Doing Business in Canada

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1 2013 CliftonLarsonAllen LLP Doing Business in Canada May 7, 2014 Jen Leary, CliftonLarsonAllen Jonathan Bicher, Nexia Friedman CLAconnect.com

2 Disclaimers To ensure compliance imposed by IRS Circular 230, any U. S. federal tax advice contained in this presentation is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed by governmental tax authorities. The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by CliftonLarsonAllen LLP to the user. The user also is cautioned that this material may not be applicable to, or suitable for, the user s specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The user should contact his or her CliftonLarsonAllen LLP or other tax professional prior to taking any action based upon this information. CliftonLarsonAllen LLP assumes no obligation to inform the user of any changes in tax laws or other factors that could affect the information contained herein.

3 Housekeeping If you are experiencing technical difficulties, please dial: Q&A session will be held at the end of the presentation. Your questions can be submitted via the Questions Function at any time during the presentation. The PowerPoint presentation, as well as the webinar recording, will be sent to you within the next 10 business days. Please complete our online survey.

4 CPE Requirements Answer the polling questions If you are participating in a group, complete the CPE sign-in sheet and return within two business days Contact kristen.nelson@claconnect.com Allow four weeks for receipt of your certificate; it will be sent to you via

5 Learning Objectives At the end of this session, you will be able to: Understand key developments in the Canadian economy, as well as practical guidance and considerations for doing business in Canada Understand the common forms needed to do business in Canada and their major tax structure for individuals and businesses operating in Canada

6 About CliftonLarsonAllen A professional services firm with three distinct business lines Accounting and Consulting Outsourcing Wealth Advisory 3,600 employees Offices coast to coast Independent member of Nexia International

CLA s Global Reach CLA s Global Services practice includes over 250 team

Our experience serving international businesses allows us to provide

Founded in 1971 Top 10 network worldwide 590 offices in over 100 countries

7 CLA s Global Reach CLA s Global Services practice includes over 250 team members throughout the U.S. Our experience serving international businesses allows us to provide support and insight. Founded in 1971 Top 10 network worldwide 590 offices in over 100 countries CLA is the largest independent member of Nexia International, a top 10 worldwide network of independent accounting and consulting firms. $2.1 billion in revenue 20,000 worldwide staff

Speaker Introductions Jennifer Leary, CliftonLarsonAllen A leader in our global services team, Jen has over 17 years of experience in audit, advisory, mergers and acquisitions, internal audit,

She advises companies through due diligence and reverse due diligence engagements in conjunction with mergers and acquisitions within the U.S. and cross-border.

8 Speaker Introductions Jennifer Leary, CliftonLarsonAllen A leader in our global services team, Jen has over 17 years of experience in audit, advisory, mergers and acquisitions, internal audit, corporate governance, controls and risk assessments and internal audit department quality assurance reviews. She advises companies through due diligence and reverse due diligence engagements in conjunction with mergers and acquisitions within the U.S. and cross-border. Jonathan Bicher, Nexia Friedman Jonathan is the Chair of the Nexia Canada Tax Committee. He specializes in corporate and personal tax planning as well as both domestic and crossborder reorganizations and transactions. He has strong expertise in mergers and acquisitions architecture and execution. Jonathan provides services to U.S. companies doing business in Canada, working with diverse clientele as the entertainment industry, comedians, family-owned businesses, and service companies.

9 Presented by: Jonathan Bicher, CPA, CA 9 May 2014

10 CANADA Why should you pay attention to this webinar? Largest bilateral trading relationship in the world 300,000 people cross our shared border, daily $1.6 billion worth of goods cross our shared border, daily 10

11 CliftonLarsonAllen LLP

12 GEOGRAPHY Second largest country in area in the world after Russia Over 3,850,000 square miles Almost 9% is fresh water located in over 31,000 large lakes 125,570 miles: Longest coastline in the world 12

13 GEOGRAPHY Canada/US border over 5,525 miles Stretches from Maine to Washington State Longest undefended border in the world 13

