What Is a Capital Tax?

The term capital tax refers to a tax levied on the taxable capital of some financial institutions in Canada. Taxable capital may include 澳洲幸运5官方开奖结果体彩网:paid-up capital stock, contributed surplus, retained earnings, long-term debt, or reserves. Canada's federal government, along with some provinces, imposes capital taxes on institutions that meet certain criteria, including banks. Capital taxes, which constitute a minimum tax on financial institutions, provide federal and provincial governments with steady revenue.

Understanding Capital Taxes

A capital tax is a tax imposed on some financial institutions in Canada. This includes banks, trust and loan corporations, and life insurance companies. The tax is levied on the company's taxable capital. Only financial institutions with capital employed exceeding $1 billion pay the federal capital tax at a rate of 1.25%.

These criteria differ depending on whether the tax is being levied by the federal🐭 government. Some Canadian provinces have conditions that are different than the federal government if they also levy a capital tax. The pro♒vinces that impose the tax are listed below.

🍎 The taxabl𝓡e capital generally comprises the following elements:

• 澳洲幸运5官方开奖结果体彩网:Shareholders' equity
• Surpluses and reserves
• 澳洲幸运5官方开奖结果体彩网:Retained earnings
• Long-term debt
• Loans and advances to the corporation
• Reserves

Taxable capital doesn't take into account certain investments in other corporations.

For tax purposes, the Financial Corporation Capital Tax Act defines a financial corporation as a bank, 澳洲幸运5官方开奖结果体彩网:trust company, 澳洲幸运5官方开奖结果体彩网:credit union, loan corporation, or life insurance company and includes an agent, assignee, trustee, liquidator, receiver, or official having possession or control of any part of the property of the bank, trust company, or loan company but does not include a trust company or loan company incorporated without 澳洲幸运5官方开奖结果体彩网:share capital.

History of Corporation Capital Tax

The federal government imposed a capital tax on all corporations within Canada with taxable capital employed in Canada of more than $50 million before 2006. This rule also applied to non-resident corporations that conducted business in Canada through a permanent establishment. This tax was eliminated at the federal level on Jan. 1, 2006.

Financial and insurance companies with taxable capital over $1 billion are still levied a 1.25% capital tax by the federal government. Capital taxes paid on a provincial level are deductible for federal income tax purposes.

Financial institutions can deduct some investments in other Canadian corporations from their taxable capital. The amount of capital tax owed can also be reduced by the amount of income tax the corporation pays. Any unused federal income 澳洲幸运5官方开奖结果体彩网:tax liability can be applied to reduce the capital tax for the previous three years and the next seven years.

Provincial Capital Taxes

Some Canadian provinces also charge the corporate capital tax on banks, trusts, and loan corporations. These provinces have different thresholds for taxation that are published and updated every year on their provincial government websites. The following table highlights the provinces that impose the tax along with their respective rates.

Conditions vary based on the province. For instance, these taxes are payable by qualifying financial institutions on paid-up capital exceeding $2 million in Prince Edward Island. Saskatchewan levies the tax on financial institutions with an excess of $10 million in paid-up capital with some exceptions. An exemption of $10 million is available based on the proportion of a company's 澳洲幸运5官方开奖结果体彩网:salaries and wages that are paid in Saskatchewan, divided by the salaries and wages of the corporation and all its associated corporations.

The Bottom Line

The Canadian federal government levies a tax on the taxable capital of financial institutions in Canada with capital employed exceeding $1 billion. Certain provincial governments also impose this tax on certain financial institutions. While the federal government doesn't impose a general capital tax, the capital tax on financial institutions provides revenue for the government.