CANADA
General Aspects
Canada is a country in North America, spanning ten provinces and three territories from the Atlantic to the Pacific and northward into the Arctic Ocean, covering 9.98 million square kilometers, making it the world’s second-largest country by total area. Its southern and western border with the United States, stretching 8,891 kilometers, is the world’s longest bi-national land border. Canada’s capital is Ottawa, and its three
largest metropolitan areas are Toronto, Montreal, and Vancouver. As of 2025, Canada is the world’s ninth-largest economy, with a nominal GDP of approximately US$2.33 trillion. It is one of the world’s top ten trading nations, with a highly globalized economy. The total population is around 40 million people, and the official languages are English and French.
Legal Forms of Business Entities
Legal form Feature
Sole proprietorship
• Single Ownership: A sole proprietorship is owned and operated by one individual, who has full control over the business.
• Unlimited Liability: The owner is personally responsible for all the debts, liabilities, and legal obligations of the business.
• Simple Setup: There are minimal formalities required to set up a sole proprietorship. In most cases, you don’t need to formally register the business unless you use a name other than your legal name.
• No Separate Legal Entity: The business and the owner are considered the same legal entity, meaning the business’s finances and the owner’s personal finances are combined.
• Direct Taxation: Income earned from the business is reported on the owner’s personal income tax return. The owner pays taxes on the net income (profit) of the business.
Advantages
• Easy and Inexpensive to Establish: Setting up a sole proprietorship is simple and cost-effective compared to other business structures like corporations or partnerships.
• Full Control: The owner has complete authority over all business decisions and operations, allowing for quick decision-making and flexibility.
• Direct Tax Benefits: All business profits and losses are reported on the owner’s personal tax return, often resulting in simpler and more straightforward tax filing.
• Minimal Administrative Requirements: Sole proprietors do not need to maintain complex records, conduct formal meetings, or file annual reports as corporations do.
• Flexibility in Profits: The owner receives all profits generated by the business, without having to share them with others. This can be a strong motivation for hard work and growth.
Partnership
• Shared Ownership: A partnership involves two or more individuals or entities who share the ownership and responsibilities of the business.
• Joint Liability: In a general partnership, all partners are personally liable for the debts and obligations of the business. In a limited partnership, liability is shared differently, with some partners having limited liability.
• Partnership Agreement: A formal partnership agreement is usually created to define the roles, responsibilities, and profit-sharing terms between partners.
• Profit Sharing: Partners share the profits (or losses) based on the terms outlined in the partnership agreement, which can be in any proportion they agree upon.
• No Separate Legal Entity: Like sole proprietorships, partnerships do not have a separate legal identity from the individuals involved, meaning business and personal finances are often intertwined.
• Separate Legal Entity: A corporation is a distinct legal entity from its owners (shareholders), meaning it can own property, incur debts, and enter contracts in its own name.
• Limited Liability: Shareholders are protected from personal liability beyond their investment in the corporation. This means their personal assets are not at risk for the corporation’s debts or legal issues.
• Complex Formation: Establishing a corporation requires registration with the federal or provincial government, creating bylaws, and meeting ongoing compliance requirements.
• Shares and Ownership: Corporations are owned by shareholders who hold shares in the company. Shareholders can transfer their ownership through the sale of shares.
• Regulatory Compliance: Corporations must adhere to strict reporting requirements, including annual financial statements, tax returns, and maintaining corporate governance structures.
• Shared Responsibility and Skills: Partners can divide business responsibilities according to their strengths and expertise, leading to a more efficient and diversified operation.
• Ease of Formation: Partnerships are relatively easy and inexpensive to set up, requiring minimal formalities compared to corporations.
• Flexibility: Partnerships offer flexibility in terms of profit sharing and decision-making. Partners can customize their arrangement according to their goals and needs.
• Combined Capital: Partnerships can pool resources and capital, making it easier to finance the business and pursue growth opportunities.
• Simplified Taxation: Income is passed through to the individual partners and reported on their personal tax returns, meaning the business itself is not taxed separately. This simplifies the taxation process.
• Limited Liability: Shareholders’ personal assets are protected, making this structure ideal for business owners who want to limit their personal financial risk.
• Ability to Raise Capital: Corporations can issue shares to raise capital, making it easier to attract investors and secure funding for growth.
• Perpetual Existence: A corporation continues to exist even if an owner or shareholder leaves or passes away, ensuring long-term stability and continuity.
• Tax Benefits: Corporations may benefit from lower corporate tax rates, deductions, and other tax incentives that can reduce the overall tax burden.
• Transferable Ownership: The ownership of a corporation can be transferred easily through the sale of shares, providing flexibility in ownership structure.
Corporation
Branch
Operations
A foreign corporation intending to operate in Canada through a branch must obtain the necessary licenses or register in each province where it conducts business. The criteria for determining whether a corporation is considered to be “carrying on business” in a province include:
• Physical Presence: Having a resident agent, representative, warehouse, office, or any place where business activities are conducted within the province.
