Doing Business in Canada
Canada is home to a welcoming business environment and a highly educated workforce, making it an ideal place to start a business, invest, work or live. Despite the benefits, starting a business anywhere comes with its unique challenges and Canada is no different. In this article, we’ll share an overview of the factors you’ll need to consider when starting a business in Canada. We’ll cover taxes, language and culture, using a co-working space, and choosing a city to set up business operations.
Tax rules in Canada may seem complex at first glance. While it may take some time to gain a full understanding, a complicated tax system can actually afford your company a range of benefits. There may be opportunities for tax concessions depending on where your company profits are sourced, your business activity and business form, such as whether you own a small CCPC (Canadian-controlled private corporation). We recommend you consult a tax professional when doing business in Canada to take full advantage of the tax-saving strategies that are available.
Business residents in Canada are subject to corporate income tax (CIT) on their worldwide income.A few factors need to be considered when calculating the CIT rate which applies to your business. These include:
- The federal CIT rate
- The provincial abatement
- The general rate reduction
- The manufacturing and processing deduction
- The provincial CIT rate
In Canada, your business profits are taxed at 38%. If these profits are earned in Canada, they will only be taxed at 28%. This is because there is a 10% abatement. The abatement gives provinces the room to impose provincial CITs. If your income is earned abroad, it will not qualify for the 10% abatement.
For all income above 500,000 CAD, a general reduction of 13% applies. This means any income your business earns in Canada, above 500,000 CAD, is only taxed at 15%.
Every province has its own CIT rate. For example, if your business is located in Alberta, a provincial CIT rate of 12% applies. Ontario has the lowest provincial CIT rate, at 11.5%.
Personal Income Tax
|15% on the first $47,630 of taxable income, plus|
20.5% on the next $47,629 of taxable income (on the portion of taxable income over 47,630 up to $95,259), plus
26% on the next $52,408 of taxable income (on the portion of taxable income over $95,259 up to $147,667), plus
29% on the next $62,704 of taxable income (on the portion of taxable income over 147,667 up to $210,371), plus
33% of taxable income over $210,371
Each province and territory also charges income tax in addition to the federal income tax. Their rates and tax brackets vary. For provincial and territorial tax rates in 2019 you can visit this website.
Canada has two official languages: French and English. In practice, the majority of Canadians speak English, and a small minority speak both English and French. The language in which you should do business depends on the province in which you are operating. Here is a brief summary.
- New Brunswick, Manitoba: English or French.
- Ontario: a portion of the province is English-only, other areas are bilingual.
- Alberta, Nova Scotia, Prince Edward Island, Saskatchewan: officially English, however, services are permitted in French.
- British Colombia, Newfoundland, Labrador: English-only
- Quebec: French-only
When doing business in Canada, it is important to be aware of business culture and etiquette.
Greetings: The appropriate greeting is a handshake, with strong eye contact.
Body language: Eye-contact is important during business meetings. Avoid pointing at people with your index finger or making the ‘v’ sign (as this is considered a serious offence).
Conversation: Popular topics include sports. It is considered rude to speak in a foreign language in the presence of other people who do not speak that language. We recommend avoiding comparisons between Canada and the U.S.
Presentation: It is important to maintain a conservative, well-dressed appearance for business meetings. Avoid wearing strong scents as asthma and allergies are common amongst Canadians.
Business cards: Business cards should have both English and French translations.
Gifts: Business gifts are often offered after a deal is closed. They are unwrapped and shown to everyone. White lilies and red roses are avoided because they are associated with funerals and romance, respectively.
Favorable Business Environment
Canada enjoys one of the lowest federal corporate income tax rates in the world (15%) and a stable economy which successfully circumvented the 2008 financial crisis and maintained stable economic growth. The early intervention of the Bank of Canada and its conservative lending practices allowed Canada’s major banks to emerge as some of the strongest in the world. The World Bank has given Canada an ‘Ease of Doing Business’ rank of 22 out of 190 countries, making it a leader amongst G7 countries when it comes to ease of doing business.
Education and Workforce
Canada is currently the most educated country in the world. More than 56% of adults in Canada are distinguished with a university, college or technical school qualification. Canada’s universities offer education at rates which are more affordable than most colleges in the U.S. According to the Longitudinal Survey of Immigrants to Canada in 2005, almost 90% of immigrants continue to pursue education or training courses once they have arrived in Canada. Therefore, businesses in Canada have access to a highly skilled and educated pool of local talent.
