Taxation of international executives
Are there social security/social insurance taxes in Canada? If so, what are the rates for
employers and employees?
Canada has an extensive social security system that confers benefits for disability, death, family allowances, medical care, old age, sickness, and unemployment. These programs are mainly funded through wage and salary deductions and employer contributions.
An employee’s responsibility is comprised of two parts: Canada Pension Plan (CPP) (or the Québec Pension Plan for employees working in Québec) and Employment Insurance (EI). Contributions made by an employee to CPP, QPP or EI are creditable against that individual’s federal and provincial income tax liability. The credits are calculated at the lowest federal and provincial tax rates.
|Type of insurance||
Paid by employer
Paid by employee
|Canada Pension Plan||
CPP contributions are required to be deducted from an individual’s remuneration if the individual is employed in Canada, between age 18 and 70, and receiving pensionable earnings. The employer is responsible for withholding and remitting the individual portion and a matching employer portion to the CRA, or to the MRQ if regards to QPP contributions..
The maximum employer and employee contributions to the CPP for 2018 are each CAD 2,594. Individuals residing in Québec contribute to the Québec Pension Plan (QPP) instead of the CPP program. The maximum employer and employee contributions to the QPP for 2018 are each CAD 2,830.
EI is a federal payroll tax required to be deducted from an individual’s remuneration if the individual is employed in Canada and is receiving insurable employment earnings. There is no age limit for deducting EI premiums. Like the CPP contribution, the employer is responsible for withholding and remitting the individual’s portion as well as remitting the employer portion (1.4 times the individual contribution) to the tax authorities. The maximum employee contribution for 2018 is CAD 858 and the corresponding maximum employer contribution is CAD 1,201.
Individuals residing in Québec contribute a reduced El amount (2018 maximum of CAD 672 per employee and a maximum employer premium of CAD 941). However, they must also contribute to the Québec Parental Insurance Premium plan (QPIP). The maximum contributions to QPIP for 2018 are CAD 406 for the employee and CAD 568 for the employer. EI premiums are remitted to the CRA and QPIP premiums are remitted to the MRQ.
CPP and EI premiums are assessed based on employment and (for CPP only) self-employment earnings and the rates are adjusted each year based on actuarial calculations prepared by the federal government. QPP and QPIP premiums are also assessed on earnings and the rates are adjusted each year based on actuarial calculations prepared by the Québec government.
Are there any gift, wealth, estate, and/or inheritance taxes in Canada?
There is no gift tax in Canada. However, income tax may arise since the assets gifted are treated as being disposed of at fair market value. There are certain exceptions for gifts to a spouse.
Rules pertaining to income splitting must also be considered. In certain circumstances, if the item gifted is an income-producing asset or is used to purchase an income-producing asset, the income is attributed back to the taxpayer. This is generally the case for gifts to the spouse and minor children and low-interest loans to non-arm’s length persons.
No federal or provincial estate tax or inheritance tax is imposed in Canada. However, to the extent that a Canadian resident has accrued capital gains or losses, these will be realized on death. For income tax purposes, an individual is considered to have disposed of capital property at its fair market value on the date of death. Taxable capital gains may result but provisions exist to enable a surviving spouse or other specified beneficiaries to inherit the original cost base and thereby defer recognition of the gain. Appropriate planning is required to obtain this result.
Non-resident individuals may be subject to Canadian tax on death to the extent that they own Taxable Canadian Property (TCP). The most common types of TCP affected by the deemed disposition on death are Canadian real estate and shares in a private corporation owning real estate in Canada.
There is no wealth tax in Canada.
Although there is no estate or inheritance tax per se, many provinces charge a probate fee to validate the deceased’s will and confirm the authority of the estate’s executor or, where no will exists, distribute the assets of the estate according to provincial family law. The probate fee is generally applied to the fair market value of the assets flowing through the will. Planning opportunities exist to help minimize the tax through joint ownership, trusts, designation of beneficiaries, and other means.
Are there real estate taxes in Canada?
