Oliver Xing
Chartered Accountant
203-255 Duncan Mill Rd.
Toronto, ON Canada M3B 3H9
Tel:416-510-2991  Fax:416-510-0851

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CORPORATE TAXES

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Corporate Income Tax

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Partnership Income Tax

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Goods & Services Tax (GST)

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Provincial Sales Tax (PST)

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Federal Deductions

PERSONAL TAX

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Personal Income Tax

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RRSP

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Home Buyers Plan

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Child Tax Benefit

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GST Credit

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Foreign Property Reporting

TAX RETURN CALENDAR

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Taxation
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CORPORATE TAXES

Canadian businesses are subject to Canadian corporate income taxes on their worldwide income.  Depending on the type and location of products or services being offered, federal and/or provincial business taxes may apply to a corporation. 

Federal and Provincial Corporate Income Tax 

Corporations based in Canada are taxed on their worldwide income. Corporate tax rates are determined by the source of income. For example,
property income (including interest, rent and dividends) attracts a higher rate of tax than general business income. Canadian controlled private corporations are eligible for a reduction in the general tax rate.

In the February 2000 Federal Budget, the government committed to reduce the federal corporate tax rate from 28% to 27% effective January 1, 2001, with future reductions down to 21% over a five year period.  The mini-budget on October 18, 2000 announced a specific timetable for these future reductions, with a reduction of 2% for each of the following three years. 
Current
 Tax Rate*
2001
Tax Rate*
2002
Tax Rate*
2003
Tax Rate*
2004
Tax Rate*
28% 27% 25% 23% 21%

* Rates shown are after provincial tax abatement and before surtax.

In order to encourage small businesses,  Canadian controlled private corporations (CCPC) enjoy a lower corporate tax rate.  The current rate on the first $200,000 of CCPC's active business income (ABI) is 12% , and 28% on CCPC's ABI between $200,000 and $300,000 (reduced to 21% from January 1, 2001).

In Ontario, the current general corporate income tax rate is 14.5%.  On January 1, 2001, the rate is scheduled to drop to 14%.  For small Canadian-controlled private corporations, the 2000 Ontario Budget sets out a timetable to reduce the small business tax rate for small Canadian-controlled private corporations from its current 7% to 4% by 2005.

The combined Federal/Ontario Corporate Tax Rates are:

Type of Income Current Tax Rate 2001 Tax Rate
General Income 43.63% 42.12%
Small Business income (SBI) up to $200,000 20.12% 19.72%
SBI from $200,000 to $300,000* 43.62% 33.12%

* For 2001, the rate is computed at 28.62% on the first $40,000 over $200,000 and 36.12% on the next $60,000.

When calculating income, any reasonable expenses incurred to earn that
income are generally deductible. However, there are restrictions on capital
expenditures, in that the amounts must be capitalized and only a portion
deducted each year in the form of capital cost allowance (depreciation).

Several tax credits are available to reduce taxes payable, including the
investment tax credit and the scientific research and development tax credit.

Partnership Income Tax 

For tax purposes, income is calculated at the partnership level, but the individual partners report it as income in their personal tax returns. 

Partners are each taxed on his or her share of the partnership's sources of
income, whether or not there has been any distribution of profit. Losses of the partnership flow through to the partners, in proportion to an agreed-upon
allocation of profits.

An interest in a partnership is generally considered to be capital property.
Therefore, any gain or loss associated with the disposition of an interest in a
partnership is considered to be a capital gain or loss.

Federal Goods and Services Tax (GST) 

Most goods and services sold or provided in Canada are subject to the federal government's goods and services tax (GST) at a rate of 7%.

GST is not charged on goods and services that are categorized as either zero-rated (e.g., groceries or exports) or tax exempt (e.g., certain health care or financial services).

Every individual or business engaged in a commercial activity with annual sales and revenues of GST-taxable goods or services totalling more than $30,000 must register and charge GST.  A registered business can claim an input tax credit for the GST paid or payable on business purchases that is applied against the GST charged on sales. 

