Summary of Ontario Corporations Tax for Non-Residents

Bulletin 3010
Published: January 2002
Content last reviewed: September 2012
ISBN: 0-7794-2158-2 (PDF), 978-1-4249-3148-4 (HTML)

Publication Archived

Notice to the reader: Effective January 1, 2009, the Canada Revenue Agency (CRA) administers Ontario's corporate income tax, capital tax, corporate minimum tax, and the special additional tax on life insurers.

As a result, the Corporations Tax Act provisions described on this page and in other publications are only applicable to taxation years ending December 31, 2008 and prior.

For taxation years beginning January 1, 2009, the Taxation Act rules apply.

This publication was archived and kept for historical purposes. Use caution when you refer to it, since it reflects the law in force at the time it was released and may no longer apply.

References: subsections 2(2), 2(3), sections 4, 30, 37, 49, 60, 63, 64, 65, 66


This bulletin replaces Interpretation Bulletin Number L-13R originally published  August 15, 1980 and is updated for comments contained in previous Interpretation Bulletin L-7R and Information Bulletins 7-78, 12-78, 17-80, 21-81 and 2738.

The bulletin provides an overview of corporations tax for non-residents and sets out the policy of the Corporations Tax Branch. It is provided as a guide to taxpayers and is not intended as a substitute for the relevant legislation. Any references to legislation are to the provisions of the Corporations Tax Act (Ontario) (CTA) and its Regulations, unless otherwise noted.


  1. Corporations which are incorporated in countries outside Canada are commonly referred to as foreign corporations or non-resident corporations. Where a foreign corporation incorporates a Canadian subsidiary in Canada to conduct business in Canada, the subsidiary is classified as a Canadian resident corporation and will be subject to Ontario tax if it has a permanent establishment in Ontario.
  2. Alternatively, the foreign corporation may decide not to incorporate a separate subsidiary company and instead operate in Canada through a Canadian branch. It is these foreign corporations and their branch operations that are discussed in this Interpretation Bulletin and are herein referred to as "non-resident" corporations.

Liability for Tax

Income Tax

  1. A corporation incorporated under the laws of a jurisdiction outside Canada is liable for Ontario income tax if, at any time in the taxation year or the previous taxation year, it or an unincorporated partnership or joint venture in which it has an interest:
    1. had an Ontario permanent establishment
    2. owned and received income from the sale or rental (including royalties) of an Ontario:
       real property,
      1.  timber resource property, or
      2.  timber limit, or
    3. disposed of taxable Canadian property (as defined in subsection 248(1) of the Income Tax Act (Canada) (ITA)) that was situated in Ontario.

    The above criteria are further discussed in paragraphs 7 to 12 below.

Capital Tax, Corporate Minimum Tax (CMT) and Other Taxes

  1. Clause 58(1)(c) charges non-resident corporations with the liability for capital tax if either criteria (a) or (b) in the preceding paragraph applies. Every corporation subject to tax under Part II (income tax) is liable to pay CMT, pursuant to subsection 57.2(1). Non-resident corporations that are liable for Ontario income tax solely by virtue of criterion (c) in the preceding paragraph are not liable for Ontario capital tax, nor CMT.
  2. Pursuant to subsection 74(1), a non-resident insurance corporation is liable to pay tax based on its gross premium income from certain Ontario insurance policies. A non-resident corporation may also be liable under subsections 2(2.1), 2(2.2) and 74.1(1) for:
  • uninsured benefits arrangement tax under section 74.2, either as an administrator (liable to collect and remit the tax) or as a planholder (liable to pay the tax),
  • tax under section 74.3 on contracts with an unlicensed insurer, and
  • special additional tax under section 74.1, where the corporation is a non resident life insurance company.

Effect of Tax Treaties

  1. Ontario is not bound by international tax treaties or conventions which the federal government has entered into with foreign countries. There are times, however, when Ontario wishes to parallel certain provisions in these tax agreements. Subsection 1(8) of the CTA allows the CTA to be modified by regulation to give effect to the specific tax treaty provisions.

Permanent Establishment - Clause 2(2)(a)

  1. The definition of permanent establishment is basically the same for purposes of determining the liability for tax of both non-resident and Canadian corporations. Accordingly, taxpayers should refer to Interpretation Bulletin 3008 for further information.
  2. Subsection 4(8) provides that where a non-resident produced, grew, mined, created, manufactured, fabricated, improved, packed, preserved or constructed anything in Canada in whole or in part in the taxation year, the non-resident is deemed to have maintained a permanent establishment for Ontario tax purposes in the taxation year the non-resident did any of those things.

Owned Real Property – Clause 2(2)(b)

  1. Subsection 2(3) expands the meaning of ownership of real property, timber resource property or a timber limit to include situations where a corporation has a legal, equitable or beneficial interest. Accordingly, corporate beneficiaries of trusts for example, would be subject to tax under the CTA if the trust derives income from the ownership of real, timber and resource property or a timber limit situated in Ontario.