Canada shares the world’s longest border with the U.S. – an economic superpower. Its proximity to the U.S. and the fact that it possesses rail and road networks to economic hubs and international ports make Canada an ideal access point to the thriving Asian economies, for the American market. Due to the NAFTA agreement, businesses in Canada have unrestricted access to the whole North American market.
Initiatives have been implemented by the Canadian government to attract and foster innovation and entrepreneurship. The Start-Up Visa program, launched in 2013, allows entrepreneurs and businesspeople to live and work in Canada. A single viable business idea could lead to permanent residence for the applicant, after reaching the registration and minimum funding requirements. This has allowed Canada to attract entrepreneurial talent from all over the world. 
Ease of Starting a Business
Canada is one of the easiest countries in the world to start a business, with a ranking of 3 for ‘Ease of Starting a Business’, out of 190 countries according to the World Bank. It is quick and inexpensive, requiring two days and 200 CAD.
Canada is a popular location for companies headquartered in the U.S. for several reasons.[
Lower tax rates. The federal corporate income tax rate in the U.S. is 21%, compared to 15% in Canada (after applying the abatement and general tax reduction).
Familiar language and culture. The language, culture, and business norms of Canada are similar to those in the U.S. The most common greeting in both the U.S. and Canada is a handshake. English is an official language in both countries.
Trade agreements. Under the NAFTA, Canada and the U.S. have access to a lucrative free trade market which covers the entire North American continent and Mexico. Doing business in Canada allows a business headquartered in the U.S. to build networks across this region and take advantage of free trade arrangements.
Lower business costs. The costs of doing business in Canada are lower than the costs of doing business in the U.S. The cost of electricity in Canada is 22% lower than the cost of electricity in the U.S. and land and building costs are 8% lower. Overall, Canada’s business costs are approximately 9% lower than those in the U.S. after taxes.
Traditional workplace arrangements are transforming. The rapidly growing popularity of co-working spaces has emerged from the increased use of flexible working arrangements and remote working.
A co-working space involves individuals working on their own projects, or with a team, in a shared location. According to the Global Coworking Unconference Conference (a company that produces conferences on co-working), there were 14,411 co-working spaces in 2017 worldwide. This is expected to hit 30,000 by 2022!
Here are some co-working spaces you can look at, when setting up an office in Canada. This can be used as a starting point, and a quick Google search will generate many more options.
Location: Montreal, Toronto and Vancouver.
Starting Price: $650/month in Montreal, $1,030/month in Toronto, and $750/month in Vancouver for a private office
Features: Fast Internet, daily cleaning, IT support, 24/7 building access, global network, office supplies, craft on draft, bike storage, business-class printers, micro-roasted coffee, mail & package handling, private phone booths, additional features which are unique to every WeWork location
Starting Price: $500 for a private office
Features: lounge, terrace and coffee lounge, meeting rooms, WiFi, screen, television, projector, microphone, lectern and stage, checkroom, sound system, bar, parking, caterer, microwave, fridge, sink, furniture, alcohol license, air conditioning, lift, staff
Note: Fabrik8’s spaces are designed primarily for companies in the technology and IT sectors
Location: Liberty Village, Toronto
Starting Price: $1,200 for a private office
Features: 24-hour access, reception services, boardrooms, high speed and guest WiFi, Internet, cleaning, shared kitchen with complimentary snacks and hot beverages, mail service, networking and Lunch & Learn events, community newsletter, community discounts for local businesses
Starting Price: $1,200/month for a private office
Features: Meeting rooms, phone booths, shared kitchen, lounges, printers, fibre internet
Location: Toronto (Queen West, King West, King East, Kitchener-Waterloo, Bay-Bloor)
Starting Price: $565/month for a private office
Features: 24/7 access, kitchenettes and coffee bar, regular office cleaning, internet, mailing address, printer services, 24/7 security, access to lounges, utilities
Collingwood is one the best Canadian cities for entrepreneurs, and was given the highest score by the Canadian Federation of Independent Business (CFIB) in ‘Entrepreneurial Communities’. The CFIB scored cities based on three categories: (1) presence, i.e. the growth of business ownership, (2) perspective, i.e. business optimism and (3) local government policies relating to business activities, i.e. regulations and taxes. Ontario has the lowest provincial tax rates, at 11.5%.
