Canada: Domestic Corporate Taxation
Calculation of Taxable Base
Companies must calculate both their federal and provincial/territorial tax liabilities. Note that dividend, interest, royalty and property income, and capital gains, are subject to separate tax rates within each province or territory.
Normal business expenses can be deducted in calculating taxable profit.
Under thin capitalisation rules, interest on debts owed by tax-resident corporations to certain non-residents are not deductible. Transfer pricing in Canada is based on the OECD model, which recommends the arm’s length principle. Advance pricing agreements can be negotiated with the CRA.
Losses can generally be carried back up to three years; there is no limit stated for carry forward of losses. Capital losses from previous years can be used to reduce capital gains included in income. Foreign tax credits can be carried back up three years, or carried forward for up to 10 years. Investment tax credits can be carried back up to three years, and carried forward for up to 20 years.