Corporate Tax Credit in Canada - BOMCAS CANADA
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Corporate Tax Credit in Canada
Canada's new 10% corporate tax rate has had little impact on business investment. In fact, business investment in 2009 was the same as it was in 2000. In addition, the new cut is subsidized by Canadian taxpayers, who must borrow money to give corporate Canada yet another break. The federal government is in a budget deficit and cannot afford to give more breaks to corporations.
Employees with specialized knowledge
Employees with specialized knowledge are eligible for the corporate tax credit in Canada, which is taxed at a lower rate than income from regular work. The tax credit applies only to the portion of the year in which the employee is physically present in Canada. The credit is calculated by applying basic federal and provincial rates to the amount that qualifies for the tax credit. The total days of residence must be prorated to take into account any time when the employee is absent from the workplace.
Bonuses and other compensation related to a Canadian assignment may be taxed in Canada. In addition, stock options may not be taxable in Canada if the employee left the company before receiving them. However, if the employee was assigned a non-Canadian assignment, the bonus would be taxable in Canada.
Intra-company transfer exemption categories
There are a number of benefits that intra-company transferees can take advantage of while in Canada. They are allowed to bring their spouse with them and work for any employer in Canada, and they can also send their children to an international school without having to pay international tuition fees. In some cases, they can even qualify for open work permits under a free-trade agreement.
This corporate tax credit is available for employees who are temporarily transferred from a foreign country to work for a Canadian company. This type of transfer is intended to improve management effectiveness, expand Canadian exports, and improve competitiveness in overseas markets. The regulations governing entry into this category are guided by the Immigration and Refugee Protection Regulations and are supplemented by provisions of international trade agreements.
To qualify for the intra-company transfer exemption category, a Canadian corporation must be a legally organized business. Senior managers and executives of a transferee company must be active participants in the company. If the transfer is a start-up, supporting documents, such as articles of federal or provincial incorporation, a bank statement showing that the company has at least $100,000 in cash on hand to make the transfer, and a lease agreement can prove the start-up nature of the company.
Intra-company transferees can also qualify for the Intra-company transfer visa. The process varies by nationality, but for those from visa-exempt countries, the process is straightforward. While temporary foreign workers can apply for an Intra-company transfer work permit at the port of entry, all other applicants must apply for their permit online.
Under the proposed changes, the maximum amount of debt a company can issue to specified non-residents would be capped at one-half of its equity. Any amount above that limit would be considered dividends and Canadian payers would have to withhold tax on it.
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Penalties and arrears interest
The rate of overdue tax is five to six percent, depending on the quarter. A decade ago, it was as high as 10 percent. Interest compounded daily, which means a late tax bill can be substantial. In one recent case, a Manitoba baker was hit with a tax bill of more than $1 million. Of that amount, over half was arrears interest.
In such cases, the CRA will consider the circumstances and supporting evidence to determine whether relief is appropriate. It will also consider the point of time, the request for relief is made compared to the relevant statutory limitation period. Only if the taxpayer has made the request in the last 10 calendar years will CRA grant relief.
The Canada Revenue Agency can also levy interest and penalties if you fail to pay your tax on time. The interest and penalties are calculated in accordance with the Income Tax Act. If you're two months or more late, the CRA will charge a penalty equal to 5% of the amount of the unpaid tax plus one percent of the amount owed for every month.
Social security premiums
In Canada, social security premiums are based on an employee's employment income. In addition, employers must contribute to the Quebec Pension Plan. Canada also has the federal goods and services tax, which are a value-added tax imposed on final domestic consumption. This tax is deductible up to 15% of the amount paid.
Currently, the United States and Canada have an agreement that will improve protection for people in both countries' Social Security systems. For example, this agreement will protect the benefit rights of Canadian Social Security credits. Quebec's special pension plan is similar to the U.S.-Canada agreement, but the benefits are different. Regardless of which country you are in, make sure you understand your social security coverage in both countries.
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