Canada is rarely, if ever, associated with tax optimization. This makes entities registered there ideal from a tax avoidance standpoint as no one will ever suspect them of being used for such a purpose. In this article, I review one such entity, the Ontario LP. I also explain how to register one and how to handle compliance.
Canada is a large country, the world’s second largest in fact. It is divided into ten provinces and three federal territories. A province in the Canadian context is, for all intent and purposes, an independent country. Each runs its own education system, health care system, taxation system, police force, law code and in some cases, immigration system. Ontario is the subject of our focus today, thanks to its fantastic Limited Partnership (LP) structure.
The Ontario LP is, as its name implies, a partnership. This means that it must have at least two partners (one general partner and one limited partner). Interestingly, the same individual or corporation can play the role of both. As such, it is possible to register a “one real partner” Ontario LP. There are no residency requirements for either. It is important to note, however, that a foreign legal entity (including one registered in another Canadian province) will first have to register as an Extra-Provincial Corporation (EPC) in Ontario before it can assume the role of general partner (it can assume the role of limited partner without registering as EPC). This registration does not create a tax burden in Canada in and of itself but it may create a filing requirement depending on your business activities and the type of entity used.
Speaking of conducting business in Canada, an Ontario LP can do so without any restrictions. With that said, doing so may create a tax burden in Canada for the partners and as such, is not recommended. This brings us to the next point, taxation.
An Ontario LP is a pass-through entity for taxation purposes. This means that it is not a taxable entity in and of itself and instead, the partners must include their share of the profits on their own personal tax returns (or corporation tax returns if legal entities). As such, any resident partner will be liable for taxation on the LP’s worldwide profits while non-resident partners will only be liable for taxation on the LP’s Canadian income. If no such income exist, and all partners are non-residents, no tax return has to be filed in Canada.
Do note that an Ontario LP generating Canadian income will have to register for VAT after reaching the sales threshold of 30000 CAD (only Canadian sales count towards the threshold).
Also, do note that Canadian income is income generated from work performed in Canada. Selling to Canadian clients does not constitute Canadian income in and of itself.
Canada boasts some of the most stable banks in the world. They offer an excellent range of services and accounts / credit cards in multiple currencies. They are also tech-focused with the vast majority of banks supporting mobile payments (via Apple Pay, Android Pay and Samsung Pay), instant peer-to-peer transfers and mobile cheque deposit. If they have any downsides, it is that their services tend to be rather pricey.
Opening a business bank account in Canada for a Canadian-registered entity is fairly easy. A personal visit is required (for non-residents) but that is usually it (no minimum balance, letter of reference etc). Canadian residents can open an account online in minutes provided that they have a valid social insurance number (SIN). A chequing account can be opened in Canadian dollar or US dollar. Savings accounts can be opened in nearly any other currencies. Most Canadian accounts come with a debit card (usually a mix of Visa and Interac) that can be used worldwide (including online). In exchange for a security deposit (for non-residents), a credit card can also be issued (including USD credit cards). An Ontario LP can also open accounts with the likes of TransferWise.
As for payment processing, an Ontario LP can apply for a merchant account with any of the Canadian banks. It can also use services like Stripe or Braintree (settlements can be received in either CAD or USD).
While there are services offering online registration, none make sense in my opinion as their prices are simply outrageous (for example, the most popular service from a Google Search costs 1990 USD for the first year and then 990 USD annually). If you fly to Toronto and register the company yourself, your total cost will be 210 CAD for the first five years and then 210 CAD every subsequent five years (there are no annual fees). Obviously, travelling is not free but a 2-3 day trip to Toronto from most major cities will not break the bank and besides, it is a one-time cost.
If you do decide to fly to Toronto and proceed with the registration, you will need to fill form 3 and bring it to the address below. You will pay the 210 CAD there (they accept cash and credit cards).
Ministry of Government and Consumer Services
Central Production and Verification Services Branch
375 University Avenue, 2nd floor
Toronto, ON M5G 2M2
A company number will be issued on the spot, allowing you to immediately open your business bank account. I recommend TD, I have personally been with them for years and am happy with their services. Other banks worthy of consideration include CIBC, RBC and Scotia. Do note that you can open a USD account with any of these banks and link it to PayPal, Stripe and many other payment processing services. This will allow you to completely bypass the Canadian dollar.