Taxable Canadian Property Situated in Ontario – Clause 2(2)(c)

  1. A non-resident corporation is liable for income tax if it disposes of "taxable Canadian property situated in Ontario" which is prescribed by section 504 of Regulation 183.
  2. However, where a non-resident corporation is otherwise taxable in Ontario by virtue of only clause 2(2)(b) or 2(2)(c), the taxable capital gain on the disposition of taxable Canadian property situated in Ontario is exempt from Ontario tax if the gain is exempt from federal tax under a treaty between Canada and another country.
  3. Subsection 37(3) provides that where a transitional rule in a prescribed tax treaty or tax convention between Canada and another country excludes from federal tax a portion of a capital gain made from the disposition of taxable Canadian property, the amount will be exempt from Ontario tax. The Canada - United States Income Tax Convention (1980) is the only prescribed convention for this purpose.

Income Tax

Taxable Income Earned in Canada

  1. Whereas Canadian corporations are liable for tax on their worldwide income, non-residents are taxed on their taxable income earned in Canada only.
  2. Section 37 states that the rules provided in section 115 of the ITA are applicable in determining the taxable income earned in Canada of a non resident, except that for purposes of the CTA the corporation must also include:
    • the income from the sale or rental of real property, or an interest in real property, situated in Canada,
    • royalties and similar payments in respect of real property, or an interest in real property, situated in Canada, and
    • timber royalties in respect of a timber resource property or a timber limit situated in Canada.

    However, in applying paragraph 115(1)(d) of the ITA, the corporation may not deduct any amount which is exempt from federal income tax by reason of a tax treaty under subparagraph 110(1)(f)(i) of the ITA.

  1. The income of a non-resident owned investment corporation is determined under section 49.

Calculation of Income Tax – Section 38

  1. Pursuant to section 38, for taxation years ending after December 31, 2000 and before October 1, 2001, the general rate of income tax is 14% and the rate on income from manufacturing and processing, mining, logging, farming and fishing (M&P rate) is 12%. For taxation years commencing after September 30, 2001 the general rate and the M&P rates are both reduced annually as outlined in the following table:
Taxation years commencing after... General Rate M&P Rate
September 30, 2001 and before January 1, 2003 12.5% 11.0%
December 31, 2002 and before January 1, 2004 11.0% 10.0%
December 31, 2003 and before January 1, 2005 9.5% 9.0%
December 31, 2004 8.0% 8.0%
  1. Pursuant to section 39, a corporation may deduct from tax otherwise payable, an amount of tax that relates to the portion of the income attributed to other Canadian jurisdictions. This amount is equal to:
  • the general rate of tax, times
  • taxable income earned in Canada which is earned in each Canadian jurisdiction where a permanent establishment is maintained other than Ontario, determined under rules prescribed by sections 313 to 318 of Regulation 183.
  1. Subject to the eligibility requirements of the specific tax credit, non resident corporations are eligible for the Qualifying Environmental Trust Tax Credit under section 43.2 and a number of refundable specified tax credits. These refundable specified tax credits include:
Specified Tax Credit CTA Section Tax Legislation Bulletin
Ontario Innovation Tax Credit 43.3 --
Co-operative Education Tax Credit 43.4 96-2R2
Graduate Transitions Tax Credit 43.6 01-3
Ontario Book Publishing Tax Credit 43.7 01-2
Ontario Business-Research Institute Tax Credit 43.9 00-2
Ontario Production Services Tax Credit 43.10 --
Ontario Sound Recording Tax Credit 43.12 01-4

Capital Tax

Taxable Capital Employed in Canada

  1. Where a non-resident corporation's business is carried on entirely in Canada, the capital tax calculation is based on the rules for Canadian corporations in sections 61 and 62. Otherwise, capital tax for the non-resident corporation is based on its taxable paid-up capital employed in Canada as determined under section 64.
  1. Taxable paid-up capital employed in Canada is:
  • its paid-up capital employed in Canada as determined by the formula in section 63 (discussed in paragraph 21 below),less
  • the deductions permitted under section 62, such as investment allowance and deferred Canadian Exploration and Development Expenses, as may reasonably be considered wholly applicable on the assumption that the only assets of the corporation were assets pertaining exclusively to its permanent establishments in Canada. Refer to Interpretation Bulletin 3015 for details on the deductions from paid-up capital allowed under section 62.

