What's new for corporations

Corporate tax administration for Ontario

On October 6, 2006, the Government of Canada signed a Memorandum of Agreement with the Government of Ontario that will lead to the Canada Revenue Agency administering Ontario provincial corporate income tax. For more information, see Single Administration of Ontario Corporate Tax.

My Business Account

My Business Account, CRA's online service, provides convenient and secure access to a growing range of personalized business account information and services. You can transmit a corporation income tax return, view the status of your return, view your account balance, and view communication items issued by the CRA, among other services. Starting in October 2007, My Business Account allows you to authorize representatives online, including your employees, and view account transactions. To find out more about this electronic service for business, visit our My Business Account page.

Represent a client

Starting in October 2007, authorized representatives can view account information and transact online on behalf of their business clients through Represent a Client service. Business owners can authorize their representatives through My Business Account, or by completing and sending the new RC59, Business Consent Form. For more information, visit our Represent a client page.

Year-end on status change

For tax years that end after 2005, if at any time a corporation becomes or ceases to be a Canadian-controlled private corporation for any reason other than an acquisition of control the tax year of the corporation is deemed to end immediately before that change.

Foreign investment entities and non resident trusts

The 1999 federal budget proposed changes to the taxation of foreign investment entities (FIEs) and non-resident trusts (NRTs). The proposed changes were to apply to tax years that began after 2002. Legislation regarding FIEs and NRTs was passed by the House of Commons on June 15, 2007, and will generally apply to tax years that begin after 2006.

2007 federal budget

The following changes were announced in the federal budget of May 18, 2007.

• General tax reduction - The general tax reduction will be increased to 9.5%, effective January 1, 2011.
• Instalment payments - Effective for tax years beginning after 2007, the corporate income tax instalment threshold will increase to $3,000 and the instalment frequency for eligible Canadian-controlled private corporations will be reduced.
• Gifts of medicine - Corporations will be able to claim a tax deduction for gifts of medicine made after March 18, 2007, to a developing country.
• Capital cost allowance - CCA rates will be adjusted for non-residential buildings, computers, natural gas distribution pipelines, and liquefied natural gas facilities. The CCA will be accelerated for clean energy generation equipment. The accelerated CCA for eligible assets used in oil sands projects will be phased out. In addition, the CCA rate for manufacturing and processing machinery and equipment will be temporarily increased.
• Investment tax credit for child care spaces - Employers carrying on business in Canada, other than a child care services business, that create licensed child care spaces for the children of their employees and, potentially, for other children in their community, will be able to increase their investment tax credit pool by a non-refundable tax credit. The credit will be equal to the lesser of $10,000 or 25% of the eligible expenditure incurred after March 18, 2007, per child care space created.
• Prescribed stock exchange - Effective on Royal assent, most references to "prescribed stock exchange" in the Income Tax Act will be replaced with "designated stock exchange".
• Gifts to private foundations - The capital gains inclusion rate of zero on donations of certain capital property made after March 18, 2007, will be extended to include gifts to a private foundation. This will be subject to restrictions relating to holdings of the private foundation.
• Foreign affiliates - For interest payable on or after January 1, 2012, a deduction will not be allowed in Canada for interest relating to investments in foreign affiliates in those situations where the corporate group in question is entitled to deduct the same or an equivalent expense elsewhere.
  
  The exemption for dividends received out of active business income earned by a foreign affiliate resident in a tax-treaty country will be extended to a foreign affiliate resident in a non treaty country that has agreed to have a Tax Information Exchange Agreement with Canada (TIEA). Income earned by a foreign affiliate in non TIEA, non treaty countries will be taxed in Canada on an accrual basis.
  
  A corporation will not be able to characterize the passive income (for example, royalties, interest, lease revenue) of a foreign affiliate as active business income unless it generally has a direct or indirect economic interest of at least 10% in the paying entity. This applies to the tax years of foreign affiliates that begin after 2008.

2007 provincial and territorial budgets

The following changes were announced in the different provincial and territorial budgets (unless otherwise indicated). The Web pages specific to each province or territory may not have been updated to reflect these changes at this time.

British Columbia

• [2007-02-20 Budget]
  British Columbia mining exploration tax credit - This credit is raised from 20% to 30% for eligible mining exploration expenses incurred after February 20, 2007, in prescribed Mountain Pine Beetle affected areas.
• British Columbia book publishing tax credit - This credit is extended to March 31, 2012.
• British Columbia training tax credit - Effective January 1, 2007, this new measure provides refundable income tax credits for employers and employees who are engaged in apprenticeship programs administered through the Industry Training Authority.
• British Columbia SR&ED refundable tax credit and British Columbia SR&ED non-refundable tax credit - These credits are extended to expenditures incurred before September 1, 2014. They are also expanded to include partnership expenditures incurred after February 20, 2007.

