Corporate taxes include taxes on corporate income in Canada and other taxes and levies paid by corporations to the various levels of government in Canada. These include capital and insurance premium taxes; payroll levies (e.g., employment insurance, Canada Pension Plan, Quebec Pension Plan and Workers' Compensation); property taxes; and indirect taxes, such as goods and services tax (GST), and sales and excise taxes, levied on business inputs.

Corporations are subject to tax in Canada on their worldwide income if they are resident in Canada for Canadian tax purposes. Corporations not resident in Canada are subject to Canadian tax on certain types of Canadian source income (Section 115 of the Canadian Income Tax Act).

The taxes payable by a Canadian resident corporation may be impacted by the type of corporation that it is:

* A Canadian-controlled private corporation, which is defined as a corporation that is:
o resident in Canada and either incorporated in Canada or resident in Canada from June 18, 1971, to the end of the taxation year;
o not controlled directly or indirectly by one or more non-resident persons;
o not controlled directly or indirectly by one or more public corporations (other than a prescribed venture capital corporation, as defined in Regulation 6700);
o not controlled by a Canadian resident corporation that lists its shares on a prescribed stock exchange outside of Canada;
o not controlled directly or indirectly by any combination of persons described in the three preceding conditions; if all of its shares that are owned by a non-resident person, by a public corporation (other than a prescribed venture capital corporation), or by a corporation with a class of shares listed on a prescribed stock exchange, were owned by one person, that person would not own sufficient shares to control the corporation; and
o no class of its shares of capital stock is listed on a prescribed stock exchange.

* A private corporation, which is defined as a corporation that is:
o resident in Canada;
o not a public corporation;
o not controlled by one or more public corporations (other than a prescribed venture capital corporation, as defined in Regulation 6700);
o not controlled by one or more prescribed federal Crown corporations (as defined in Regulation 7100); and
o not controlled by any combination of corporations described in the two preceding conditions.

* A public corporation, defined as a corporation that is resident in Canada and meets either of the following requirements at the end of the taxation year:
o it has a class of shares listed on a prescribed Canadian stock exchange; or
o it has elected, or the Minister of National Revenue has designated it, to be a public corporation and the corporation has complied with prescribed conditions under Regulation 4800(1) on the number of its shareholders, the dispersing of the ownership of its shares, the public trading of its shares, and the size of the corporation.

If a public corporation has complied with certain prescribed conditions under Regulation 4800(2), it can elect, or the Minister of National Revenue can designate it, not to be a public corporation. Other types of Canadian resident corporations include Canadian subsidiaries of public corporations (which do not qualify as public corporations), general insurers and Crown corporations.


Provincial/teritorial corporate income taxes

Corporate income taxes are collected by the CRA for all provinces and territories except Ontario, Quebec and Alberta. Provinces and territoires subject to a tax collection agreement must use the federal definition of "taxable income", i.e., they are not allowed to provide deductions in calcualting taxblae income. These provincies and territoriesmay provide tax credits to companies, often in order to provide incentives for certain activities such as mining exploration, film production, and job creation.

Ontario, Quebec and Alberta collect their own corporate income taxes, and therefore may develop their own definitions fo taxable income. In practice, these provinces rarely deviate from the federal tax base in order to maintain simplicity for taxpayers.

Ontario is conducting negotiations with the federal government on a tax collection agreement under which its corporate income taxes would be collected on its behalf by the CRA.


Integration of corporate and personal income taxes

In Canada, corporate income is subject to corporate income tax and, on distribution as dividends to individuals, personal income tax. The personal income tax system, through the gross-up and dividend tax credit (DTC) mechanisms, currently provides recognition for corporate taxes, based on a 20 per cent notional federal-provincial rate, to taxable individuals resident in Canada.

Because of tax policy issues relating to the proliferation of publicly traded income trusts, the federal government has proposed to introduce an enhanced gross-up and DTC for eligible dividends received by eligible shareholders. An eligible dividend will be grossed-up by 45 per cent, meaning that the shareholder includes 145 per cent of the dividend amount in income. The DTC in respect of eligible dividends will be 19 per cent, based on the expected federal corporate tax rate in 2010. The existing gross-up and tax credit will continue to apply to other dividends. Eligible dividends will generally include dividends paid after 2005 by public corporations (and other corporations that are not Canadian-controlled private corporations) that are resident in Canada and subject to the general corporate income tax rate.