Incorporating an Ontario Corporation: Bill 213 Amendments and Tax Considerations

On December 8, 2020, Bill 213, Better for People, Smarter for Business Act, 2020 received royal assent. The bill includes significant amendments to the Business Corporation Act (Ontario)[1] (the “OBCA”). The amendments to the OBCA in Bill 213 were proclaimed into force on July 5, 2021.

Bill 213 eliminates the requirement that 25% of the directors of an Ontario corporation must be resident Canadians.[2] This means that non-residents may incorporate an Ontario corporation without necessarily retaining a Canadian resident as a director of the corporation (as already permissible in other jurisdictions).

In light of the new changes, many non-residents will likely consider incorporating an Ontario subsidiary to facilitate acquisitions, tax planning, and investment-related activities. This article highlights some of the (new) corporate and tax advantages of incorporating an Ontario subsidiary by such persons.

Bill 213 Changes

Prior to these amendments, at least 25% of the directors of an Ontario corporation must have been resident Canadians or, if the corporation had less than four directors, at least one director must have been a resident Canadian.[3] The OBCA generally defines a “resident Canadian” as an individual who is: (i) a Canadian citizen ordinarily resident in Canada; (ii) a Canadian citizen not ordinarily resident in Canada but who is a member of a prescribed class of persons; or (iii) certain permanent residents ordinarily resident in Canada.[4]

Bill 213 removes this residency requirement. As a result, an Ontario corporation will no longer require a minimum number of resident Canadians directors. This is similar to other provincial jurisdictions that do not currently impose director residency requirements on corporations, including: (i) British Columbia; (ii) Prince Edward Island; (iii) New Brunswick; (iv) Nova Scotia; and (v) Quebec.

The amendment greatly simplifies the administrative process of incorporating an Ontario corporation, especially for non-resident persons that are considering the establishment of an Ontario corporation/subsidiary in the near future.

Bill 213 also includes a new provision that allows shareholders, holding the majority of the shares of a non-offering corporation, to approve certain resolutions in writing.[5] Currently, shareholders can only pass resolutions in writing if all shareholders of the corporation sign the resolution (not just a majority). The amendment will allow shareholders to execute important decisions in circumstances where a shareholder may be unavailable, or unwilling, to sign a resolution (without the shareholders having to meet in person).

Tax Considerations

As noted above, in light of the new changes, many non-investors will consider incorporating an Ontario subsidiary. These investors may have tax concerns relating to the incorporation. However, in general, the incorporation of an entity in Ontario, versus another provincial jurisdiction, will not affect the corporation’s Ontario income tax or provincial tax liabilities. Rather, one must typically examine other factors to determine whether a corporation is liable for provincial corporate income taxes and other provincial taxes, as outlined below:

Provincial Corporate Income Taxes

A corporation’s provincial income tax liability generally depends on the location of its permanent establishments (as determined for purposes of provincial income allocation); not its jurisdiction of incorporation. One typically determines a corporation’s provincial tax liability by: (i) allocating income to each province in which the corporation has a permanent establishment; and (ii) multiplying each allocated amount by the applicable provincial tax rate (and summing the amounts calculated, for each province, to determine the corporation’s total provincial income tax liability).[6]  

For example, a BC corporation with a permanent establishment in Ontario will be liable for Ontario provincial income tax (to the extent that its taxable income is attributable to the establishment in Ontario). By contrast, an Ontario corporation with a permanent establishment in BC will be liable for BC provincial income tax (to the extent that the corporation’s taxable income is attributable to the establishment in BC).

A permanent establishment generally means a fixed place of business such as an office, a branch, a factory or a warehouse. However, the Income Tax Regulations (the “ITRs”) may deem a corporation to have a permanent establishment in a location where the corporation does not have a fixed place of business. For example, if a corporation does not have a fixed place of business, the ITRs will deem the corporation to have a permanent establishment at the principal place in which the corporation conducts its business. The ITRs may also deem a corporation to have a permanent establishment at a particular location if the corporation has, at the location, an employee or agent with the general authority to contract on behalf of the corporation.

If the corporation does not have a fixed place of business, or a deemed permanent establishment (as discussed above), the ITRsmay deem the corporation to have a permanent establishment at the place designated in its incorporating documents or bylaws as its head office or registered office.[7] A corporation’s registered office is typically located in its province of incorporation. For example, all Ontario corporations must have a registered office in the province of Ontario.[8] An Ontario corporation without a permanent establishment could, consequentially, become subject to Ontario provincial income tax.

A non-resident investor may still incorporate an Ontario subsidiary without the corporation becoming subject to Ontario income tax. However, as noted above, the investors would still need to consider whether the corporation has, or will have, any permanent establishment in Ontario or any other provinces.

Provincial Taxes

Each Canadian province also imposes various other taxes on corporations carrying on business or other activities in the province. For example, in Ontario, corporations may be liable for: (i) the employer health tax; (ii) property taxes; (iii) fuel tax; and (iv) Work Safety and Insurance Board premiums.

However, similar to corporate income taxes, a corporation’s jurisdiction of incorporation does not necessarily determine whether a corporation will become liable for the aforementioned provincial income taxes.

For example, an employer corporation is generally subject to the Ontario employer health tax if the employer pays remuneration to employees reporting for work to a permanent establishment (as determined for purposes of employer health tax) in Ontario. However, the jurisdiction of incorporation of the employer does not typically affect the employer’s liability for the tax (it should be noted that a corporation will be considered to have a permanent establishment in the place designated in its charter or by-laws as being its head or registered office).[9]

Other Considerations

It should also be noted that many provincial statutes and the Canada Business Corporations Act[10] impose shareholder transparency requirements on certain private corporations. These corporations typically have an obligation to maintain a register listing individuals with significant control over the corporation. These individuals include: (i) individuals holding 25% of the corporation’s voting shares; or (ii) individuals holding shares of the corporation having a fair market value of 25% of all shares of the corporation (or an individual with control in fact over the corporation).[11] However, the OBCA does not yet contain such a requirement for Ontario corporations (although, the requirement may be imposed in the future).

In addition, one can only incorporate an unlimited liability company under the Alberta, BC, and Nova Scotia corporate statutes. Many US-based investors use such companies for certain US tax planning strategies. However, at this time, one cannot incorporate an unlimited liability company under the OBCA.


[1]      Business Corporations Act, RSO 1990, c B.16 [OBCA].

[2]      Ibid at s 118(3).

[3]      Ibid.

[4]      Ibid at s 1(1).

[5]      OBCA, supra note 1 at s 104(1).

[6]      See: Income Tax Regulations, CRC, c 945 at s 402(4) [ITR] and relevant provincial income tax statutes.

[7]      ITR, supra note 6 at s 400(2)(e.1).

[8]      OBCA, supra note 1 at s 14(1).

[9]      Employer Health Tax Act, RSO 1990, c E 11 at s 1(2).

[10]    Canada Business Corporations Act, RSC, 1985, c C-44.

[11]    See: Ibid at s 2.1(1) and 21.1(1).

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