Manitoba

• [2007-04-04 Budget]
  Manitoba higher tax rate - The higher rate of Manitoba income tax is reduced to 13% effective July 1, 2008. It will be further reduced to 12% effective July 1, 2009, subject to budget balancing requirements.
• Manitoba lower tax rate - The lower rate of Manitoba income tax is reduced to 2% effective January 1, 2008. It will be further reduced to 1% effective January 1, 2009, subject to budget balancing requirements.
• Manitoba film and video production tax credit - This credit is extended for a further three years to February 28, 2011.
• Manitoba manufacturing investment tax credit - The refundable portion of this credit is raised from 35% to 50% for qualified property acquired on or after January 1, 2008.
• Manitoba community enterprise development tax credit - This is currently a non-refundable personal income tax credit. For eligible securities acquired on or after January 1, 2008, the program will include a new 30% non-refundable income tax credit also available to corporations in Manitoba who invest directly in emerging enterprises that require larger amounts of investment capital than community ownership could provide.
• Manitoba green energy equipment tax credit - The province introduces this new refundable tax credit to encourage the production and purchase for use in Manitoba of new machinery and equipment used to generate renewable energy. It will be equal to 10% of the value of qualifying property produced in Manitoba and sold for residential or commercial use in Manitoba before 2019.

New Brunswick

• [2007-03-02 Bill 13]
  New Brunswick film tax credit - This credit is being extended to eligible salaries incurred before January 1, 2008.
• [2007-03-13 Budget]
  New Brunswick rate and business limit - The higher rate of New Brunswick income tax is increased to 13% effective January 1, 2007, restoring the rate that was in effect for the 2006 tax year. Effective January 1, 2007, the lower rate is increased to 5% and the business limit is decreased to $400,000.

Newfoundland and Labrador

• [2007-06-01 News Release and 2007-06-14 Bill 3]
  Newfoundland and Labrador resort property investment tax credit - This new non-refundable tax credit is designed to encourage individuals and corporations based in the province to invest in qualifying resort development properties with high-end amenities and services in areas of the province outside the northeast Avalon Peninsula.

Nova Scotia

• [2007-01-11 Bill 117]
  Nova Scotia political contribution tax credit - This credit is now equal to the lesser of 75% of the total amount contributed and $750.
• [2007-03-23 Budget]
  Nova Scotia digital media tax credit - Effective January 1, 2008, Nova Scotia will introduce a non-refundable tax credit of 35% on eligible digital media productions expenditures.

2006

CRA using two-dimensional (2D) bar codes on income tax returns - Beginning in fall 2006, the newest versions of CRA certified software will produce two dimensional (2D) bar codes for computer-generated returns. The 2D bar codes will contain the identification information and financial data and will be printed on the first page of the T2 RSI, Return and Schedule Information.

2006 federal budget

The following changes were announced in the federal budget of May 2, 2006.

• Small business deduction - The small business deduction rate will be increased to 16.5% effective January 1, 2008, and to 17% effective January 1, 2009.
• Business limit - The business limit will be increased from $300,000 to $400,000, effective January 1, 2007.
• General tax reduction - The general tax reduction will be increased to 7.5% effective January 1, 2008, to 8% effective January 1, 2009, and to 9% effective January 1, 2010.

  For tax years that begin after May 1, 2006, corporations can benefit from the general tax reduction only on the taxable income that is subject to the general income tax rate of 38%.

• Corporate surtax - The corporate surtax will be eliminated for all corporations, effective January 1, 2008.
• Investment tax credit expenditure limit - For tax years that end after 2006, the $2 million expenditure limit used in the calculation of a CCPC's refundable investment tax credit (ITC) on qualifying expenditures for scientific research and experimental development (SR&ED) will begin to be reduced when its taxable income for the previous tax year reaches $400,000 and will become nil at $600,000.
• Carry-forward period for non-capital losses and investment tax credits - Non-capital losses, farm losses, and restricted farm losses incurred and investment tax credits earned in tax years ending after 2005 can be carried forward 20 years.
• Federal capital tax - The federal capital tax (Part I.3) on the taxable capital employed in Canada by large corporations is zero, effective January 1, 2006.
• Filing of a return by a large corporation - For the 2006 and subsequent tax years, if the taxable capital employed in Canada of a corporation and its related corporations is over $10 million, the corporation is considered to be a large corporation and it must file the required returns or be subject to a penalty.
• Minimum tax on financial institutions - Effective July 1, 2006, the minimum tax (Part VI) on financial institutions applies to taxable capital employed in Canada in excess of $1 billion.
• Capital cost allowance - To qualify for the 100% capital cost allowance rate provided under Class 12, the cost limit of certain property such as small tools, kitchen utensils, and medical or dental instruments acquired after May 1, 2006, is increased from $200 to $500. Electronic communication devices and electronic data processing equipment acquired after May 1, 2006, are excluded from this class.

