Wipfli Alerts & Updates: Potential Tax Exposures When Conducting Business in Canada

November 18, 2011
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As a number of our clients are expanding their operations into Canada, we want to make you aware of the possible tax consequences of such activities.
There can be significant penalties for not complying with the Canadian filing rules. These penalties can apply even if there is no tax liability. Therefore, it is important to consider and plan for potential issues before sending employees to Canada or providing services or becoming involved in product sales to Canada, including over the Internet or where any part of the sales process takes place in Canada.
Prior to doing any business in Canada, you must understand:

  • The preferred business structure for operating in Canada
  • Canadian income taxes and the availability of any treaty exemptions
  • Goods and services tax (GST) and harmonized sales tax (HST), including registration requirements, collection and remittance of the tax, input tax credit availability, tax on imports, and potential financial security requirements by the Government of Canada
  • Provincial sales taxes in British Columbia, Manitoba, Saskatchewan, Quebec, and Prince Edward Island
  • Canadian payroll tax obligations and whether a waiver of the payroll withholdings is available
  • Withholdings on services provided in Canada and whether a waiver of withholding is available
  • Canadian reporting requirements, including corporate tax returns, personal tax returns, employment reporting slips, and contractor reporting slips
  • Requirements of work permits for employees entering Canada to provide services

There can also be elements of double taxation if your business is not structured properly. The waivers discussed above are effective only prospectively because the government of Canada does not accept retroactive applications, so planning ahead can be very advantageous for a number of reasons. Review the Canada Tax Guide for more detailed information.
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This information been prepared by Wipfli LLP and Kraft Berger LLP Chartered Accountants, and is provided for general guidance and informational purposes only, and does not create a business or professional-services relationship. Accordingly, this information is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal, or other competent advisers and cannot be relied upon by any taxpayer for the purpose of avoiding penalties imposed under the Internal Revenue Code. Before making any decision or taking any action, you should obtain appropriate professional guidance.

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