Mergers and Acquisitions in Canada Guide

This discussion focuses on resident and non-resident Canadian corporations. The 2011 combined federal and provincial corporate income tax rates on taxable business income allocable to a permanent establishment in a province generally range between 26.5% to 32.5% (a lower rate of tax is available on a portion of the taxable active business income earned by Canadian-controlled private corporations). Based on the present provisions of the Act, the tax rate will be reduced by 1% in 2012.

It should be noted that Canada does not permit corporations to use consolidation in determining their taxable income. In other words, each entity must determine its own taxable income (or losses) and is subject to tax on this basis. Therefore, losses of one corporation cannot offset the profit of a related corporation. However, in the 2010 federal budget, the government announced that it was seriously considering a change to the Canadian tax system which would permit consolidation.