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”.
Additional posts from the blog
In an interesting decision, the Human Rights Tribunal of Ontario has ruled that an employer is not liable for discriminatory and harassing texts sent by a rogue employee to another of its workers.
On April 8, 2014, Canada’s government introduced Bill S-4, the Digital Privacy Act, in the Senate. Bill S-4 is the federal government’s latest attempt to reform the federal Personal Information Protection and Electronic Documents Act (“PIPEDA”). It would be a mistake to say that it is largely recycled from the government’s last attempt to reform PIPEDA in 2011 through Bill C-12, which died on the order paper. Here’s what’s different, what’s been dropped, and what seems to be largely the same. Caveat: This is a first read!
Lean times may call for lien measures – What you need to know about miners’ liens in Northern Canada
Given the present economic climate of falling metal prices and depressed equity markets for mining companies, many owners and operators of mines are experiencing cash flow and working capital shortages. As a result, contractors and others who provide services or materials to mines, whether in the exploration, development, or production phases of such projects, are increasingly looking to miners lien legislation to help them increase their leverage when seeking payment of outstanding accounts.