Employing Canadian workers and deducting the correct Canadian payroll taxes from their paycheques can be difficult if you’re an American or foreign company outside of North America. We’ve compiled a list of Canadian taxes a company employing Canadian workers should be aware of, if they are not engaging with an Employer of Record service.
Canadian Business Taxes
All Canadian businesses must file a corporate tax return with the Canadian government. This corporate tax return is due within the six months after the end of the company’s fiscal year.
If you are engaging with Canadian companies for the sale of your product or service you need to be aware of the sales tax for the province you are doing business in. For goods and services sold in Canada, every company must charge the applicable provincial sales tax. The same is true in the reverse, if you purchase goods and services in Canada, you will be charged the sales tax. You are then required to reconcile these debits and credits to pay or report to the Canada Revenue Agency. Every province has a different rate and the remittance schedule can vary as well based on company size. In Ontario, it is called the HST (Harmonized Sales Tax) and the rate charged is currently 13%, in Alberta that rate is 5% for their GST (Goods and Services Tax). For a full list of HST/GST rates by province, please visit the Canada Revenue Agency’s website.
Another tax to be aware of as a foreign company is the possibility of the 15% withholding tax. If a U.S. or foreign company chooses not to register a Canadian business presence but does engage in a sales transaction with a company in Canada, that company must withhold and remit 15% of any payments for services rendered in Canada.
Canadian Payroll Taxes
Some taxes are consistent for all employers across Canada such as the Canada Pension Plan (CPP), Employment Insurance (EI) and Worker’s Compensation. These taxes may be consistently seen across all provinces and territories but the rate that they are charged can vary.
Other taxes are province or territory specific. For example, in Ontario employers must pay the Employer Health Tax (EHT) and in Quebec there are three additional taxes over and above the federal ones. Please visit the Canada Revenue Agency’s website for further information on provincial payroll taxes and rates.
If you have not engaged an Employer of Record here in Canada and have successfully registered your business, enrolled for the various government accounts and are up to date on your taxation responsibilities, you may be ready to hire your first employee.