CHAPTER 08 Tax Considerations
Employers are required to make regular “source deductions” for income tax and social security contributions from employees’ income (including taxable benefits) and remit the amount to the tax authorities on behalf of the employees. Directors of corporations may be personally liable if a corporate employer fails to make or remit source deductions. Employers may also be required to pay provincial payroll taxes. Withholding is also required from non-residents’ employment income for services performed in Canada, even if such income is exempt from tax under a tax treaty, unless the employer obtains a waiver or there is an applicable exemption from such withholding. Employee source deductions are not required on amounts paid by a “qualifying non- resident employer” (QNRER) to certain non-resident employees. A QNRER generally refers to a corporation that is resident in a country with which Canada has a tax treaty and is certified by the CRA. The remainder of this section summarizes some key rules relevant to the computation of income for Canadian tax purposes and the taxation of common business entities. Losses Canadian rules do not permit formal loss consolidation or other relief within a corporate group; however, established techniques have been accepted by the CRA for shifting losses between members of the same corporate group, subject to certain limitations. Non-capital losses of a taxpayer from business or property can generally be carried back three years or forward 20 years to reduce taxable income of the taxpayer.
Net capital losses may be carried back three years or forward indefinitely, but generally can be applied only against taxable capital gains. Various anti-avoidance rules may apply to limit the availability of losses. On an acquisition of control of a corporation, accrued losses generally must be realized through a write-down; capital losses will expire (absent planning); and the future deductibility of non-capital losses will be limited to income from the same or a similar business that incurred the losses. For this purpose, control refers to an acquisition of more than 50% of the voting rights for election of the board of directors. However, a person or group of persons will be deemed to have acquired control of a corporation in certain circumstances in which the person or group acquires more than 75% of the fair market value of the corporation’s shares but does not acquire legal control of the corporation.
Various anti-avoidance rules may apply to limit the availability of losses. The use of losses following an acquisition of control of a corporation is limited.
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