  Eligibility for the new 50% rate in Class 43.2 is extended to cogeneration systems that use a type of biomass, referred to as “spent pulping liquor”, used in the pulp and paper industry, acquired on or after November 14, 2005, that have not been used or acquired for use before that date.

• Apprenticeship job creation tax credit - This is a new credit introduced to encourage employers to hire new apprentices in eligible trades. This measure provides eligible employers with a non-refundable tax credit equal to 10% of the salaries and wages paid to qualifying apprentices after May 1, 2006, to a maximum credit of $2,000 per year, per apprentice. Where one or more related employers employ an apprentice, only one employer may claim the $2,000 limit. The amount of the credit is added to the corporation's investment tax credit pool and is available to reduce taxes payable for the tax year. An unused amount may be carried back three years and forward 20 years.
• Eligible dividends - An eligible dividend is any dividend paid after 2005 to a resident of Canada by a Canadian corporation that is designated by that corporation to be an eligible dividend. A corporation's capacity to pay eligible dividends depends mostly on its status.

  If a corporation is a Canadian-controlled private corporation (CCPC) or a deposit insurance corporation, it can pay eligible dividends only to the extent of its taxable income that has not benefited from the small business deduction or any other special tax rate. A CCPC will be able to elect to forego the small business deduction in exchange for being able to pay eligible dividends without giving up any other benefits of CCPC status.

  A corporation resident in Canada that is neither a CCPC nor a deposit insurance corporation can pay eligible dividends in any amount unless it has any taxable income that benefited from the small business deduction. In this case, the corporation will have to reduce this taxable income by paying out regular dividends before it can pay an eligible dividend.

  A corporation that designates dividends as eligible dividends that exceed its capacity to pay them will be liable for Part III.1 tax. Part III.1 tax is equal to 20% of the excess eligible dividend.

  The corporation will advise the dividend recipient that it is an eligible dividend in writing when the dividend is paid.

• Donations of publicly-listed securities and ecologically-sensitive land - For gifts of certain securities and ecologically-sensitive land made after May 1, 2006, the capital gains inclusion rate is zero.
• Non-deductibility of interest and penalty interest - For tax years beginning on or after April 1, 2007, interest and penalty interest charged under the Excise Tax Act (GST) and the Air Travellers Security Charge Act, is no longer deductible for income tax purposes.
• Withholding of refunds and rebates - Effective April 1, 2007, the payment of refunds and rebates will be withheld until all required returns, of which the Minister of National Revenue has knowledge, have been filed.
• Offset of credit amounts - Effective April 1, 2007, any refund the corporation may be entitled to will be automatically applied to any outstanding liabilities on the same or related Business Number account. Any difference will be refunded if all required returns for the account have been filed.

2006 provincial and territorial budgets

The following changes were announced in the different provincial and territorial budgets.

British Columbia

• [2006-02-21 Budget]
  British Columbia royalty and deemed income rebate - British Columbia intends to eliminate its royalty and deemed income rebate and harmonize with the federal taxation of the resource sector, effective for tax years starting after 2006.
• British Columbia Film and television tax credit - The additional basic tax credit will be extended to April 1, 2008 (Basic tax credit and additional basic tax credit). The definition of 'designated Vancouver area' has been broadened and includes Pitt Meadows in the eastern part (Regional tax credit where principal photography begins before April 1, 2003 and Regional tax credit where principal photography begins after March 31, 2003).
• British Columbia production services tax credit - The additional production services tax credit will be extended to June 1, 2008. The definition of 'designated Vancouver area' has been broadened and includes Pitt Meadows in the eastern part.