Toronto is the cheapest Canadian city to fly in to from the U.S. which makes trips to and from headquarters (if your company has headquarters in the U.S.) less costly. Although office rental prices seem to be relatively more expensive, annual business costs are significantly lower in Toronto compared to other financial centres around the world.
Vancouver, British Columbia
We’ve listed Vancouver as another city to consider when doing business in Canada due to its cross-cultural ties with Europe and Asia, and business-friendly immigration policies which are beneficial for companies with an international workforce. Startup Genome’s 2018 ‘Global Startup Ecosystem Report’ listed Vancouver as the most livable and sustainable city, Canada’s fastest growing economy, and gave Vancouver’s startup ecosystem a ranking of 15 globally. 
Once you have chosen to do business in Canada, the next step is recruiting. When expanding to a new country, the first employee you hire is likely to be a remote worker.
Canada is known for its highly skilled and educated workforce. There is a vast pool of talent from which businesses can build their teams. Whether you are hiring your first remote worker in Canada or looking to upgrade your current remote recruitment process, here are some things you will need to consider. In this article, we’ll cover who to recruit as your first remote employee when setting up operations in Canada, average salaries, and the recruitment process – from posting a job advertisement to notifying the employee that they are now part of the team.
It is common for a company to first recruit a sales manager, business development manager or customer success manager when establishing a business presence in Canada.
Businesses can grow and generate revenue by expanding into new markets. Hiring an employee who is familiar with the language, culture and practices of that new market is a more effective way to build a customer base than selling remotely. Companies selling abroad often find that language barriers hinder the effectiveness of follow-up conversations with a customer. Hiring a local salesperson in that market allows this barrier to be overcome, enhancing business-client relationships.
According to Glassdoor, the average base salaries for these roles are as follows:
|Role||Base Salary (CAD/year)|
|Business Development Manager||63,000|
|Customer Success Manager||57,000 – 100,000 (depending on the company size)|
When building a team after your first hire, you may wish to hire representatives.
|Role||Base Salary (CAD/year)|
|Sales Representative||33,000 |
|Business Development Representative||45,000 |
|Customer Success Representative||41,000 |
The first step in recruiting, after deciding on the team you want to build, is to create and advertise job postings for those new roles. A job posting should include the following.
Overview of the role: Describe what the role entails. For example: “You will be supporting our team of global mobility consultants in the ongoing management of our GEO employees based all over the world. Your role is to help them in delivering great customer service.”
Job responsibilities: Include bullet points outlining what the role involves.
Qualifications and skill requirements: Start by listing out the required skills and qualifications for the job, followed by preferred skills.
In addition to education and experience, cultural fit is extremely important when it comes to selecting the appropriate candidate for your position. It is a good idea to include your company’s mission, vision, values and key attributes of your company culture and workplace, as well as what personality traits and passions your team members share. It may be ideal to hire an employee who has had experience working remotely.
Here are some characteristics companies often look for in a remote worker:
- Effective written communication skills: Most communication will be in writing, when interacting with remote workers. Written communication skills may be assessed through short tests which involve writing, and observing how quickly they reply to correspondence during the recruitment process.
- Self-motivation and discipline: A remote worker will be required to work independently, and take initiative when it comes to organising their work schedule.
- Proactivity: A remote worker is often required to take ownership over learning
skills and figure things out on their own without specific instructions.
Once you have created your job posting(s), it will need to be advertised. There are a few platforms on which you can promote a job posting for free including:
Also, consider social media platforms, e.g. Twitter, LinkedIn, and university job boards to advertise roles seeking students and recent graduates. Remote.co, Flexjobs.com might be useful for hiring remote employees.
Video interviews are likely to be involved when hiring a remote employee.
It is common practice for businesses to interview in two stages – (1) a
cultural interview, and (2) a job interview. The cultural interview is usually
conducted by an HR representative and establishes whether the prospective
employee is willing to work remotely and whether they have had experience
working remotely. The job interview is usually conducted by the hiring manager
and explores whether the employee has the relevant skills and experience that
are required for the role.
Once the interview process is complete, you are ready to notify the applicants of the outcome of their applications. Our next article in this series will cover the onboarding process for your company’s new recruit, options for employing and the relevant employment laws and regulations regarding contracts, annual leave, social security and other benefits.
Employing in Canada for the first time can be straightforward or challenging, depending on whether you hire the employee as an independent contractor, by setting up your own business entity, or through a GEO. In this article, we will outline some of the benefits and risks associated with each method of employing a remote worker. We will describe the process of onboarding an employee as well as some obligations and entitlements associated with employment in Canada, such as annual leave and healthcare.
