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Double Taxation: What It Is and What to Do About It

Canada’s basic view is that it should only tax small business owners once, but when you do business outside of Canada, you may find yourself the victim of double taxation. Fortunately, the Canada Revenue Agency (CRA) includes the Canadian Competent Authority (CCA) to help with the problem of double taxation. It also has a special program specifically designed to help your small business avoid double taxation through unilateral advanced pricing arrangements. This lets the taxpayer and CRA work together ahead of time to determine how much you pay in taxes to each country so you don’t end up paying twice.

Double Taxation Defined

Double taxation refers to paying a tax on your income from the same source twice. For example, you may have to pay taxes on income where you sell your product and again when you bring that income back to Canada. This double taxation hurts small business profitability, especially if larger competitors enjoy the benefits of tax treaties and advanced pricing arrangements.

Tax Treaties and Advanced Pricing Arrangements

Canada has tax treaties with countries around the world, and these treaties reduce or eliminate double taxation on your personal income when you work in another country. Tax treaties generally include information about the country the taxpayer is in, the types of income each country can tax, and tax treatment for specific types of income. Each treaty has a certain pricing agreement in place called advanced pricing arrangements.

Let’s say you spend two months working in the United States for Big Bad Wolf Corporation. For the income you receive, you pay taxes to the United States since you do your work there. As a Canadian citizen, you report this income on your yearly taxes, but the treaty keeps you from paying taxes on the income twice.

According to the 2014-2015 Advanced Pricing Arrangement Program Report, the CRA had 248 successfully concluded advanced pricing arrangements in place at the end of the 2014-2015 tax year, and this agreement continues throughout the 2017-2018 tax year. Advanced pricing arrangements involving automobile and other transportation equipment represent 18% of the arrangements in the review process, while 11% of cases sit within the purview of the computers and electronics sector and the chemical and allied industry. Visit the Department of Finance’s website for regular updates on foreign tax treaties that affect your small business and personal income.

How the CCA Can Help

The CCA offers a free service to all businesses with questions about international tax treaties so you can easily find help and answers. It also helps resolve disputes related to tax treaties and provide consistency between advanced pricing arrangements and the Income Tax Act. This dispute resolution process is called the Mutual Agreement Procedure (MAP). If your small business wants a MAP resolution or treaty benefits from the CCA, you must formally request assistance, and you can send your specific requests for tax assistance to the CRA’s CCA division. You then get an acknowledgment letter that lets you know the CCA has your request and it’s under review. You can also submit requests for renewals, but you need to submit them at least six months before your grant benefits expire.

What the CCA Does for Small Businesses

The CRA originally intended that only large multinational corporations use the CCA program, but complaints accused the CRA of screening small businesses out of a process that saved multinationals a lot of money. With those complaints in mind, Canada created a special program for small businesses with gross revenues of less than $50 million, helping your small business streamline the process and reduces costs.

Consider that your small business can apply for an advanced pricing arrangement exempt from site visits, but multinational companies must pay for site visits and all advanced pricing arrangement-related travel. Also, the small business program has an average acceptance time of 12 months instead of the 48 months most larger corporations must wait. International tax legislation can affect profitability, job creation, plant location, and a host of other business decisions, but the CCA helps keeps small businesses competitive with multinationals who can handle more expense.

Using the in-place solution from the CRA’s CCA division helps your small business avoid problems caused by double taxation. This program along with numerous expense deductions helps ensure you don’t pay more than you absolutely must on your tax bill. QuickBooks Online can help you maximize your tax deductions by helping you track your expenses throughout the year. Join today to keep more of what you earn.

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