Establishing a business in Canada
What is a joint venture?
The term joint venture describes any arrangement whereby two or more persons agree to contribute goods, services, or capital to a common commercial enterprise. It is generally regarded as a temporary relationship that is more informal than a partnership. Each co-venturer maintains the ownership of the property and is not held under joint tenancy and tenancy in common. Co-venturers do not act as agents for each other. Each co-venturer receives a share of the gross profits and shares only in the expenses related to the specific project; therefore, they do not operate a business in common. The profits of the joint venture flow through to the co-venturers and are taxed according to its business structure.
A joint venture has different tax rules from a partnership. For example, unlike partnerships, joint ventures are not subject to at risk rules. A partnership calculates capital cost allowance at the partnership level. In a joint venture, co-venturers may claim as little or as much as suits their situation, and unlike partnerships, joint ventures do not have to file information returns.
Residency status for tax purposes
The Canadian tax system uses residency as the basis for taxation. For information on determining residency status:
- for individuals, see income tax folio S5-F1-C1, Determining an Individual's Residence Status;
- for corporations, see Residency of a corporation;
- for trusts and estates, see income tax folio S6-F1-C1, Residence of a Trust or Estate.
The amount of tax payable depends on many factors, including the type of taxpayer you are (see the list below) and your residency status.
Individuals resident in Canada
Residents of Canada are responsible for making sure the correct amount of income tax has been paid. A resident of Canada may claim all deductions, non-refundable tax credits, and refundable federal, provincial, or territorial credits that apply.
For more information on individual tax rates, see Canadian income tax rates for Individuals – current and previous years.
If the individual or entity is a non-resident, only the income earned in Canada is subject to Canadian income tax. This includes:
- income from employment in Canada
- business income earned in Canada
- earnings on disposal of taxable Canadian property
- passive income such as rental income, royalties, pensions, interest and dividends from Canada
The type of tax payable and the requirement to file an income tax return depend on the type of income received. Generally, Canadian income received by a non-resident is subject to Part I tax or Part XIII tax.
For more information, see the list of forms and publications below.
Every corporation that carries on business in Canada or disposes of taxable Canadian property has to file a T2 corporation income tax return each year. This includes:
- non-profit organizations;
- tax-exempt corporations; and
- inactive corporations.
Quebec and Alberta administer their own corporate income tax systems. Corporations that earn income in these provinces have to file separate provincial and federal corporate income tax returns. The Canada Revenue Agency (CRA) administers corporation income tax for all other provinces and territories.
For more information, see Income tax information for non-resident corporations and Carrying on a business in Canada.
Additional tax on non-resident corporations
For companies that carry on business in Canada without setting up a separate legal entity incorporated in Canada, an additional tax of 25% on non-resident corporations (unless reduced by a tax treaty) is charged in addition to the federal and provincial taxes. The additional tax on non-resident corporations is intended to put the branch in the same position as a Canadian subsidiary that must withhold tax on dividends paid to its foreign parent.
For more information, see interpretation bulletin IT-137R3, Additional tax on certain corporations carrying on business in Canada and its Special Release.
Federal tax incentives
The Government of Canada offers several tax incentives and programs, such as:
Provincial and territorial tax incentives for investment in Canada
Quebec and Alberta administer their own corporate income tax systems. Corporations that earn income in these provinces have to file separate provincial corporation income tax returns.
All other provinces and territories legislate their corporation income tax provisions, but the CRA administers them. Guide T4012, T2 Corporation – Income Tax Guide, contains some information regarding these tax incentive programs.
For more information on provincial or territorial tax incentive programs, see the appropriate provincial or territorial website.
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