A. Federal Income Tax
A non-resident corporation must obtain a “Business Number” from the Canada Revenue Agency and open an income tax account if it carries on business in Canada or disposes of taxable Canadian property. Although there is no requirement to open an income tax account prior to filing an income tax return for the first taxation year, a Business Number is generally required earlier for the purpose of opening a Federal sales tax—the Goods and Services Tax (GST)— account.
If the non-resident incorporates a Canadian subsidiary, a Business Number and income tax account are automatically provided for that subsidiary if the incorporation is under Federal law or the laws of the provinces of Ontario, Manitoba, British Columbia, Nova Scotia or New Brunswick. The Canada Revenue Agency generally mails out a notice confirming the Business Number and providing a summary of program accounts within 45 days of incorporation. For all other provinces (except Quebec), a Business Number is obtained and an income tax account opened by filing Form RC1.
B. Provincial Income Tax
The Federal government collects and remits taxes on behalf of all provinces (except Quebec). Consequently, no additional registration is required at the provincial level (except Quebec).
Quebec administers its own income tax. A non-resident must therefore obtain a Quebec Enterprise Number (‘NEQ’—Numéro d’enterprise du Québec) and open a separate income tax account if it carries on business in that province. The relevant form is LM-1-V. As with the Federal income tax, an NEQ need not be obtained until the income tax return for the first taxation year is filed. If an NEQ has not been obtained at that time then one will be assigned automatically.
C. Federal Sales Tax
A non-resident corporation must obtain a “Business Number” from the Canada Revenue Agency for federal sales tax purposes (the Goods and Services Tax—‘GST’) if it carries on business in Canada and its annual, world-wide GST taxable sales, including those of any associated persons, exceed $30,000.00. The relevant form is Form RC1. Different criteria apply for charities and public institutions. As well, non-residents who charge admissions in respect of a place of amusement, seminar, activity or event in Canada must register for GST notwithstanding the amount of sales and must do so before such admission is made.
In general, a Business Number must be obtained and a GST account opened before the thirtieth day following the day on which taxable goods or services are first supplied in Canada. Customers or clients of the non-resident will generally ask for the non-resident’s Business Number in order to claim input tax credits (ITCs) on the GST levied by the non-resident. Conversely, the non-resident must have its Business Number in order to claim its own ITCs on goods or services that it purchases in Canada. (For a description of ITCs, see the paper entitled, Canada’s Federal Sales Tax—An Overview for Non-Resident Suppliers.) In general, ITCs cannot be claimed for GST paid or payable on goods or services consumed, used or supplied before registration even if the GST is actually paid after registration. Exceptions are made only for GST paid or payable on: (i) capital property, real estate and inventory on hand for use in commercial activities at the time of registration; and, (ii) prepaid rent, royalties or similar payments that relate to the period following registration.
D. Provincial Sales Tax
1. HST Provinces
The sales taxes of Ontario, Nova Scotia, New Brunswick and Newfoundland & Labrador are administered with the GST. These combined provincial and federal sales taxes are known as Harmonized Sales Tax (‘HST’). The comments in respect of GST in the section entitled Federal Sales Tax apply equally to HST.
Alberta is the only province that does not have its own sales tax, relying instead upon its oil revenues.
3. British Columbia
British Columbia requires a taxpayer to register as a vendor for that province’s ‘provincial sales tax (PST)’ if the taxpayer sells or leases taxable goods, or provides software or taxable services in the ordinary course of business in B.C. Online registration can be found here.
Manitoba requires a taxpayer to register as a vendor for that province’s ‘retail sales tax’ if the taxpayer carries on business in that province. Registration must be in advance of sales. The relevant form can be found here.
Small businesses with annual taxable sales under $10,000.00 are not required to register and collect Manitoba’s sales tax. If such businesses choose not to register then they must pay sales tax on their own purchases and not charge sales tax to their clients or customers. They must indicate on their sales invoices that sales tax is included in the price (sales tax cannot be itemized on the invoice.)
5. Prince Edward Island
Prince Edward Island requires a taxpayer to register as a vendor for that province’s ‘revenue tax’ if the taxpayer sells goods in the province. Registration must be in advance of sales. The relevant form can be found here.
Quebec administers both its own Quebec Sales Tax (‘QST’) and, in respect of business activities carried on in Quebec, the GST. If, therefore, a taxpayer carries on business in Quebec, the taxpayer must obtain an ‘NEQ’ and open separate accounts for income tax, Quebec sales tax (‘QST’) and GST. If the taxpayer already has a GST account with the Canada Revenue Agency, Quebec will use that same account. However, whereas a GST account need not be opened until the thirtieth day following the day on which the taxable goods or services are provided, a QST account must be obtained in advance, before any taxable goods are sold or services provided in that province. The relevant form can be found here.
Saskatchewan requires a taxpayer to obtain a “vendor’s licence” for that province’s ‘provincial sales tax’ if the taxpayer carries on business in the province. Registration must be in advance of sales. The relevant form can be found here.