Canadian Tax & Compliance Overview
Canada's tax system is administered by the Canada Revenue Agency (CRA), with both federal and provincial tax obligations. The federal corporate tax rate is 15%, with combined federal-provincial rates ranging from 23% to 31% depending on the province. The Small Business Deduction (SBD) provides Canadian-Controlled Private Corporations (CCPCs) with a reduced rate of 9% on the first $500,000 of active business income, resulting in combined rates as low as 11-12.2% depending on the province.
GST (5% nationally) or HST (13-15% in participating provinces) applies to most goods and services. Businesses with revenues exceeding $30,000 over four consecutive quarters must register for GST/HST. Quarterly returns are typical, with annual filing available for smaller businesses. Input Tax Credits (ITCs) allow recovery of GST/HST paid on business expenses, subject to documentation requirements. PakalaTax ensures proper GST/HST coding across all transactions and timely return filing through CRA My Business Account.
Payroll compliance requires deducting and remitting Canada Pension Plan (CPP) contributions (employee and employer portions), Employment Insurance (EI) premiums, and federal/provincial income taxes. T4 slips must be issued by February 28, and ROEs (Records of Employment) filed within 5 days of an interruption of earnings. The CRA imposes significant penalties for late remittances — 3% for 1-3 days late, escalating to 10% for repeat offenders.
The T2 corporate tax return is due 6 months after year-end, but any balance owing must be paid within 2-3 months. Scientific Research & Experimental Development (SR&ED) tax credits provide a powerful incentive — 35% refundable credit for CCPCs on the first $3 million of eligible expenditures. Our team helps identify qualifying activities and prepare the technical narratives required for successful SR&ED claims.