The federal government
levies income tax under the Income Tax Act . It covers federal income tax for individuals and other taxpayers, including corporations and trusts, whether resident in Canada or non-resident.
This chapter provides a summary of certain considerations arising from Canadian income tax, sales taxes and other taxes that may be relevant to persons considering doing business in Canada.
Income Tax
LEGISLATION Income tax is imposed in Canada by the federal government and by the provincial and territorial governments. The federal government levies income tax under the Income Tax Act (the Tax Act). It covers federal income tax for individuals and other taxpayers, including corporations and trusts, whether resident in Canada or non-resident. A partnership is generally a flow-through entity for Canadian tax purposes and not itself a taxable entity (unless deemed to be a “specified investment flow-through” partnership, as further discussed below). The Tax Act is administered by the Canada Revenue Agency (CRA). Each provincial and territorial government levies income tax computed on a similar basis as federal income tax, at different rates. For the remainder of this chapter, except where indicated otherwise, descriptions of taxation provisions refer only to the Tax Act. JURISDICTION TO TAX The primary basis for taxation is the residence of the taxpayer. Canada does not impose tax on the basis of citizenship. Canadian residents are subject to income tax in Canada on their worldwide income, regardless of source, but are generally entitled to tax credits or deductions for foreign taxes paid. Non-residents of Canada are subject to taxation on Canadian source income, subject to relief by way of rate reduction or, to a limited extent, elimination of Canadian tax, under a tax treaty.
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Doing Business in Canada
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