Manitoba

• [2005-10-27 Speech from the Throne]
  Manitoba tax rate - The higher rate of Manitoba income tax is reduced to 14.5% effective January 1, 2006.
• [2006-03-06 Budget]
  Manitoba tax rate - The higher rate of Manitoba income tax will be reduced to 14%, effective January 1, 2007.
• Manitoba tax rate - The lower rate of Manitoba income tax will be reduced to 3%, effective January 1, 2007.
• Manitoba co-operative education tax credit - This credit becomes fully refundable for work placements ending in 2006 and after.
• Manitoba co-op graduates hiring incentive - As part of the Manitoba co-operative education tax credit, this refundable credit is offered to employers as an incentive to hire and retain students who graduate after March 6, 2006, from a recognized post-secondary co-operative education program.
• Manitoba manufacturing investment tax credit - This credit is renewed for a further three years to June 30, 2009.
• Manitoba refundable manufacturing investment tax credit - The refundable portion of the Manitoba manufacturing investment tax credit is increased from 20% to 35%.
• Manitoba odour-control tax credit - The credit is extended to eligible expenditures made before January 1, 2010.

  For 2006 and later tax years, anaerobic digesters are eligible capital property. Agricultural corporations are eligible for a new refundable portion of this credit up to a maximum of the property taxes paid for the calendar year ending within a tax year after March 6, 2006.

• Multi-tiered partnerships (Manitoba) - A corporation that is a member of a tiered partnership will be eligible for the Manitoba investment tax credit, research and development tax credit, and the odour-control tax credit on the eligible expenditures incurred by the tiered partnership.

New Brunswick

• [2006-03-28 Budget]
  New Brunswick tax on large corporations - This tax will be gradually reduced over the next four years and will be totally eliminated in 2009. It is reduced to 0.25% in 2006.
• New Brunswick tax rate - The higher rate of New Brunswick income tax will be reduced to 12%, effective January 1, 2007.

Northwest Territories

• [2006-02-02 Budget]
  Northwest Territories tax rate - The higher rate of Northwest Territories income tax is reduced to 11.5% effective July 1, 2006.

Nova Scotia

• [2006-05-09 Budget]
  Nova Scotia tax on large corporations - The phase-down schedule is extended to another four years until the tax is completely eliminated, effective July 1, 2012.
• Nova Scotia energy efficiency tax credit - A non-refundable tax credit of 25% on eligible capital investments in renewable energy sources or in energy efficiency is introduced effective July 1, 2006. It is limited to 50% of the large corporations capital tax payable in a given year.
• Nova Scotia manufacturing and processing investment tax credit - Expenditures incurred after May 9, 2006, are not eligible to be added to the capital cost of qualified property. You will not be able to carry forward an unused credit to a tax year ending after December 31, 2009.
• Nova Scotia film industry tax credit - Film productions with more than 50% of production outside of Halifax Regional Municipality will be eligible for the 5% regional bonus on the entire production, effective July 1, 2006.

Prince Edward Island

• [2006-03-30 Budget]
  Prince Edward Island tax rate - The lower rate of Prince Edward Island income tax will be gradually reduced from 6.5% to 1% over the next five years. It is reduced to 5.4% effective April 1, 2006.

Saskatchewan

• [2006-11-20 Proposed Legislation]
  Saskatchewan tax rate - The lower rate of Saskatchewan corporate income tax is being reduced from 5% to 4.5%, effective January 1, 2007.
• [2006-11-20 Proposed Legislation]
  Manufacturing and processing investment tax credit - This credit is being reduced from 7% to 5% for qualified property acquired after October 27, 2006.
• [2006-04-06 Budget]
  Saskatchewan tax rate - The higher rate of Saskatchewan income tax will be gradually reduced to 12% over the next two years. It is reduced to 14%, effective July 1, 2006.
• Saskatchewan small business limit - The business limit to which the lower rate of income tax may be applied will be gradually increased to $500,000 over the next two years. It is increased to $400,000, effective July 1, 2006.
• Saskatchewan manufacturing and processing profits tax reduction - The rate of the maximum reduction will be gradually decreased to 2% over the next two years. It is decreased to 4%, effective July 1, 2006.
• Saskatchewan manufacturing and processing investment tax credit - This credit is fully refundable on expenditures incurred after April 6, 2006. The carry-forward period of the non-refundable tax credit will be extended to 10 years instead of 7 years, for tax credit not expired by April 6, 2006.
• Saskatchewan royalty tax rebate - The Saskatchewan royalty tax rebate will be phased out. Commencing January 1, 2007, the carry-forward period for any outstanding royalty tax rebate balances will be limited to seven years.
• Saskatchewan qualifying environmental trust tax credit - This credit will be affected by the reduction in Saskatchewan higher rate of income tax.

Yukon

• [2006-03-30 Budget]
  Yukon mineral exploration tax credit - This credit is limited to $300,000 on expenses incurred from April 1, 2006 until the end of the program - March 31, 2007.