If your total annual sales are less than or equal to $30,000, you are considered to be a small supplier and have the option to register for GST or not.  By registering, you have to charge and collect GST on your taxable sales, and you can claim input tax credits for the GST you pay or owe on business purchases.  Do not charge or collect GST if you do not obtain a Business Number for GST.

If you are a GST registrant, you have to file your GST returns and remit your payments within a certain reporting period (monthly, quarterly or annually).  This reporting period is based on your total annual sales of taxable, including zero-rated, goods and services, as well as the annual taxable sales of all your associates, if applicable.   

Reporting periods and options:

Annual taxable
sales and revenues
Assigned
reporting period
Optional
reporting periods
more than
$6,000,000
monthly nil
more than $500,000
to $6,000,000
quarterly monthly
$500,000 or less  annual monthly or
quarterly

If you file annually, you may have to pay four instalments each year. These quarterly instalments are based on an estimate of your net tax for the current year or the amount of net tax for the previous year, whichever amount is less. The GST return you complete at the end of the year will reconcile your instalments with the amount of net tax you owe.  If you base your instalments on an estimate of the current year's net tax, and you underpay your instalments, you will be subject to penalty and interest charges. If you base your instalments on the net tax remitted the previous year, you will not be charged penalty and interest on the year-end adjustment if the balance is paid by the due date.


Provincial Retail Sales Tax (PST) 

The provincial retail sales tax (PST) is a tax based on the retail price of most
goods, and certain services and pricies of admission. Businesses that sell taxable goods or provide a taxable service are responsible for collecting and remitting the tax. 

The PST rate in Ontario is 8% on most purchases of goods and on labour charges to install, repair and maintain taxable goods and equipment.  Most goods and equipment used in a business such as office furniture, computers, printers, etc., other than certain categories of production machinery and materials used in manufacturing, are taxable.  Tax is also payable at 8% on all prepared food products purchased from an eating establishment, where the total charge is more than $4.00.  Certain purchases such as food products children's clothing, educational books and magazines are exempt from the tax.  

Accommodation in places such as hotels, motels, hostels, and camps for a period of less than one month is taxable at 5%.  Admissions to a place of amusement costing more than $4.00 are taxable at 10%.  Liquor, beer and wine that is sold in restaurants and taverns are taxable at 10%.  If these items are purchased from a retail outlet, a tax at 12% is applied.

Businesses that sell taxable goods, provide a taxable service or charge an admission to a place of amusement must obtain a Vendors Permit through the Ontario Ministry of Finance and are responsible for collecting tax and remitting the collected tax on a regular basis. 

Businesses that sell taxable goods or provide a taxable service qualify for an exemption on the sales tax when they buy their supplies from a wholesaler. You should obtain a Purchase Exemption Certificate so that you can buy items like inventory and supplies without having to pay the 8% sales tax on them; since your customers will be paying the tax when they buy your product or service.  These certificates are to be given to suppliers at the time of sale.

 Federal Deductions

Under federal law, employers are responsible for deducting personal income tax, Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions, and Employment Insurance (EI) premiums from your employees' paycheques.  You are also responsible for remitting this money to CCRA at regular intervals, usually on or before the 15th day of the month following the month in which you deducted it.  Remittances for EI and CPP are shared by the employer and employee. Employers have to contribute the same amount of EI and CPP deducted from employees' remuneration. The deductions made on behalf of employees must be placed in a trust account. 

As an employer, you have to make sure you ask each employee to complete Form TD1 within seven days of any changes to a situation that will affect their T1 returns. TD1 outlines the credits that employees can claim when filing their income tax returns.  If employees certify on Form TD1 that their total income for the year will be less than the total tax credits they claim, do not deduct any tax.

As an employer, you also have to file your T4 and T4F information returns by the last day of February following the calendar year to which the information returns apply (e.g., you have to file your 2001 T4 and T4F information returns by the last day of February 2002).

Contact us to see how our tax and accounting services can work for your business.