Now that you have decided who to hire, it is time to decide how to hire them. There are three (3) ways of employing a remote worker – (1) hiring them as an independent contractor, (2) hiring them through a GEO, or (3) establishing your own business entity in Canada.
Hire Them as an Independent Contractor
At first glance, hiring a remote worker in Canada as an independent contractor is an attractive option, because it is inexpensive. Independent contractors can be up to 40% less expensive than an employee performing similar work.[ However, this has its risks. There is a risk of the contractor being reclassified as an employee after a period of being hired as a contractor. This may result in your company being required to back pay taxes and benefits.
The increased scrutiny of business activity by immigration officers exacerbates this risk. Immigration authorities may think that you are using independent contractors to circumvent work permit and visa requirements for normal employees. They could scrutinise your remote worker to make sure they are really functioning as independent contractors. If they behave like employees, your company may face the consequences of failing to comply with laws and regulations.
Set Up Your Own Business Entity
Another option for employing in Canada is setting up your own business entity. Setting up your own business in Canada is relatively quick and inexpensive by global standards, taking approximately 1.5 days and costing 200 CAD.However in practice, the process may be more expensive and time-consuming. One reason is that you are required to prepare documents such as Articles of Incorporation, and additional requirements associated with the province in which you are setting up the business. Another reason is that you will need to source your own local experts including an accountant to manage payroll, and legal professionals to advise you on local legislation and regulations.
To set up your own business, you are required to obtain a business number which is a unique nine-digit number used to identify your business. This can be done via the Online Filing Centre, by completing and mailing Form RC1 to the nearest Tax Service Office or Tax Centre, or contacting the Canada Revenue Agency directly.
To hire employees, you are also required to open a Payroll Deductions account. This can be done online using your business number, by completing and mailing Form RC1B to the nearest Tax Service Office or Tax Centre, or contacting the Canada Revenue Agency directly.
With setting up your own business entity, you are liable for any issues and the burden of compliance lies on you. Hiring through a GEO (see below), gives you a single point of contact who is taking care of all the administration behind the scenes. They are experienced professionals who know the ins and outs of hiring internationally.
Hire Through a GEO
A Global Employment Organisation (GEO) can act as the employer for your employee in Canada. This allows you to hire without setting up your own business entity in Canada which can be a costly and time-consuming process. Additionally, hiring through a GEO eliminates many of the legal compliance risks and administrative burdens that come with the other options, such as paying taxes, running payroll and setting up work permits. We recommend being in communication with the GEO and responding promptly to requests for payments and information, to implement the hiring process as smoothly and efficiently as possible.
A job offer lets someone know that you would like to hire them as your employee. A job offer is usually made in writing, delivered by email and:
- Greets and congratulates the employee
- Includes details of the job title and description, salary, benefits, starting date of employment
the employee to acknowledge the offer and confirm acceptance
A job offer is legally binding on both you and your employee, once the employee has accepted it.
Note: It is common practice in Canada for job offers to be made verbally. Once accepted by the employee, you and your employee have entered into a legally binding non-verbal employment contract (see under ‘Setting Up an Employment Contract’).
You and your employee enter into an employment contract for them to start working. There are very few formalities for employment contracts in Canada. Even verbal agreements can constitute employment contracts and many employment contracts in Canada are not made in writing. It is common for employees and employers in Canada to have a verbal agreement or informal letter of hire.
You may wonder whether employees’ working rights and entitlements are adequately protected, without a written employment contract. In practice, there is no need for concern because of implied terms. An implied term is a term which is not explicitly stated in the contract, but still legally binding and enforceable. This is because the court assumes it was intended to be included in the contract.
Every employment contract in Canada has the following implied terms:
- The employer must provide work, pay for the work and provide a safe working environment.
- The employee must perform the
work and be loyal to their employer during the term of employment and for a
reasonable period of time after.
We recommend setting up a written contract for clarity. All Canadian jurisdictions (or provinces) have their own employment legislation which sets out the minimum terms and conditions of employment. Contracts can provide employers and employees with additional benefits and protections, but cannot waive or reduce the minimum terms and conditions.
The process you are required to follow to onboard the new employee, prior to their first day of work, depends on whether you are employing them through a GEO, or your own business entity.
