The three levels of government in Canada (federal, provincial and municipal) have distinct responsibilities and taxing authoritiesy under the Canadian Constitution. The Federal Government has general taxing powers and levies income tax, excise and sales tax, and customs duties. The Provinces have more limited taxing powers and most of their revenues are raised through income and sales taxes. can only apply "direct taxes" for provincial purposes and Ssome provincial responsibilities have been delegated to municipalities, which raise most of their revenues through levy taxes on real estate and business properties, usually on the basis of the value of the property occupied and the type of business conducted.
Please Note: Information in this the following section is of a general nature. When engaged in actual project tax planning, it is advisable to contact a Canadian tax advisor.
Corporations in Canada pay income tax at both the federal and provincial level.
The basic tax rate on corporate taxable income allocated to Nova Scotia is 22.1216.5% federally in 2011 (15% for 2012 and thereafter) (which includes a federal surtax) and 16% provincially, yielding a combined tax rate of 32.538.12% in 2011 (31% for 2012 and thereafter). However, there are significant tax rate reductions available to Canadian owned small companies earning active business income.certain types of corporations and/or income.
As shown below, A Canadian-Controlled Private Corporations (CCPCs) enjoy a favourable tax regime. A CCPC is defined as a Canadian corporation not controlled by either foreign shareholders a foreign or by a public corporation. Generally, a corporation of which at least 50% of the voting shares are owned by Canadian resident individuals will be treated as not being controlled by foreign shareholders., and will generally include a Canadian corporation owned 50/50 by a Canadian private company (or individual) and a foreign entity.
The Small Business Deduction (SBD) is available to “small” CCPCs (with taxable capital under $10 million and phased out between $10 & $15 million) on active business income earned in Canada. The SBD is phased out for corporations with taxable capital in excess of $10 million, and is completely eliminated for corporations with taxable capital in excess of $15 million. In general terms, taxable capital is the sum of the corporation’s long-term debt and shareholder equity. The SBD results in tax rates reductions of 911% federally on the first $3500,000 and 114.5% provincially on the first $400,000 (commencing April 1, 2006) of active business income earned annually by small CCPCs allocated to Nova Scotiaactive in Nova Scotia, yielding an effective rate of 18.1215.5% on income up to $3400,000 and 27%.12 between $4300,000 and $4500,000.
As an incentive to formation of new business ventures, the provincial rate of tax in Nova Scotia may be further reduced to 0% for the first three fiscal taxation years on income eligible for the SBD (i.e., the first $4300,000 of active business income earned by a “small” CCPC). There are a number of requirements for qualification, such as a requirement that the head office be located in Nova Scotia, the payment of provided the head office is located in Nova Scotia and at least 25% of wages and salaries to paid in taxation year to Nova Scotia residents, and the hiring of one unrelated full-time employee.
Losses from operations can either be deducted from income earned in previous or ensuing years for tax purposes. Losses can generally be carried back up to three years to reduce taxable income in those previous taxation years or carried forward up to seven twenty years and deducted against income earned in those years. Net capital losses may only be deducted from taxable capital gains, and . Net capital losses may be carried back three years and forward indefinitely.
Generally, a Canadian-controlled private corporation (CCPC) can earn an investment tax credit (ITC) of 35% up to the first $3 million of qualified expenditures for SR&ED carried out in Canada, and 20% on any excess amount. Other Canadian corporations, proprietorships, partnerships, and trusts can earn an ITC of 20% of qualified expenditures for SR&ED carried out in Canada.
Generally, a CCPC with a taxable income in the immediately preceding year that does not exceed the business limit (that is, the income limit at which the corporation transitions from low rate to high rate corporate tax) may receive a portion of the ITC earned as a refund, after applying these tax credits against taxes payable.
The ITC earned by a Canadian corporation that is not a CCPC is non-refundable, but may be used to reduce any taxes payable. The ITC earned by a proprietorship or certain trusts may be partially refunded after applying these tax credits against taxes payable.
Unused ITCs on SR&ED expenditures may be carried forward 20 years and backward three years.
Nova Scotia provides for a fully refundable 15% ITC for SR&ED carried out in Nova Scotia by any corporation with a permanent establishment in the province. This creates a strong incentive for corporate groups to establish facilities in Nova Scotia to carry out SR&ED.
Businesses which are engaged in qualified activities (such as farming, fishing, logging, mining and manufacturing and processing) in Nova Scotia may receive a 10% investment tax credit on their purchases of capital assets. The qualifying categories of assets are too complex to detail here; professional advice should be sought if a significant investment is contemplated. This investment tax credit may be refunded under conditions similar to those discussed above under the SR&ED program, or may be carried forward or backward to other taxation years.
