1. Gift Certificates. Canadian retailers are required to include the value of gift certificates sold in computing its income in the year of sale, however, a reasonable reserve may be available.
2. Online Sales. If a company is a non-resident of Canada and does not have a physical presence in Canada but hosts its website on a Canadian server, such non-resident company may be deemed to be carrying on business in Canada and subject to Canadian income tax.
3. Inbound Financing. Under the recently amended “Thin Capitalization Rules,” a Canadian subsidiary of a foreign company is required to maintain a debt to equity ratio of at most 1.5 (debt) to 1 (equity) otherwise negative Canadian tax implications will be triggered. Accordingly, heavily leveraged Canadian subsidiaries should be re-evaluated.
4. Repatriation of Profits. Canadian related profits repatriated from a Canadian subsidiary to its foreign parent will generally be subject to Canadian withholding tax unless the repatriation is characterized as a return of capital.
5. Canadian Subsidiary Vehicle. Depending on the ownership structure of a foreign parent, consideration should be given to utilizing Canadian flow-through vehicles for Canadian subsidiaries in order to maximize tax efficiencies.
6. Payroll Deductions. Canadian employers (e.g. Canadian retailers) are required to deduct, remit, and report prescribed payroll deductions to the Canada Revenue Agency, including Canada Pension Plan contributions, Employment Insurance premiums and income tax.
7. License Agreements. Under a license agreement (i.e. for clothing, jewellery, etc.) between a Canadian resident and a non-resident of Canada, license payments made by the Canadian resident to the non-resident of Canada may be subject to Canadian withholding tax.
8. Sales Tax. Generally, Canadian businesses are required to collect and remit: (i) provincial sales tax (“PST”) and federal goods and services tax (“GST”), or (ii) a combined provincial/federal harmonized sales tax (“HST”) on taxable supplies of goods or services made in Canada.
9. Input Tax Credits. Generally, Canadian businesses are required to pay GST/HST on purchases and expenses relating to its commercial activities, however, the GST/HST is generally recoverable by claiming an input tax credit (i.e. a refund) by filing the appropriate tax return.
10. Importing. Commercial goods imported into Canada from a foreign jurisdiction may be subject to PST and GST and may be subject to duties. For example, commercial goods made in the U.S.A. and imported into Ontario will be subject to the federal component of the HST, but will not be subject to duties.
For more information in relation to these topics or anything above, please contact a member of the Fashion Industry Practice Group at Cassels Brock.