When Poet Laureate Alfred, Lord Tennyson in 1873 described Canada as “that true North, whereof we lately heard …” he was not thinking so much about business models in the year 2015. Yet, lately, it seems that Canada is the place to be for any company bent on expanding beyond US borders.
If your company currently has a presence in Canada, or if considering doing business in Canada, here is a basic overview of some information you need to know.
Ease of “carrying on” business
Canada is globally competitive and is one of the most cost-effective markets in the world for American businesses to enter. In addition to a low 6.6% unemployment rate and strong banks, the country’s strong ties to the US make it very business friendly for us. In fact, the World Bank Group rates Canada 16th out of 189 countries for “ease of doing business.”
Most activities that US companies conduct in Canada are considered to be “carrying on business” – an all-encompassing term that includes any company that:
- Grows, mines, produces, manufactures, creates, improves, fabricates, preserves, packs, or constructs anything in Canada.
- Offers anything for sales or solicits orders through a servant or agent regardless of the completion of the transaction inside or outside of the country.
- Disposes of Canadian real estates or certain resource properties.
Canada’s government is conservative with two primary levels — federal and provincial. There are 10 provinces and two territories with their own governments. The federal government deals with trade regulation, taxation, banking, immigration, health care and unemployment. Provincial governments can influence business activities through direct taxation, labor law, natural resources, education, and municipal affairs.
Federal and provincial Canadian governments support research & development (R & D tax credits) through financing programs, tax credits, agencies, and deductions. Each dollar of tax credit reduces one dollar of federal tax, and tax credit rates can vary from 20- to 30 percent of expenditures.
Any US companies engaged in any of the activities listed above in Canada are required to file a Canadian income tax return and may also need to obtain an extra-provincial license to incorporate. The Canada-US Treaty specifies that companies that are permanently established are required to pay income tax on the business profits earned through that establishment. This would include a physical presence, an agent, or a contract that lasts from six months or longer in any 12 month period.
If you are looking to hire in Canada, employee salaries and medical benefits are significantly lower for Canadians there than in the US. The weak Canadian dollar makes it a great time to hire employees.
However, there are basic differences between US and Canadian employment, and it is advisable to research them. Higher labor standards in Canada, based upon the country’s social welfare history, have led to collective bargaining, workers’ compensation, employment insurance, and leaves and terminations that are more liberal. Maternity and parental leave can last up to 52 weeks, and workplace drug and alcohol testing is much less common.
Employment-at-will is not permitted in Canada. When hiring, you need to be sure your contracts and offer letters include a termination clause in addition to the basic compensation, reporting line, and position title information in addition to variable compensation if applicable. You can also include such details as a confidentiality and proprietary agreement and a non-compete clause. If a company decides to restructure or downsize, employees must be notified of the company’s intentions with that notification timeline based upon the employees’ length of service.
Also, there is no I-9 requirement in Canada; employee categories include: Canadian citizen or resident, or there must be a work permit with a specific end time.
Canadians pay higher taxes than the US population, but specific benefits of that include a government-funded health care system which gives better care to Canadians according to treatment and result measures. Although the US and Canada both spend 7% GDP on health care, total health care spending in the US is 14.6% GDP compared to Canada’s 10% of GDP. Since Canada’s Universal health care system is mostly paid through employee income taxes, it remains more attractive to US employers who choose to extend health benefits to full-time employees.
As a whole, Canadians are concerned with issues such as global warming, acid rain, pay equity and minority rights. Chances are, they’ll expect your company to share their concerns.
Unlike other countries, language concerns are minimal. Although English and French are the two main languages spoken in Canada, a majority of residents speak English. However, any company contemplating a presence in Quebec should know about 80 percent of the population speaks French as their first language.
Rely upon sound professional advice
In spite of many similarities in language, customs, judicial principles and economic trends, business in Canada and the US differ significantly. The key to “doing business in Canada” is to rely upon trusted tax, law, and HR professionals who are experienced in the Canadian realm. If you are confident that you are well-versed in the details, your company’s experience in the Canadian business world can be, well … pure poetry.