Introduction
In Canada, the filing requirements for resident and non-resident corporations differ based on their tax residency status. Understanding these requirements is crucial for ensuring compliance with the Canadian tax laws. This article provides an overview of the filing requirements for resident and non-resident corporations in Canada, including the necessary forms, deadlines, and applicable taxes.
Resident Corporations
A resident corporation in Canada is one that is incorporated in the country or has its central management and control exercised within Canada. These corporations are subject to taxation on their worldwide income. To comply with the filing requirements, resident corporations must file a T2 Corporation Income Tax Return with the Canada Revenue Agency (CRA).
The T2 return must be filed within six months of the corporation’s fiscal year-end. It is important to note that even if a resident corporation does not have any taxable income, it is still required to file a T2 return. Additionally, resident corporations must also file various schedules and forms depending on their specific circumstances.
Non-Resident Corporations
Non-resident corporations are those that are not incorporated in Canada and do not have their central management and control in the country. These corporations are only taxed on their Canadian source income. The filing requirements for non-resident corporations are different from those of resident corporations.
A non-resident corporation must file a T2 return if it has carried on business in Canada or disposed of taxable Canadian property (TCP) at any time during the tax year. Additionally, non-resident corporations must complete Schedule 91, Information Concerning Claims for Treaty-Based Exemptions, if they are claiming treaty exemptions on their Canadian income.
Forms and Schedules
Resident and non-resident corporations may need to complete various forms and schedules along with their T2 return to fulfill the filing requirements. These forms and schedules include:
- Schedule 97: Additional Information on Non-Resident Corporations in Canada – This schedule is specifically designed for non-resident corporations to provide details about the type of income they earned in Canada.
- Schedule 20, Part XIV: Additional Tax on Non-Resident Corporations – Non-resident corporations subject to Part XIV tax must complete this schedule to calculate the tax payable.
- Schedule 116: Disposition of Taxable Canadian Property by Non-Residents – Non-resident corporations must notify the CRA and obtain a certificate of compliance when disposing of TCP. Schedule 116 provides the necessary information for this purpose.
- Schedule 92: Part XIII.1 Tax – Additional Tax on Authorized Foreign Banks – Authorized foreign banks in Canada are subject to Part XIII.1 tax. Although this schedule is not printed by the CRA, it should be identified separately in the T2 return.
It is important for corporations to carefully review the forms and schedules applicable to their specific circumstances and ensure they are completed accurately.
Withholding Taxes
Non-resident corporations providing services in Canada may be subject to withholding taxes. Any payment received for services provided in Canada is subject to a 15% withholding tax, which must be remitted to the CRA by the payer. This withholding tax serves as an advance payment towards the corporation’s potential tax liability in Canada.
In addition to the 15% withholding tax, non-resident corporations may also be subject to Part XIII withholding tax on passive income received from Canada. This withholding tax applies when a non-resident corporation pays or credits certain types of income to another non-resident.
Payroll Deductions and Accounts
Non-resident corporations that carry on business in Canada and make payments to non-resident subcontractors or resident/non-resident employees may need to register for a payroll deductions account. This account is required for remitting income tax withholdings from the payments made to these individuals.
To register for a payroll deductions account, non-resident corporations can refer to Guide RC4445, T4A-NR – Payments to Non-Residents for Services Provided in Canada, and Guide T4001, Employers’ Guide – Payroll Deductions and Remittances.
Provincial Sales Taxes
In addition to federal taxes, certain provinces in Canada have their own sales taxes. Non-resident corporations providing goods or services in these provinces may be required to register and collect these provincial sales taxes.
The specific requirements for provincial sales taxes vary by province. For example, British Columbia requires taxpayers to register as vendors for the provincial sales tax (PST) if they sell or lease taxable goods or provide taxable services in the province. Saskatchewan has a similar requirement for the provincial sales tax.
It is important for non-resident corporations to understand the provincial sales tax obligations in the provinces where they conduct business and comply with the respective filing requirements.
Conclusion
Filing requirements for resident and non-resident corporations in Canada are determined based on their tax residency status. Resident corporations are subject to taxation on their worldwide income and must file a T2 return, while non-resident corporations are only taxed on their Canadian source income and must also file a T2 return if they meet certain criteria.
Completing the necessary forms and schedules, understanding withholding taxes, and complying with provincial sales tax requirements are crucial for ensuring compliance with Canadian tax laws. Non-resident corporations should seek professional guidance to navigate the complexities of these filing requirements and to ensure accurate and timely filings. By fulfilling these obligations, corporations can avoid penalties and maintain good standing with the Canada Revenue Agency.
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