada. Between an initial consultation on whether a corporation is right for your business, to the final consultation on how to wind up the corporation, AM Associates is here to assist in the optimization of financial resources necessary to succeed in today’s business environment.

Tax Audits, Appeals & Voluntary Disclosures

Audits & Appeals: While far less common than personal tax reviews, the corporate tax audit is often of a larger scale, and can lead to reviews in other departments, such as payroll and HST. Whenever any of these reviews arise, it is key to respond quickly and expertly, to avoid a lengthy process fraught with risk of further review. The reviews themselves are often fairly simple to resolve, but if not handled property or in a timely fashion, the time and money spent on these endeavours can prove costly over time. In the event of a disagreement of opinion on an item in the tax return, the appeals process exists to elevate the issue to a more senior member of the CRA.

Voluntary Disclosures: Self-reporting remains the base of the Canadian tax system. The CRA’s voluntary disclosure program applies to all legal entities in Canada, including corporations. If you have not yet received a letter from the CRA, requesting information on a previously-undisclosed or misreported item on your financial statements, then you are likely able to disclose the issue voluntarily, and avoid extensive penalties.

Corporate Tax Planning

Canada has given increasingly favourable tax rates to corporations since the late 1990s, with both the Liberal government and Conservative government pushing to reduce corporate tax rates in favour of higher personal tax rates, with the aim of keeping corporations strong to stabilize the employment rates. This bipartisan approach has led to reduced corporate bankruptcies, and a strong employment base which has helped the country to weather several financial storms along the way. The proper use of a Canadian corporation can yield significant tax benefits, which are intended by the Income Tax Act of Canada. Through the proper deferral of personal income tax inside a corporation, you can achieve an accelerated rate of growth, to an extent often unachievable by way of a sole proprietorship, partnership or trust.

Sending Employees into Canada

With the closure of borders upon the arrival of the pandemic in 2020, a spotlight was shone upon those working from home, particularly those with a foreign employer. The tax treaty between the U.S. and Canada has always allocated those wages as “earned” in the country where the work is physically performed. This led to the Canadian government, in particular, performing extensive reviews to confirm the proper allocation of wages between the two countries. This has hindered many companies in their dealing with non-resident employees, as compliance became increasingly difficult to achieve.

When dealing with Canadian employees of U.S. companies, or vice-versa, it is essential that a calendar of working days is maintained by all employees, and that calendar must be incorporated into the payroll group to ensure a proper remittance of payroll taxes to each jurisdiction. While the Agreement between Canada and the U.S. regarding social security allows for some flexibility on Social Security and Medicare, versus Canada Pension Plan and Employment Insurance, the income tax matters for countries, states, provinces, counties and cities must all be dealt with on a day-by-day basis to be properly allocated.

While waivers, such as the 102 and 105, serve to assist some employers with avoiding some withholdings, the majority of employers with non-resident employees working from home must apply for a payroll number in each country, remit to each country on a monthly basis, and to reconcile these wages and withholdings on an annual basis by way of a T4 or W2. This is complicated, and largely exhausting, even for those with robust payroll providers in-house or externally.

AM Associates has consulted with many employers and employees about their rights and obligations under various sections of the domestic tax acts, and the treaties in place. We can assist with minimizing administrative responsibilities and expenses, while maintaining compliance, in this increasingly-complicated area.