14 GEOGRAPHY Canada is a federation of: 3 Territories & 10 Provinces 14

15 POPULATION 33,500,000 (per 2011 census) 80% live within 90 miles of the US border 15

16 POPULATION The largest cities are: - Toronto (5.6 million) - Montreal (3.8 million) - Vancouver (2.3 million) 16

17 FEDERAL GOVERNMENT AND POLITICS Capital: Ottawa (Ontario) Parliamentary system: bicameral legislature 17 House of Commons: 308 members Senate: 105 members Government Formed by Party with most representatives (seats), led by PM Voting: Done on party lines Majority comes with great power Elections: Every 5 years, minimum (no set date)

18 PROVINCIAL GOVERNMENT AND POLITICS Mimics Federal system, except: Unicameral legislature Provinces are very powerful and autonomous Some provincial responsibilities include: Healthcare Education Welfare 18 Provinces collect more revenue than the federal government

19 LEGAL SYSTEM Constitutional Act of 1982 Ended all legislative ties to the UK Common law prevails Quebec civil law predominates Criminal law is federal 19

20 LANGUAGE Canada is officially a bilingual country English French Primary language in most of Canada: English Exception: In Quebec, French is the primary language However, even in Quebec, one can conduct business in English 20

21 THINGS TO CONSIDER WHEN VISITING 1. Passport: needed to get into Canada 2. Temperature: measured in Celsius not Fahrenheit 32C = 90F Thus pack accordingly 3. Distance: measured in KPH not MPH 100KPH = 60 MPH Thus drive accordingly 4. Canada has its own currency 21

22 BUSINESS CLIMATE Ranked best place for doing business among G-7 (per 2013 study of the Economist) Highly developed infrastructure Rated first in recent study measuring a country s ability to attract foreign investment on the basis of economic infrastructure Low business costs Low corporate taxes Little red tape for business 22

23 DOING BUSINESS IN CANADA Banking 5 major chartered banks Other second tier banks Very profitable and stable Centralized decision making Highly regulated Minimally affected by the world banking crisis 23

24 DOING BUSINESS IN CANADA Banking Non-residents Opening a Bank Account Individuals Need proper identification Corporations Must have proper identification Must have valid reason Once proper information and documentation is provided, account can normally be opened within 48 hours 24

25 DOING BUSINESS IN CANADA Banking One can open bank accounts in Canadian or U.S. dollars Funds can be wired back and forth effortlessly Cheques drawn on U.S. banks may take time to clear and there may be a holding period Not all banks are equal; some banks are more U.S. focused 25

26 DOING BUSINESS IN CANADA Investment / Wealth Management Not all firms licensed to deal with U.S. Residents Not all advisors at the same firm are licensed to deal with U.S. residents 26

27 DOING BUSINESS IN CANADA Investment / Wealth Management Investments often structured with Canadian tax laws in mind Must always analyze investments to determine what the impact would be for U.S. Taxpayer; Canadian advisors are not structuring keeping U.S. in mind 27

28 DOING BUSINESS IN CANADA Labour standards: Provincially controlled Rules vary from province to province Be aware of funding requirements for social programs (such as manpower training) Pay equity, language Often the employee receives the benefit of the doubt 28

29 DOING BUSINESS IN CANADA Canada has a national healthcare system HOWEVER: The management and funding is the responsibility of the Provinces Funding: usually done through employer as a function of salaries Each province in which one has employees may require funding 29

30 BUSINESS CLIMATE GDP Growth 30

31 BUSINESS CLIMATE GDP Growth (cont d) 31

32 BUSINESS CLIMATE WORKFORCE 51%: Highest % of individuals having attained post-secondary education (2012 OECD study) Compared to 42% in the U.S. And 38% in the U.K. 3 : Canadian universities in the top 100 in the world per QS World University McGill University University of Toronto University of British Columbia 32

33 BUSINESS CLIMATE WORKFORCE (cont d) Canadian work-force Multilingual Well-travelled Highly recognized for ability to work in international contexts Canada ranked first in G-7 in 2012 study measuring how management education meets needs of business community 33

34 BUSINESS CLIMATE TRADE WITH U.S. 53.7% of foreign direct investment in Canada held by U.S. Investors (in 2011) By far, the U.S. is Canada s largest trading partner Trade benefits from: Streamlined trans-border transportation system RESULT: Making it one of the world s most efficient border systems 34