• Real Property Interest: Holding an interest in real property located in the province, other than by way of security.
• Regulated Activities: Engaging in business activities that are subject to provincial regulation.
Failure to obtain the required licenses or registrations can result in penalties.
• Cost-Effective Expansion: Establishing a branch is less expensive and faster than creating a separate subsidiary, as it avoids the need for incorporating a new legal entity.
• Full Control: The parent company retains full control over the branch’s operations, ensuring centralized decision-making and consistency with the company’s global strategy.
• Brand Recognition: A branch benefits from the parent company’s established brand and reputation, making it easier to gain customer trust and market credibility in Canada.
Join ventures
• A joint venture (JV) is a business arrangement where two or more entities collaborate on a specific project, sharing resources, risks, and rewards. It can be a separate legal entities or a partnership based on the agreement between the parties
• Partners combine their strengths, capital, and knowledge to achieve common goals.
• A JV allows companies to enter new markets or sectors by leveraging the local knowledge and networks of their partners.
Organizational Questions
Structure Description and Remarks
Licenses and permits
Bank Account
Debt Financing
• Businesses in Canada must secure specific licenses and permits depending on their industry and province of operation.For instance; A construction company in Quebec requires a contractor’s license, worksite safety certifications, and environmental permits for certain projects before commencing operations
• A restaurant in Ontario must have a health permit, liquor license (if serving alcohol), and business registration with the provincial authorities.
• Businesses must open a separate business bank account to manage finances, maintain proper records, and comply with tax requirements. A small business in Toronto must provide a business registration document, personal identification, and proof of address to open a business account.
• Businesses in Canada can access loans or lines of credit from banks and financial institutions to fund operations or expansion. The country’s financial system provides a stable platform for both domestic and international business.
• A Vancouver tech start-up may secure a loan to fund product development. Institutions like Export Development Canada (EDC), Business Development Bank of Canada (BDC), and the Canada Small Business Financing Program (CSBFP) offer tailored financing solutions to support business growth and international trade.
Transfer of Goods and Machinery
Effective February 4, 2025, Canada imposed a 25% surtax on certain goods imported from the United States, impacting machinery imports. So, Companies must comply with regulations for the import and export of goods, including machinery, and pay applicable duties and taxes.
Example: A manufacturing company importing machinery from the U.S. will need to pay customs duties and surtax and ensure the equipment complies with Canadian standards.
Visa and Residence permit
Privacy and AntiSpam Laws
Foreign nationals must apply for the appropriate visa or work permit to establish a business or work in Canada.
A foreign entrepreneur who wants to start a business in Canada can apply for a Start-Up Visa Program if they meet the criteria
• Canada’s Personal Information Protection and Electronic Documents Act (PIPEDA) and the Canadian Anti-Spam Legislation (CASL) regulate how businesses handle personal information and send commercial emails.
• Example: A marketing firm in Montreal must get explicit consent before sending promotional emails, and ensure they respect privacy when handling customer data.
Environmental protection Businesses are required to comply with environmental laws that govern pollution control, waste management, and sustainable practices to reduce their environmental footprint and promote sustainability.
Example:A manufacturing facility in Alberta must comply with strict regulations concerning air emissions and waste disposal, ensuring adherence to the Canadian Environmental Protection Act (CEPA) to mitigate environmental impact and safeguard public health.
Employment
Structure Description and Remarks
Work Permit “Foreign residents must obtain a work permit to be employed legally in Canada.”
Labour law
Health and Safety in the Workplace
• In Canada, employers must comply with both federal and provincial laws by providing employment agreements that clearly outline terms and conditions. Employers are required to deduct income tax, Canada Pension Plan (CPP), and Employment Insurance (EI) from employees’ pay and remit these amounts to the Canada Revenue Agency (CRA).
• Employees must be paid at least the applicable minimum wage, which varies by province but is generally $17.20 per hour in Ontario as of March 2025. Most jurisdictions regulate maximum work hours, typically capping it at 8 hours per day and 40-48 hours per week, with exceptions for overtime or alternative work schedules like compressed workweeks.
• In Canada, employers must comply with both federal and provincial laws by providing employment agreements that clearly outline terms and conditions. Employers are required to deduct income tax, Canada Pension Plan (CPP), and Employment Insurance (EI) from employees’ pay and remit these amounts to the Canada Revenue Agency (CRA).
• Employees must be paid at least the applicable minimum wage, which varies by province but is generally $17.20 per hour in Ontario as of March 2025. Most jurisdictions regulate maximum work hours, typically capping it at 8 hours per day and 40-48 hours per week, with exceptions for overtime or alternative work schedules like compressed workweeks.
Social System Canada’s social programs offer comprehensive support across health, education, and income security.
