Capital Tax
What is a Capital Tax?
A capital tax is a tax collected on a corporation that depends on its assets as opposed to its income. Canada was one of only a handful of exceptional OECD nations that collected both a federal and provincial capital tax. Canada limited its federal capital tax to financial corporations in 2006, and a few regions of Canada likewise collect a capital specific to financial institutions.
Canada's capital tax works out a corporation's total capital as the total shareholder's equity, its long term debt, retained earnings, and some other overflows. A corporation can deduct a few investments in different corporations from its taxable Canadian capital. Financial institutions with taxable capital employed in Canada surpassing $10 million are required to file a capital tax form (Schedule 34), albeit just financial institutions with capital employed surpassing $1 billion pay the federal capital tax.
Capital tax is additionally called corporation capital tax (CCT).
Grasping Capital Taxes
A capital tax is an essentially a wealth tax forced on financial corporations in Canada. The tax depends on the amount of capital employed (basically debt and equity), paying little mind to profitability.
Prior to 2007, the federal government forced a capital tax on the taxable capital employed in Canada in excess of $50 million of any corporation that was resident in Canada or any non-resident corporation that carried on business in Canada through a permanent foundation. This tax was for the most part disposed of at the federal level on Jan. 1, 2006.
In any case, financial and insurance corporations with taxable capital in excess of $1 billion are as yet demanded a 1.25% capital tax. This capital tax payable can be reduced by the amount of income tax the corporation pays. Any unused federal income tax liability can be applied to reduce the capital tax for the previous three years and the next seven years.
Territories that levy a capital tax incorporate Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, and Saskatchewan.
For tax purposes, the Financial Corporation Capital Tax Act characterizes a financial corporation as a bank, trust company, credit union, loan corporation, or life insurance company and incorporates an agent, assignee, trustee, liquidator, receiver, or official having possession or control of any part of the property of the bank, trust company, or loan company however does exclude a trust company or loan company incorporated without share capital.
Capital Taxes in the Provinces
A few Canadian regions likewise charge the corporate capital tax on banks, trust and loan corporations. The rates are set by the territories, starting around 2020, are:
- Manitoba - 6%
- New Brunswick - 5% for banks, 4% for other financial institutions
- Newfoundland and Labrador - 6%
- Nova Scotia - 4%
- Ruler Edward Island - 5%
- Saskatchewan - 4%
The regions that levy a capital tax have various limits for taxation that are distributed on provincial sites. Alberta, British Columbia, Ontario, Quebec, and the regions don't levy a capital tax.
Features
- Capital taxes paid on a provincial level are deductible for federal income tax purposes.
- A capital tax is a wealth tax, not an income tax.
- The federal capital tax in Canada currently just applies to financial corporations, and the equivalent is true of the provincial level capital taxes.