35 INVESTMENT CLIMATE Generous tax incentives for R&D World-leader in post-secondary research Many Canadian production hubs closer to U.S. Markets than American production sites Canada s GDP per capita was highest among G-7 countries offering ex-pats a very high standard of living (Per 2012 World Bank study) Low inflation and low interest rates 35

36 COMMON FORM FOR BUSINESS 1. Corporations 2. Partnerships 3. Unlimited Liability Corporations (ULC) 4. Branches 36

37 COMMON FORMS FOR BUSINESS Corporations Most popular vehicle for business Can be federally or provincially incorporated; Generally use federal companies or companies established under legislation of province of operation Income tax paid within corporation 37

38 COMMON FORMS FOR BUSINESS Partnerships Income taxed in hands of partners Historically offered tax deferral opportunities, which were removed in the last few years Often complex reporting requirements 38

39 COMMON FORMS FOR BUSINESS ULCs Alberta, British Columbia and Nova Scotia offer Unlimited Liability Corporations For Canadian purposes Treated as ordinary corporations For US purposes Possible to treat a disregarded entity Could be subject to 25% withholding tax on the payment of 39 dividends

40 COMMON FORMS FOR BUSINESS Branches Earnings in Canada of a branch of a foreign corporation taxed in Canada In addition, such branches may be subject to an additional branch tax 40

41 CANADIAN CORPORATIONS 2014 Federal Income Tax Rates for Active Business Income General Active Business Income Canadian Controlled Private Corporation (CCPC) Small Business Income to $500,000 General corporate rate 38.0% 38.0% Federal abatement (10.0) (10.0) Rate reduction (13.0) (17.0)

42 CANADIAN CORPORATIONS 2014 Provincial Tax Rates for Active Business Income Jurisdiction British Columbia Investment Income General Active Business Income Small Business Income between $425,000 and $500,000 Small business Income between $350,000 and $425,000 Small Business Income to $350, Alberta Saskatchewan Manitoba Ontario Quebec New Brunswick

43 CANADIAN CORPORATIONS 2014 Provincial Tax Rates for Active Business Income Jurisdiction Nova Scotia Investment Income General Active Income Small Business Income between $425,000 and $500,000 Small Business Income between $350,000 and $425,000 Small Business Income to $350, % 16.0% 16.0% 16.0% 3.0% Prince Edward Island / / /4.5 Newfoundland / / /3.0 Northwest Territories Yukon Nunavut

44 CANADIAN TAX HIGHLIGHTS Expatriating Profits Dividends subject to withholding taxes at 25% often reduced by treaty Can be reduced to 15% or 5%, depending on structure and shareholdings, for payments to residents of the U.S. Arm s-length interest not subject to withholding (Per domestic Canadian tax law) All interest not subject to withholding (Per Canada-U.S. Treaty) 44 Thin Capitalization rules apply To prevent a Canadian subsidiary from deducting too much interest on loans from foreign parent (1.5 to 1 debt-equity ratio) denied interest subject to withholding tax requirements

45 ACTIVITIES CARRIED OUT IN CANADA THAT MAY LEAD TO CANADIAN TAX FILING 1. Sending employees to perform services in Canada 2. Renting a warehouse in Canada 3. Engaging an independent sales force in Canada 4. Disposition of Taxable Canadian Property 5. Importing goods into Canada 45

46 SENDING EMPLOYEES TO PERFORM SERVICES IN CANADA 1. Nature of the work May be able to request a waiver of the Regulation 105 withholding. Types of waiver requests: 1. Treaty-based Specific conditions to meet 2. Income and expenses Regulation 105 withholding does not represent final income tax liability. Income tax filing will either be required or desired. 46

47 SENDING EMPLOYEES TO PERFORM SERVICES IN CANADA (cont d) 2. Duration of the work performed in Canada Duration may cause the corporation to have a permanent establishment in Canada Depending on the number of days within a calendar year: 1. May necessitate payroll withholding in Canada 2. Employee may be required to file Canadian income tax returns 47