Depreciation for tax purposes is referred to as capital cost allowance (CCA), and is generally applied on a declining balance basis. Rates for specific assets are defined in the Income Tax Act.
For more information, contact Canada Revenue Agency.
Special federal incentives apply to businesses carrying on scientific research and experimental development. CCPC’s can earn an investment tax credit (ITC) of 35% up to the first $2 million of qualified expenditures for SR&ED carried out in Canada, and 20% on any excess amount. Other Canadian corporations, proprietorships, partnerships, and trusts can earn an ITC of 20% of qualified expenditures for SR&ED carried out in Canada.
CCPC’s with a taxable income in the immediately preceding year that does not exceed $300,000 may receive a portion of the ITC earned as a refund, after applying these tax credits against taxes payable.
Unused ITC on R&D expenditures may be carried forward 10 years and backward three years.
Nova Scotia provides a fully refundable 15% ITC for R&D carried out in Nova Scotia by any corporation with a permanent establishment in the province. This creates a strong incentive for corporate groups to establish facilities in Nova Scotia to carry out R&D.
Nova Scotia sales tax is harmonized with the sales tax of the federal government. As a result, Nova Scotians pay one sales tax on many goods and services. Nova Scotia businesses are required to charge 15% HST on all goods and services covered under the federal Goods and Services Tax (GST) with the exception of children’s clothing and footwear, diapers, feminine hygiene products and printed books, where only the federal rate of 5% is paid.
Businesses which are registered to collect (i.e. charge) HST receive an input tax credit (ITC) for any HST paid. This means that most businesses get a full refund of HST paid when they file their HST return. In addition, the compliance burden through a common HST return, common remittances and a harmonized federal and provincial tax base.
Nova Scotia is one of three jurisdictions in Canada where there is effectively no sales tax on businesses. A harmonized federal and provincial sales tax of 15%, applicable to most goods and services is applied in Nova Scotia. That’s a lower overall sales tax than several other Canadian provinces across Canada
The 15% sales tax is completely refundable to most type of corporations. In addition, administrative compliance is minimized through the harmonized federal and provincial tax bases and filing for both federaland provincial portions through the same form and remittance.
Additional information on the HST may be obtained from the Canada Revenue Agency.
Under the Customs Tariff, numerous imported goods are allowed entry to Canada duty-free if they are used for the manufacture of specific goods.
This program assists importers, producers and exporters to either relieve or defer the payment of import duties on imported goods and it consists of two separate options: Duties Relief Program - businesses that import goods or receive goods and export those goods may apply for relieve of payment of duties at the time of importation. Bonded Warehouse Program - Customs Bonded Warehouses are licensed and regulated facilities that provide for the complete deferral of customs duties.
Drawback legislation provides for refunds of customs duties and sales taxes paid by manufacturers on imported products used in the manufacture of goods subsequently exported. If exporting to the United States or Mexico, the North American Free Trade Agreement may have an effect on the amount of customs duties you may claim by drawback.
|Corporate Tax Rates on Income Earned in Nova Scotia – 2006|
|Non-Manufacturing %||Manufacturing %||Small Business First $300,000 %||Small Business Next $100,000 %|
|Federal surtax @ (4% x 28%)||1.12||1.12||1.12||1.12|
|Provincial tax - NS||16.00||16.00||5.00||5.00|
The municipal property tax is based on property assessment, undertaken by assessors empowered by the Provincial Department of Municipal Affairs. The Assessment Act states specifically what is included as "assessable property". Generally speaking, all land and buildings form the assessment base. Each municipality, town or city, once a year, establishes own tax rates applicable to $100 of assessment.
|Municipal Tax Rates for 2010-2011 Rates per $100 of Assessment|
|Cape Breton Regional|
|City Of Sydney||2.19||5.56|
|Cape Breton Mun-Suburban*||1.61||4.70|
|Halifax Urban Core||1.31||3.84|
|Region of Queens|
In addition, any person occupying or using any commercial property (except as exempted under the Act) is assessed a business occupancy assessment. All manufacturers and processors are liable to a business occupancy assessment of 50% of the assessed value of the property. Excluded from the assessment base used for calculating a business occupancy assessment are: all machinery, equipment, apparatus and installations, whether or not they are affixed to land and buildings; and structures (other than buildings) not providing shelter for people, plant or moveable property. (Legislation is pending to abolish this tax)
It should be noted that machinery, equipment and installations that provide services to a building area are included in the base for calculating the business occupancy assessment.