Step 1: Provide Information Relating to Role
Before attending to any formalities required in the onboarding process, we recommend ensuring your new employee has clarity on essential information relating to their role – their responsibilities, work hours, salary, benefits, probation period, and key performance indicators.
Step 2: Formal Onboarding
Once you have communicated these details to your employee, you are ready to begin the formal process of onboarding the new employee. The process you are required to follow to onboard the new employee, prior to their first day of work, depends on whether you are employing them through a GEO, or your own business entity.
Employing Through a GEO
A GEO acts as the legal employer for your employee in a country where you do not have your own business entity, and takes care of the onboarding process for you. It is likely that you have decided to use a GEO for this reason. Your main responsibility is providing the required documents and information relating to the employee, which include
- A copy of the employee’s passport, drivers license and/or other ID
- ID number
- Social security number
- Bank details
- Proof of address
- Job description
- Technical qualifications
- Police check
- Medical exam results
A GEO, such as Shield GEO, will guide you and your employee through the onboarding process and inform you of all the information and documents you are both required to provide. It helps to stay in communication with your GEO, for the process to be as smooth and efficient as possible.
Using Your Own Business Entity
The next step is to ask your employee to provide you with their Social Insurance Number (SIN), and complete Form TD1, Personal Tax Credits Return.
The SIN is a nine-digit code which is used for access to government programs benefits. Watch out for SINs which begin with the digit ‘9’. This indicates that the employee is not a Canadian citizen or permanent resident, and only has authority to work for a specific employer.
Form TD1 determines how much tax is deducted from an individual’s employment income and/or other income e.g. pension income. There are federal and provincial TD1 forms.
Step 3: Initiate Employee
Every company has its unique process for employee initiation. We recommend organising the paperwork, and providing the employee with access to any company networks such as the employee portal, before the employee starts their first day of work. This way, the employee feels more welcome.
The federal statutory probation period is three (3) months. If you are employing in British Colombia or Ontario, a three-month probation period applies. In other provinces, it may vary (see below).  After the probation period, you must provide your employee with two (2) weeks’ notice when terminating the employment contract.
|British Colombia||3 months|
|New Brunswick||6 months|
|Newfoundland and Labrador||3 months|
|Northwest Territories||90 days|
|Nova Scotia||3 months|
|Prince Edward Island||6 months|
Annual leave entitlements, known as ‘vacation entitlements’ in Canada, vary between provinces. Under federal employment legislation, employees are entitled to a minimum of two weeks of vacation leave after one (1) year of employment with the same employer. After six (6) consecutive years of employment with the same employer, the vacation entitlement increases to three (3) weeks.
Vacation pay is normally paid within 14 days prior to the employee going on vacation. Depending on your company’s work practices, it can also be paid during or immediately after the employee’s vacation.
Vacation pay is four (4) per cent of earnings in the ‘year of employment’ if the vacation entitlement is two (2) weeks. If the vacation entitlement is three (3) weeks, vacation pay is equal to six (6) per cent of earnings in the ‘year of employment’. The ‘year of employment’ is the period beginning on the date an employee is hired, or on any anniversary of that date, and ending 12 consecutive months later.
As an employer, you have the discretion to advise the employee of when they may go on vacation. However, it must begin no later than 10 months after completion of the ‘year of employment’ from which the vacation entitlement arises.
The process of terminating an employment contract in Canada is much like the process in other countries: giving notice, making the final payment and finalising documents.
Step 1: Giving Notice
To terminate an employment contract, you, as the employer, are required to give written notice for employees who have been employed for more than 3 months. The required notice period depends on how long they have worked for you and the province you are in. The following table shows the notice period required for employees in Ontario.
|Length of Employment||Required Notice Period|
|Less than 1 year||1 week|
|1 year but less than 3 years||2 weeks|
|3 years but less than 4 years||3 weeks|
|4 years but less than 5 years||4 weeks|
|5 years but less than 6 years||5 weeks|
|6 years but less than 7 years||6 weeks|
|7 years but less than 8 years||7 weeks|
|8 years or more||8 weeks|
It is common practice for your employee to provide you with two weeks’ written notice if they intend to resign. This is not a legal requirement but Canadian common law requires that ‘reasonable notice’ be given. For clarity, we recommend providing your employee with the notice period you wish for them to provide in their offer letter or employment contract.
What happens during the notice period?
