Taxation of an LLC in Canada

Updated on Friday 07th June 2019

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One of the most important aspects to consider when starting a business in Canada refers to taxation. Companies are subject to taxation based on various criteria, which is why foreign investors opening businesses here can be confused sometimes.

When it comes to taxation, there are several aspects to consider when registering a business in Canada, among them the type of company chosen and the province or territory where it is incorporated. Among these, the limited liability company (LLC) benefits from most of the tax advantages offered by the Canadian authorities.

Below, our company formation specialists in Canada explain how LLCs are taxed here. You can rely on us if you want to register an LLC or need advice on its taxation.
 

Tax domicile of an LLC in Canada


As mentioned at the beginning of the article, the tax domicile can have a very important impact on the taxation of an LLC in Canada. Here are the general aspects to consider with respect to taxation of companies registered in Canada:
 
  1. the corporate tax imposed on a company depends on whether it is registered at a federal or provincial level;
  2. the taxation of an LLC can also be influenced by whether the shareholder/shareholders are residents or non-residents;
  3. the taxation of a company can also be influenced by whether the business qualifies for the Small Business Deduction;
  4. the Canadian private corporations are the most advantageous types of companies from a taxation point of view;
  5. there are several ways of reducing the corporate taxes paid by companies registered in Canada.

We offer tailored accounting services which can be of great help in reducing the taxes paid by an LLC in Canada. Our company registration agents can also help you incorporate a business as a non-resident in Canada.
 

The corporate tax rates applied on Canadian LLCs


The corporate tax in Canada is levied on different criteria, and the most important one is the tax domicile of the LLC. A company can be registered at a federal level, case in which it will pay the tax applied at this level or can be imposed at a provincial or territorial level. This implies for the LLC to be taxed in the Canadian province or territory it was registered in.

The standard corporate tax applied to LLCs incorporated at a federal level in Canada is 38%, however, with the tax abatement, the rate will decrease at 28%. With respect to provincial and territorial corporate tax rates, these apply at local levels and are subject to changes on a yearly basis. This is why it is best to verify the annual rates on the Canadian Revenue Agency’s website.

If you need assistance in setting up a business in Canada at a federal or provincial level, you can rely on our consultants. We can also help you choose the type of company you can operate under.
 

The Small Business Deduction in Canada


One of the most important parts of the taxation of an LLC in Canada refers to the payment of the Small Business Deduction (SDB) which applies to private corporations registered at federal and provincial levels. At the level of 2019, the rate of the Small Business Deduction was 19% at a federal level. Combined with the tax abatement granted by the CRA, the rate drops at 9%.

The SDB is calculated on the number of days a company undertakes activities in a calendar year. The maximum amount of money a Canadian LLC can deduct under this incentive is 500,000 CAD.
Our accountants can help you apply for the SDB for your LLC in Canada.
 

Accounting requirements imposed on LLCs in Canada


In order to pay the corporate tax, an LLC in Canada is required to comply with the accounting and reporting requisites of the CRA.

An LLC must file the following accounting documents:
 
  • the T2 corporate tax return which is filed on a yearly basis, and no later than 6 months after the end of the financial year;
  • the financial statement of the company which must be accompanied by the schedule of the returns must also be filed;
  • LLCs must also file Goods and Services or Harmonized Sales Tax returns, in accordance with their reporting calendars;
  • other documents could be required by the provincial and territorial offices of the Canadian Revenue Agency.

It is important to know that an LLC must file its tax returns in the province or territory it was registered. From there, the local authorities will withhold the tax as required under the local regulations and forward the amount of money due to the federal government.

If you need more information or assistance in taxation matters related to an LLC in Canada, do not hesitate to contact us. We can also help you with various tax minimization solutions, but also with company registration services in Canada.