Business, Corporate and Investor Services



Although Canada is not as famous as some tax havens, where corporation taxes are totally exempted, it is still an ideal country for investment because of its rich nature resources, wonderful geographical location, and really low corporation income tax rate.



For people who want to incorporate in Canada, the most important consideration is that the board of directors has to include one Canadian resident (citizen or green card holders). Generally speaking, at least 25% Canadian residents are required, which means for the board with four directors, one has to be a Canadian.


Jurisdiction of the corporation

 Canadian companies fall into two kinds of jurisdiction: federal and the provincial. The difference is minor. For a federal company, its name can be used in everywhere in Canada, while for a provincial company, the name can only be used in the registered province.  Therefore, if a provincial company wants to carry business in another province, the registration is required again and it will be harder for a federal company’s name to be approved comparing with a provincial company.

Well, its interesting that the federal company's registration fee is much cheaper than in some province. For example, the name search fee and incorporation fee for a federal company is $225, whereas for in Ontario, it will need $350. 


 Capital Contribution

In Canada, there is no requirement on how much should be contributed in a newly formed company, meaning that you can only contribute $1 to set up a company. So many Canadians like to run their business in the form of a company, because the set up cost is pretty low.


 Canadian Address

Once incorporated, the Canadian company has to use a Canadian address to carry business. The owner may also use his or her residential address as the business address, especially in the first few years after incorporation.


Limited Liability Company

Same as in other countries, the Canadian corporation limits the liability of its shareholders, which reduces the investors risk. For example, many Chinese investors buy houses or apartments as rental properties in Canada in recent years. But many may not know that Canadian government protects tenants rather than the landlords. Here is a case: an apartment was rented for a family of three people. Tenant made a hole on the window screen. When the tenants invited guests to have dinner at home, one of guests, a two-year-old child accidentally fell down from the crevasse and died. The parents claimed the indemnity.  As a result, the tenants need to pay 2 million, and the landlord needs to pay 12 million.  Why the landlord has to pay, even he did not live there, because the landlord should take the responsibility of repairs and maintenance. If this apartment is personally owned, the landlord will lose every single penny earned in his life to pay this huge debt. But if the house is held by a company, the liability is only limited to the amount of capital contributed plus accumulated retained earnings. 


After incorporation

Accounting Requirements

As an independent legal entity, the company needs to file financial statements at the end of each year. The company's fiscal year end can be any day within 53 weeks after incorporation. For example, if the company was incorporated on August 15, 2014, the fiscal year end day can be selected as July 31, 2015. The financial statements can be prepared by owners or by a qualified accountant. If prepared by a qualified accountant, it will have the high credibility. For example, the company can use it for a loan application in a bank.

Usually, review or audit is not needed for a private enterprises financial statements. Review or audit may only be required in certain situations: eg, a nonprofit organization receiving government grants, travel agencies, etc.


 Tax Requirements

Canada Revenue Agency (CRA) requires all companies to file the tax returns once its incorporated.  For small private enterprises, three types of tax filings need to be considered:


·         Corporation Income Tax,

Corporation income tax rate is adjusted every year, and shows a declining trend in recent years.  The purpose is to attract investors. The federal tax rate is only 11% for a small business company with the net income not exceeding $500,000 in 2014. The provinces tax rates range from 2% (e.g., Saskatchewan)  to 4.5% (e.g., Ontario). Currently, Canada is one of countries with very low corporation income tax rate in the world, far lower than that in the United States and China.


·         Goods and Service Tax/ Harmonized Sales Tax (GST/ HST)

GST / HST function quite similar to the value-added tax in China. Companies may also choose to use regular method or quick method. If the companies income reaches the threshold of $30,000, they must register GST/HST. Although there is no registration requirement for companies with income under $30,000, CRA will usually approve the voluntary application if you still want to register GST/HST account. The GST/HST return should be filed each year since the date of registration, whether or not the annual income is less than $ 30,000 again. Usually, if the companys sales are under $1.5 million, one tax return can be filed annually. If the sales are from $1.5 million to 6 million, the return must be filed quarterly.  For sales over $ 6 million, the return must be filed monthly.


Some provinces have their own sales tax (eg, British Columbia). For those provinces, GST only represents federal sales tax. Some provinces combine the federal and the provincial sales tax (e.g., Ontario), which is called HST (Harmonized Sales Tax). Its beneficial to be in a HST province for a business, as the HST included in all purchases is deductable. But it is a non-beneficial for a consumer to pay all bills with HST instead of GST, as consumers have nowhere to deduct it.


There is a category of GST/HST with zero tax rate, meaning no GST/HST collectable on sales, but the GST/HST in purchases can be deducted. Usually the enterprise will get the refund after filing GST/HST return. It only applies in certain industries, such as exporting goods or services. In recent years, there are many trading companies which do businesses between Canada and China. If the companys mainly business is to export to China, the company would better consider to register GST/HST right after incorporation so to enjoy the tax refund.


·         Payroll Taxes

Salary to a shareholder does not have to be paid monthly, per CRA ruling. It can depend on the company's profitability, as well as shareholder s other personal income. So, in the first few years, the company may issues bonus to shareholders only at the end of the year, according to the companys net income and the payroll tax is only required at the time the bonus is paid out. In addition, the bonus can be paid within 180 days after the year end date, so the bonus income reported on shareholders personal return can be deferred. For example, the company's financial year end is September 30, 2014. The company decides to give $30,000 bonus to shareholder. The bonus can be paid to shareholder before the end of March, 2015, which is treated as personal income in 2015. But for the company, the bonus is expense in 2014, which can reduce the companys 2014 income tax.


·         Others

For non-resident shareholders, the information should be released on the corporations income tax return. If Canadian companies have transactions with related parties in a foreign country, additional information should be released. 

Generally speaking, CRA have a preferential tax policy for local companies than a foreign companies. If you can meet all conditions of incorporation in Canada, youd better set up a Canadian company, rather than to carry business under a foreign company in Canada.