Paid-up Capital Employed in Canada – Section 63

  1. Paid-up capital employed in Canada for a non-resident corporation with business outside Canada is the greater of:
  • its taxable income earned in Canada capitalized at 8%, (i.e., taxable income divided by 8%), and
  • total assets of the Canadian branch less its current accounts payable and deductions prescribed in subsection 701(1) of Regulation 183.
  1. The above calculation relates only to the assets used and liabilities incurred in the Canadian operations.
  1. Each non-resident corporation which has an interest in an unincorporated partnership with Canadian operations must include in its paid-up capital employed in Canada its share of those partnership liabilities that would be included in the paid-up capital of a corporation, based on the partnership's profit-sharing ratio. Similarly, the non-resident corporation's share of the partnership's investments is available for investment allowance purposes. Further information is available in Interpretation Bulletin 3017.
  1. Pursuant to section 65, where the non-resident corporation has income from operating a foreign ship or aircraft that is exempt from income tax under paragraph 81(1)(c) of the ITA, the paid-up capital invested in the ship or aircraft operated in Canada is not included in the corporation's paidup capital employed in Canada. Accordingly, the value of any aircraft or ships sitting at Canadian airports or ports is excluded from paid-up capital employed in Canada.

Capital Tax Payable

  1. The rate of capital tax for non-resident corporations is the same 3/10 of 1% that applies to ordinary Canadian corporations.
  1. Pursuant to section 67, the corporation may deduct an amount of capital tax that relates to its taxable paid-up capital employed in Canada used in jurisdictions outside Ontario. A corporation's taxable paid-up capital employed in Canada is allocated among the provinces and territories as set out in section 329 of Regulation 183. Refer to Interpretation Bulletin 3008 for further information.

Exemption From Capital Tax

  1. Under section 68, for taxation years commencing after September 30, 2001, where neither a non-resident corporation's total assets nor its gross revenue exceeds $3,000,000 or its taxable paid-up capital does not exceed $5,000,000, the corporation may be exempt from capital tax. These exemption limits are $1,500,000 and $2,000,000, respectively, for taxation years ending in 2000 and commencing prior to October 1, 2001.
  1. In determining whether the corporation is exempt from tax under section 68, taxable paid-up capital must be calculated as if the corporation is resident in Canada. In other words, world paid-up capital is used, not taxable paid-up capital employed in Canada. Furthermore, the taxable capital of associated corporations including non-resident corporations must be added.
  1. Further information regarding the small business capital tax exemption is contained in Interpretation Bulletin 3011.

Reduced Capital Tax

  1. Effective for taxation years ending after September 30, 2001 a deduction from taxable paid-up capital is available to non-resident corporations equal to the lesser of:
  • $5 million, and
  • the corporation's taxable paid-up capital for the year, or if associated with other corporations with a permanent establishment in Canada, the taxable paid-up capital of the associated group of corporations with permanent establishments in Canada.
  1. The deduction is prorated for taxation years straddling September 30, 2001. Furthermore, where the non-resident corporation is associated with other corporations with permanent establishments in Canada, the deduction is apportioned among all such associated corporations. The apportionment is based on the taxable paid-up capital of each corporation to the total taxable paid-up capital of the Canadian group of associated corporations.
  1. Corporations with taxation years ending on or before September 30, 2001 may be eligible for a reduced amount of capital tax. To be eligible, the corporation's taxable paid-up capital (including the taxable paid-up capital of any associated corporations) must be less than $3,200,000. Further information regarding the reduced capital tax is contained in Interpretation Bulletin 3011.
  1. Example
(Operating exclusively in Ontario)
Balance Sheet
as at March 31, 2001
Investment in shares of Canadian public company $100,000
Inventory $400,000
Building (equal to UCC) $300,000
Total Assets $800,000
Accounts Payable $200,000
Home office Account
(including $80,000 profit for the year which equals taxable income)
Total Liabilities $800,000
  1. It is assumed that the corporation is associated with other corporations and the taxable paid-up capital of the associated group as of March 31, 2001 exceeds $3,200,000. Accordingly, the corporation does not benefit from the reduction in capital tax referred to in paragraph 32. As the corporation's taxation year ended prior to December 31, 2001, the corporation is also not entitled to the $5,000,000 deduction referred to in paragraphs 30 and 31.
  1. Paid-up capital employed in Canada is the greater of:
  • Taxable income earned in Canada capitalized at 8%
    = ($80,000 / 8%)
    = $1,000,000
  • Total Assets less accounts payable (and other prescribed amounts).
    = $600,000.Thus, paid-up capital employed in Canada is $1,000,000.
  1. Taxable paid-up capital employed in Canada:
  • Paid-up capital employed in Canada calculated above: $1,000,000
  • Investment allowance:

    = ($100,000 ÷ $800,000) × $1,000,000
    = $125,000

    However, the maximum claim allowed is the cost of the investments
    = $100,000

    Taxable paid-up capital employed in Canada
    = $900,000

  1. Capital tax is calculated at 3/10 of 1% with no allocation
    to other provinces or territories.
    = $2,700
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