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Expanding a US Business into
Canada: Common Canadian Tax
Issues to Consider
By Kirsten Kjellander, Partner, and Robert Biggar, Associate, Borden Ladner Gervais LLP
US companies that are looking to expand internationally often look to Canada first as a place to test the waters.
Canada’s geographic proximity, similar
legal system, culture, and language all
make it a good place to start for a US
company interested in international opportunities. However, there are significant differences between the Canadian
and US tax systems that often catch US
residents off guard. This article will provide an overview of common taxation
and structuring issues that US companies face when expanding organically
into Canada. The unique issues that
arise where a US company chooses
to expand into Canada by acquiring
an existing Canadian business are
beyond the scope of this article and
will not be discussed.
One general aspect of Canadian tax
law that is often surprising to US tax
advisors is the emphasis on legal form
over economic substance. In Canada,
the corporate form of a transaction
matters is usually determinative of the
tax treatment of the transaction absent
the application of various anti-avoidance rules. Generally, there are fewer
opportunities than in the United States
for taxpayers to elect to treat a transaction differently for tax purposes than
it is treated for purposes of corporate
law. For example, there is no ability
to elect a pass-through treatment for
an entity classified as a corporation
under Canadian law and no equivalent
to the section 338 election that can
be used to step-up the cost base of
underlying depreciable property on a
purchase of shares. There is also no
requirement that a transaction have
a “business purpose,” although there
is a statutory general anti-avoidance
rule (GAAR) that applies where a
transaction with no primary business
purpose has produced a tax benefit
in an abusive manner.
1 Expanding a US Business into Canada:
Common Canadian Tax Issues to Consider
By Kirsten Kjellander and Robert Biggar
9 Marie-Claire Lachance Masters the
Insurance Industry
By Matthew Sullivan, ACC
12 See This, Canada
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