Healthcare: All provinces provide universal, publicly funded healthcare, partially subsidized by the federal government, ensuring equitable access to medical services.
Education: Primary and secondary education is provincially regulated, compulsory up to age 16, and offered at minimal or no cost.
Social Security:
Canada Pension Plan (CPP) offers retirement, disability, and survivor benefits. For 2025, the contribution rate is 5.95%, with a maximum of $4,034.10.
Employment Insurance (EI) provides temporary financial support to the unemployed. The 2025 employee rate is $1.63 per $100 of insurable earnings, with a maximum insurable earnings of $61,500.
Old Age Security (OAS) offers monthly payments for those aged 65 and older, with a maximum of $727.67 for those 65-74 and $800.44 for 75+ in 2025.
Taxation
“Understanding your tax responsibilities is an important part of managing a successful business. While your accountant, bookkeeper, or financial advisor will assist you in determining the exact amounts, it’s helpful to have a basic understanding of the key taxes that may apply to your business. These typically include GST/HST, withholding tax, income tax, and payroll tax.”
Structure Description and Remarks
Income tax (Corporate Taxes)
Income tax (Personal)
Real Estate Transfer Tax
Dividend Tax
Withholding Tax
• In Canada, the federal corporate tax rate is 15%. Provincial rates are additional to the federal rate. For example, in Ontario, the combined federal and provincial corporate tax rate for large corporations is 26.5%. However, small businesses in Ontario may qualify for a lower rate of 12.2% on the first $500,000 of active business income. Eligible dividends receive a federal tax credit of 15%, and 50% of capital gains are taxable.
• “ Personal income tax consists of federal and provincial taxes, with rates starting at 15% and progressively rising. In some provinces, the top combined rate can reach up to 54% for high-income earners.”
• When domestic real estate changes ownership, a one-time real estate transfer tax is typically paid by the buyer, based on the purchase price. The rate and structure of the tax vary by province and territory.
Dividends are taxed based on whether they are eligible or non-eligible. Eligible dividends are grossed up by 38%, with higher tax credits, while non-eligible dividends are grossed up by 15%. Tax rates vary by income level and province.
• It requires Canadian payers to withhold tax at the time of payment to non-resident service providers (such as independent contractors, consultants, etc.).
• The tax is typically withheld at a rate of 15% of the gross payment amount made for services rendered in Canada.
• This withholding tax applies even if the non-resident service provider is not required to file a Canadian tax return.
Non-residents may apply to the Canada Revenue Agency (CRA) for a reduction or exemption from the withholding tax if certain conditions are met.
GST/HS The federal government charges a tax on most goods and services purchased in Canada. As a business, you are required to charge your customers tax on what you sell. There are three main types of taxes:
GST (Goods and Services Tax)
PST (Provincial Sales Tax)
HST (Harmonized Sales Tax), which combines GST and PST and is administered federally in provinces that have adopted it.
How It Works:
When you invoice customers or receive payment, you add the applicable tax (GST/PST/HST) to the amount.
When paying for business expenses, you pay the tax that applies.
Each tax period, you remit to the government the difference between the tax you’ve collected and the tax you’ve paid to other businesses. If your business expenses exceed your sales (e.g., purchasing stock or equipment), you may be eligible for a refund.
Note: You do not charge GST/PST/HST for goods and services that are zero-rated, such as basic groceries, rental accommodation, medical and dental services, financial services, and daycare.
Registration Requirement: Your business must register for GST/HST if your sales exceed $30,000 in a single calendar quarter, or if your total taxable sales exceed $30,000 over the past 12 months.
Payroll tax
If you have employees or plan to pay yourself a wage, you must deduct income tax from their (or your) pay and remit it to the Canada Revenue Agency (CRA) before paying the employee or yourself.
Here’s what you’ll need to do:
Open a payroll account (Check CRA’s website for registration details)
Collect the necessary information from your employees (Find out more on CRA’s website)
Calculate the correct deductions (The CRA provides tools and guides for this)
Maintain accurate records (You are required to keep payroll records for at least six years)
Additionally, there are other considerations, including:
Pension plan and Employment Insurance (EI) premiums: Deduct and remit both the employee and employer portions.
Taxable benefits: Include any employee benefits such as the use of a company car, parking, or other non-cash benefits.
Commissions: If you pay commissions to employees, these are also subject to tax deductions.
This guide has been prepared by Sav Associates Professional Corporation, independent member of Antea
SAV ASSOCIATES PROFESSIONAL CORPORATION
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This publication is intended as general guide only. Accordingly, we recommend that readers seek appropriate professional advice regarding any particular problems that they encounter. This information should not be relied on as a substitute for such an advice. While all reasonable attempts have been made to ensure that the information contained herein is accurate, not Antea Alliance of Independent Firms neither its members accepts no responsibility for any errors or omission it may contain whether caused by negligence or otherwise, or forany losses, however caused, sustained by any person that relies upon it. © 2025 ANTEA