The Canadian tax system is based on voluntary compliance. This means Canadians are expected to report and pay their taxes. It doesn't mean the tax laws can't be enforced, if necessary. The Canada Revenue Agency (CRA), is responsible for ensuring compliance. The CRA administers tax, benefits, and related programs.

Early in 2018, the CRA undertook new initiatives to confirm Canadian individuals and corporations were paying their fair shares of taxes on wealth housed in Canada and offshore.

E-commerce (doing business and investing abroad electronically), has resulted in difficulties for the CRA. The challenges are to decide where income is earned and where in the world the sales occur. These answers help determine who pays how much tax to which governments. 





Think about this...

Canadian corporate tax rates rose from 17.5% in 2012 to 25% in 2017. During the same period, business tax rates in the US decreased from 34.6% to less than 21%. In Germany in 2017, the effective business tax rate was between 30 and 33%. In Japan, it was 32.11%. In China, it was 25% unless the business was engaged in an industry encouraged by the Chinese government, in which case it was 15%.

How might these tax rates affect foreign investment in Canada in 2018?
Country Corporate Tax Rate (2017)
Canada 25%
Germany 30-33%
Japan 32.11%
China 15-25%
USA 21%

There is no single right answer. Imagine, however, that all other production costs in the two countries are equal:
  • US investment in Canada likely would decrease. US business taxes are lower than Canadian business taxes.
  • Germany's investment in Canada likely would increase. German business taxes are higher than Canadian business taxes.
  • Japan's investment in Canada likely would increase. Japanese business taxes are higher than Canadian business taxes.
  • China's investment in Canada in industries not encouraged by the Chinese government likely would remain about the same.