The sale or other transfer of real estate (including the transfer of shares in real estate companies) is subject to a real estate transfer tax imposed by the province or territory where the real estate is located. Rates vary among provinces. Municipalities also levy annual property taxes on residential, commercial, and industrial real estate.
Are there sales and/or value-added taxes in Canada?
Canada levies a federal goods and services tax (GST) which is a value-added tax that applies to most goods and services in Canada. The GST rate is 5 percent.
Five provinces (Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador) have harmonized their provincial sales taxes with the GST to create the harmonized sales tax (HST). The HST applies to the same base of taxable goods and services as the GST. The HST rate is 13 percent in Ontario. The HST rate is 15 percent in New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador.
Three provinces (British Columbia, Saskatchewan and Manitoba) have a provincial sales tax (PST) that generally applies to the sale of goods as well as some intangibles and services. The PST is not a value added tax and is not recoverable. The general PST rates range from 6 percent to 8 percent (up to 10 percent on certain goods).
In addition, the province of Québec applies the provincial Québec Sales Tax (QST) on most goods and services at a rate of 9.975%. The QST is also a value-added tax and applies generally the same way as the GST/HST.
Are there unemployment taxes in Canada?
EI premiums are required to be deducted from an individual’s remuneration if the individual is employed in Canada and is receiving insurable earnings. There is no age limit for deducting EI premiums. The employer is responsible for withholding and remitting the individual’s portion as well as remitting the employer portion (1.4 times the employee’s contribution) to the tax authorities.
Are there additional taxes in Canada that may be relevant to the general assignee? For example, customs tax, excise tax, stamp tax, and so on.
Municipal tax (property tax) is assessed on the owner of real property according to the value of the property (generally, the tax is in the range of 1 percent to 2 percent of the property’s assessed value per year). The rates vary among municipalities.
Although these are not actual income taxes, the provinces of British Columbia and Ontario levy provincial health premiums on the income of individuals who are subject to income tax in those jurisdictions. Residents of British Columbia are required to make monthly Provincial Health Premium payments under the province’s Medical Service Plan based on taxable income over CAD 24,000 (maximum annual premium is CAD 450 for a single individual aged 19 or older, and CAD 950 for a family consisting of two adults and any number of children under the age of 19). Residents of Ontario are required to pay a Provincial Health Premium as part of their Ontario tax liability, based on their taxable income over CAD 20,000 (maximum annual premium is CAD 900,
The Ontario health premiums are calculated and added to the provincial income taxes calculated on the tax returns of individuals who are residents, or part-year residents, of that Provincial
The following provinces and territories impose a tax on employers based on the total annual salaries earned by their employees who report to work, or are deemed to report for work, at an office or other permanent location of the employer located within the relevant jurisdiction:
|Province/Territory||Maximum EHT Rate|
|Manitoba||2.15% (see note below)1
|Newfoundland & Labrador||2.00%|
The relevant provincial EHT legislation requires an employer to include the salary of any non-resident employee earned from working in the province with the salaries of the employer’s regular employees who report for work there, even when there is no chargeback to the Canadian company for that salary. The EHT is remitted to the relevant provincial or territorial authority responsible for administering this tax.
Foreign property reporting requirements
Canadian residents are required to file the following information returns, in addition to their personal income tax returns, if they:
1For Manitoba, first $1.25 Million of annual payroll is exempt from Health Tax and the next $1.25 million is subject to a levy of 4.3%. However, if the employer’s total payroll in the province exceeds $2.5 million, the entire total payroll in Manitoba is subject to a levy of 2.15%, including the first $1.25 million.
2The first $1.2 million of an employer’s total payroll is exempt from the Newfoundland and Labrador Payroll Tax.
The deadline for filing these annual information returns is generally the same as for the individual's Canadian tax return. Failure to file any of these information returns on a timely basis may result in the assessment of penalties.
A taxpayer is exempt from having to file a T1134, T1135, T1141 or a T1142 in the first year of becoming a resident of Canada provided the taxpayer was never a Canadian resident in any prior year.
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