In Canada, both the Ontario and federal governments impose an income tax on individuals and corporations. The federal government collects personal income taxes for Ontario. residents of Ontario file one combined federal and Ontario income tax return with the Canada revenue Agency (the “CRA”). As a result of a “harmonization”, effective for tax years beginning in 2009, Ontario’s corporate income tax and minimum tax is now administered by the CRA.
As a result, corporations that are taxable in Ontario need only file one combined tax return and the compliance burden imposed on corporations taxable in Ontario is reduced. One of the benefits of a streamlined system is the harmonization of the corporate income tax base. Federal tax attributes have replaced Ontario tax attributes and differences between the Ontario and federal definitions of “taxable income” have disappeared.
Canadian resident “persons”, including individuals, corporations, trust, and estates, are taxed on their income from all sources worldwide. income may be earned from employment, business, property, dispositions of capital property and from other sources.
Canada’s tax treaties and Ontario legislation provide relief from double taxation where a person may be considered taxable in both Canada and a treaty country because of that person’s residence, citizenship, domicile, etc. in such treaty country. the treaties generally provide rules for determining whether a person is a resident in Canada or in the treaty country. Generally, a person who is resident in one treaty country will not be considered resident in the other.
Non-residents of Canada are generally subject to taxation only on income from employment and business income earned in Canada and on one-half of gains realized from the disposition of taxable Canadian property, such as Canadian real estate or shares in a Canadian private corporation that derives more than 50% of its value from Canadian real estate.
Canada’s tax treaties and Ontario legislation reduce the extent to which non-resident persons are subject to Canadian and Ontario tax. For example, under almost all such treaties, profits earned by non-residents from carrying on business in Canada and Ontario are not taxed unless they arise from a “permanent establishment” of the non-resident in Canada and Ontario. the term “permanent establishment” generally refers to a fixed place of business or certain kinds of arrangements with employees or agents in Canada.