A foreign business enterprise may choose to enter into a joint venture with a Canadian to carry on a business or a particular activity in Canada. The structure of such a joint venture may be accomplished in a number of ways and the Canadian tax consequences will depend upon the particular structure chosen.
The Canadian joint venture may take the form of a Canadian corporation, the shares of which are owned by the Canadian and foreign participants in agreed proportions. In such a case, the Canadian corporation will be taxable on its income as a Canadian resident corporation, as outlined above under the heading “Canadian Subsidiary Corporation”. If the Canadian participants are at least equal partners in the Canadian joint venture corporation, it may qualify for a reduced rate of tax (a combined federal and provincial rate in Alberta of 14 percent, 19 percent in Quebec, 13.5 percent in British Columbia and 16 percent in Ontario). The portion of taxable income eligible for the small business rate is reduced, however, on a straight-line basis for corporations that have more than $10 million of taxable capital employed in Canada. No portion of the taxable income of corporations with more than $15 million of taxable capital employed in Canada is entitled to the small business rate. Taxable capital is generally the sum of shareholders’ equity and long term or secured debt, less debt and equity investments in other corporations.
Alternatively, the joint venture may take the form of a partnership between the Canadian and foreign participants. Canada taxes the profits of partnerships at the partner level and does not tax the partnership directly. Each of the partners of a partnership carrying on business in Canada is considered, for tax purposes, to be carrying on the business of the partnership in Canada. Accordingly, if the foreign enterprise is a partner and the partnership has an office, factory or other permanent establishment in Canada, the foreign partner will generally be taxable in Canada on its share of the partnership profits, as if it carried on the partnership business directly as a Canadian branch of the foreign enterprise. The tax consequences of a branch operation are set out under the subheading “Canadian Branch Operation”, above. If, on the other hand, the foreign enterprise has its Canadian subsidiary corporation enter into the partnership, the tax consequences would be as set out above under the subheading “Canadian Subsidiary Corporation”.
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