During the notice period, either the employee continues working, or notice is paid out in lieu. During this time, you are required to continue paying your employee the wages they are entitled to, which cannot be less than their regular wages for a regular work week, per week.[
Step 2: Making the Final Payment
In Ontario, the final termination payout must be paid either seven days after the employment is terminated, or on the employee’s next regular pay date, whichever is later.[
The final payment made to the employee generally includes wages for the time worked during the notice period and the accrued annual leave payout.
The amount of severance pay that the employee is entitled to, also depends on the province in which they are employed. In Ontario, the employee may receive severance pay if:
- They have been employed with you for five or more years; and
- You have a payroll in Ontario of
at least $2.5 million or you have terminated the employment of 50 or more
employees in a 6-month period because of business closure.
Your employee receives severance pay which is equal to one regular week’s wages for every year of employment, pro rated for partial years worked.
There are complex rules around severance pay, which are dependent on various factors. For example, if you have given notice of a mass termination, your employee may resign and give two weeks’ notice to activate their severance pay entitlement.Due to the complexity of regulations and how they come together, we recommend seeking professional legal advice.
Our previous articles have provided an overview on starting a business in Canada and the recruitment process. With all this in mind, you can probably see that there are some obvious benefits to employing your first remote worker through a GEO. With a GEO, you are able to establish a business presence in Canada without the administrative and regulatory burdens that come with setting up your own business entity. A GEO is able to take care of your tax, payroll, work permit and other employment-related legal requirements from the moment you onboard a new employee, all the way through to terminating an employment contract. Our next article will guide you on how to structure a salary package for your employee.
Earlier in this guide, we identified three roles that are common first hires for companies looking to establish a business presence in Canada. They are a sales manager, business development manager or customer success manager.
According to Glassdoor, the average base salaries for these roles are as follows:
|Role||Base Salary (CAD/year)|
|Business Development Manager||63,000|
|Customer Success Manager||57,000 – 100,000 (depending on the company size)|
Base salaries may differ slightly across provinces.
On top of the base salary, an employee’s compensation package will include additional benefits including contributions to pension plans, health insurance, allowances, expense reimbursements, and other benefits in kind.
In Canada, you and your employees are required to make contributions to the Canada Pension Plan (or Quebec Pension Plan if employed in Quebec), and Employment Insurance. As contribution rates are continuously changing year on year, it may be challenging to keep up to date. In addition, each province has its own contribution requirements. For example, employers and employees in Ontario are required to contribute to the Workplace Safety and Insurance Board (WSBI).
Hiring through a GEO eliminates this challenge as they can take care of the complexities associated with changing legal requirements. Here is a brief overview of the required contributions, as of 1 January 2019.
Canada Pension Plan (CPP): In Canada, all employees outside Quebec over the age of 18 and under 70, are required to make contributions to the Canada Pension Plan (CPP). As the employer, you pay half the required contribution and the employee pays the other half. The current CPP rate is 10.2% on earnings above $3,500 and below $57,400. For example, if your employee’s salary is $50,000, the CPP contribution amount is $5,100 (0.102 x $50,000). In this scenario, you and your employee are required to contribute $2,550 each.
Employment Insurance (EI): As an employer, you are required to deduct employment insurance premiums from your employee’s ‘insurable earnings’ if they are in an ‘insurable employment’ during the year. Most employment carried out under an employment contract is ‘insurable employment’.
The table below summarises the contribution rates for employers and employees in Canada.
|Contribution Type||Employer Contribution Rate||Employee Contribution Rate|
|Canada Pension Plan (CPP) – Non-Quebec||5.1% (on earnings above $3,500 and below $57,400)||5.1% (on earnings above $3,500 and below $57,400)|
|Quebec Pension Plan (QPP)||5.55% (on earnings above $3,500 and below $57,400)||5.55% (on earnings above $3,500 and below $57,400)|
|Employment Insurance (EI) – Non-Quebec||2.268% (on earnings below $53,100)||1.62% (on earnings below $53,100)|
|Employment Insurance (EI) – Quebec||1.75% (on earnings below $53,100)||1.25% (on earnings below $53,100)|
|Quebec Parental Insurance Plan (QPIP)||0.736% (on earnings below $76,500)||0.526% (on earnings below $76,500)|
Canada has a national taxpayer-funded Medicare system, covering essential medical services such as doctor and hospital visits. Buying private insurance for healthcare services which are covered by Medicare is banned.