48 PERMANENT ESTABLISHMENT IN CANADA Article V of Canada U.S. Tax Convention permanent establishment includes: Fixed place of business (including place of management, branch, office, factory, workshop, mine, oil or gas well, quarry or other place of extraction of natural resources) Building site, construction project and installation project lasting more than 12 months in Canada 48 Person (other than independent agent) who habitually concludes contracts in Canada on behalf of U.S. resident

49 PERMANENT ESTABLISHMENT IN CANADA (cont d)_ Permanent establishment does not include: Fixed place of business used solely for storage, display or delivery (e.g., warehouse or showroom) Independent agent May have to file treaty-based return 49

50 The Fifth Protocol Fifth Protocol expands definition of permanent establishment to include, in 2010 and later years: 50 Services provided by an individual that has a presence for 183 days or more in any 12 month period and, during that period, more than 50% of gross active business revenues consist of income derived from services performed in that country by that individual

51 The Fifth Protocol (cont d) OR Services are provided in a contracting state for aggregate of 183 days or more, in any 12 month period with respect to same or connected project for customers; who are residents of the contracting state, or who maintain a permanent establishment in that other state and the services are performed in respect of the permanent establishment 51

52 DISPOSITION OF TAXABLE CANADIAN PROPERTY Disposition includes: Sale Share redemption or repurchase for cancellation Share exchange Possible relief from compliance certificate requirement for gains not taxed due to a treaty as long as: 52 a) Purchaser concludes after reasonable inquiry that the non-resident person is resident in a country with which Canada has a tax treaty; b) The property is treaty-protected property; AND c) Purchaser provides notice to the Canadian taxation authorities within 30 days after date of acquisition.

53 DOING BUSINESS IN CANADA Sales Taxes What do the Acronyms Mean? GST Goods and Services Tax HST Harmonized Sales Tax QST Quebec Sales Tax All of the above are Value Audit Tax or VAT 53

54 SALES TAXES Federal & Selected Provinces Federal (GST) 5.0% P.E.I. (HST) 14.0% Québec 9.975% Ontario (HST) 13.0% Manitoba 8.0% Saskatchewan 5.0% B.C. 7.0% Alberta 0.0% Newfoundland (HST) 13.0% New Brunswick (HST) 13.0% Nova Scotia (HST) 15.0% 54

55 Mechanics of VAT in Canada GST is collected and remitted at each stage in the production and marketing of most goods and services, unless the supply is zero-rated or exempt Registrants may recover GST paid on properties and services acquired in order to make taxable and zero-rated supplies 55

56 IMPORTING GOODS IN CANADA The importer of record will be subject to GST Can they get the GST back? 56

57 GST REGISTRATION 57 A person, including a non-resident, must register if the person carries on business in Canada and is not a small supplier 1 Non-residents who do not carry on business in Canada may voluntary register if they are engaged in a commercial activity in Canada, regularly solicit orders for goods to be delivered in Canada, provide services in Canada or intangibles to be used in Canada Non-residents who do not carry on business in Canada through a permanent establishment may have to provide a security deposit The particular facts of each situation must be examined to determine whether GST registration for a non-resident is required or desired 1 Taxable sales equal to or less than $30,000 in four preceding quarters

58 REAL ESTATE RENTALS 25% withholding tax on gross rental income Can file section 216 election to have withholding based on net rental income before depreciation Will be required to file a Canadian tax return with final numbers Vehicle through which to own Canadian real estate depends upon the situation 58

59 Questions? 2013 CliftonLarsonAllen LLP

2013 CliftonLarsonAllen LLP Thank you Jen Leary Jennifer.Leary@CLAconnect.com 704-998-5283 Jonathan Bicher bicher@nexiafriedman.

60 2013 CliftonLarsonAllen LLP Thank you Jen Leary Jonathan Bicher CLAconnect.com twitter.com/ CLAconnect facebook.com/ cliftonlarsonallen linkedin.com/company/ cliftonlarsonallen 60

Doing Business in Canada: Key Canadian Tax Considerations

Doing Business in Canada: Key Canadian Tax Considerations Foreign enterprises have long been attracted to investment opportunities in Canada. Canada has led the G7 in growth in total inbound investment