CANADA Law and Practice Contributed by: Marc-André Godard, Pierre Allard, Isabelle Gagnon and Mehrez Houacine, BCF Business Law LLP
Joint Ventures Joint ventures share some similarities with partner - ships but, unlike the latter where two or more partners conduct business together, a joint venture is created when two or more persons wish to collaborate for a specific project. A joint venture is not taxed as a sepa - rate entity, and the liability of each partner is set out in the joint venture agreement. Typically, this type of agreement clearly state that the parties do not wish to form a partnership; otherwise, the joint venture could be considered as such. Sole Proprietorships Sole proprietorships are unincorporated businesses owned by a single individual. Such individual’s liability is unlimited, and the income generated by the busi - ness is added to the individual’s other income, if any, and taxed at the personal rates. 1.2 Use and Taxation of Transparent Business Structures Partnerships are commonly used to create investment funds, as the potential limitation of liability and the absence of taxation at the entity level are valuable advantages to the partners. Since the income and loss are calculated jointly for the parties in a joint venture, this type of entity is popular in real estate investments as the joint parties may per - sonally determine the depreciation expense that will be utilised when calculating their income, instead of having it calculated at the partnership level. 1.3 Tests for Determining Tax Residence The residence of an incorporated business, also known as a corporation, is determined in two steps: • first, by reviewing the deeming provisions of the Income Tax Act (ITA); and • if none are applicable, by application of the com - mon law. The ITA deems a corporation to be a Canadian resi - dent throughout a tax year if the corporation was incorporated in Canada after 26 April 1965. Where the corporation was not incorporated in Canada or was incorporated in Canada prior to 26 April 1965, its residency status for Canadian tax purposes will
depend on where its central management and control is located. The aforementioned deeming provisions will not apply if the corporation is deemed to be resident in another country, pursuant to a tax treaty between Canada and the other country. A partnership with one or more non-resident part - ners is not a “Canadian partnership” and is therefore treated as a non-resident partnership for income tax purposes. The partnership may then need to withhold taxes prior to allocating income to certain partners. 1.4 Applicable Corporate and Individual Tax Rates The federal tax rates applicable to incorporated busi - nesses resident in Canada vary depending on the type of income earned, whether the corporation is a private corporation, and whether the corporation is controlled by Canadian residents for income tax pur - poses. A private corporation that is resident in Canada and controlled by Canadian residents qualifies as a Canadian-controlled private corporation (CCPC). As of 1 January 2025, the federal tax rates for CCPCs are as follows: • active small business income (up to CAD500,000): 9%; • active business income (ABI) (above CAD500,000): 15%; and • investment income (other than dividends): 38.67%, a portion of which (representing 30.67% of said investment income) is refundable upon the pay - ment of taxable dividends by the corporation at a rate of CAD1 of tax reimbursed to the corporation for each CAD2.61 of dividends paid to its share - holders. The federal tax rate applicable to corporations that do not qualify as CCPCs is 15% for business and invest - ment income, as of 1 January 2025. The active small business income rate is not available to corporations that do not qualify as CCPCs. As for dividend income, taxable dividends received by corporations resident in Canada are generally deductible for the purpose of computing their tax -
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