It is common for employers to provide employees in Canada with additional coverage for medical costs such as those of prescription medication, dentistry, optometry, rehabilitative services and home health care.
Here are some ways in which employers can provide their employees with access to additional health coverage include.
Employee Health Spending Account: This is a benefit where the employer chooses how much to contribute to the employee’s health spending account every month. The employee can use pre-tax dollars to pay out of pocket medical expenses (except in Quebec, where all benefits are included in the employee’s taxable income).
Medical Allowance: The employer provides the employee with a medical allowance where they are given a specific amount every month to source and purchase a private health insurance plan of their own choosing.
A benefit is something paid for or given to the employee by the employer that is personal in nature, such as an allowance or reimbursement of the employee’s personal expense.
An allowance is an amount you pay to your employee (in addition to salary and wages) to help them pay for certain anticipated expenses. It is usually predetermined, for a specific purpose, and used in whatever way your employee chooses.
Some examples of allowances include motor vehicle allowances which may be based on the distance driven, or meal allowances which are based on the type and number of meals per day.
A reimbursement is an amount you pay to your employee to repay expenses they incurred whilst carrying out their employment duties. Your employee is required to provide you with proof of those expenses e.g. receipts.
Your responsibilities as an employer include:
- Determining if the benefit is taxable
- Calculating the value of the benefit
- Calculating payroll deductions
- Filing an information return
Responsibility 1: Is the benefit taxable?
A benefit is taxable if your employee receives an economic advantage that can be measured in a dollar amount, and is the primary beneficiary of the benefit.
You can easily find out whether the specific benefit you are providing to your employee is taxable, on the CRA website here.
Some common benefits and allowances include:
- Automobile and motor vehicle
- Board and lodging
- Cell phone and Internet services
|Benefit||What is it?||Is it taxable?|
|Automobile and motor vehicle allowance||A payment that employees receive for using their own vehicle in connection with their employment||Yes, unless it is based on a per-kilometre rate|
|Board and lodging||Providing your employee with accommodation and food (in some cases)||Yes, if the lodging is free or subsidised|
|Cell phone and Internet services||Option 1: Providing your employee with a cell phone that you own, to allow them to carry out their employment duties Option 2: Reimbursing your employee for the cost of their own cell phone Option 3: Reimbursing the cost of your employee’s cell phone or home Internet service plan to help carry out their employment duties|| Option 1: No |
Option 2: Yes
Option 3: Yes, except for the portion used for employment purposes
|Medical||Paying for or providing an amount to pay for your employee’s medical expenses||Yes|
|Travel||Providing your employee a travel allowance before the trip on a per hour basis, or a lump-sum before or after the trip is taken||Yes, unless it is for business purposes|
Responsibility 2: What is the value of the benefit?
The value of the benefit is usually its fair market value. This is the price that you can obtain for the benefit in an arm’s length open market transaction.
Responsibility 3: What payroll deductions need to be made, if any?
After calculating the value of the benefit, add this to the employee’s income for the period in which the benefit is received. This gives you the total amount of income from which you need to make payroll deductions. To recap, payroll deductions include contributions to (1) the Canada Pension Plan (CPP) and (2) Employment Insurance (EI). The deductions withheld depend on the form of the benefit and whether it is cash, non-cash or near-cash.
Type of Deduction
Type of Benefit
|Canada Pension Plan (CPP)||Cash||CPP contributions are required, unless the employment is not pensionable under the CPP. You are required to pay employer contributions to CPP.|
|Near-Cash/Non-Cash||CPP contributions are required, unless the employment is not pensionable under the CPP. You are required to pay employer contributions to CPP.|
|Employment Insurance (EI)||Cash||EI premiums are deductable, unless the employment is not insurable. You are required to pay premiums.|
|Near-Cash/Non-Cash||A taxable non-cash or near-cash benefit is generally not insurable. You are not required to pay premiums.|
Step 4: Filing an information return
As you can see, the compensation package for your employee can be structured so they receive additional benefits on top of their base salary.
The responsibilities you take on as an employer can become quite
burdensome, given that the tax rules for the different benefits are quite
specific. Using a GEO, especially when you are just starting out in a new
country, can free up many of these responsibilities for you. As a result, you
can focus on other priorities like expanding your business presence in a new
market, whilst ensuring the work perks for your new employees are all legally
Canada Labour Code, s 230(1); https://laws-lois.justice.gc.ca/eng/acts/L-2/page-44.html#h-92