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Flag of Canada
System of government: parliamentary democracy
Population: 34.835 million (June 2014)
Currency: Canadian dollar (CAD)
FX regime: free float
GDP: USD 1,862bn (2014)
IGTA member: no
FATF member: yes

Financial regulatory framework

Bank of Canada

The Bank of Canada is Canada’s central bank. It is responsible for the country’s monetary policy, bank notes, financial system and funds management. Its principal role, as defined in the Bank of Canada Act, is "to promote the economic and financial welfare of Canada”. Its powers and responsibilities are prescribed by federal statute.

Office of the Superintendent of Financial Institutions

The Office of the Superintendent of Financial Institutions (OSFI) is an independent agency of the government of Canada reporting to the Minister of Finance and was created to contribute to public confidence in the Canadian financial system. It is the primary regulator of federally regulated banks, insurance companies and pension plans in Canada.

Canadian securities regulatory system

Each Canadian province (10) and territory (three) has its own securities regulator which administers its own securities act and sets its own rules and regulations. The provincial and territorial securities regulators have teamed up to form the Canadian Securities Administrators (CSA), which is focused on developing uniform rules and guidelines for securities market participants; coordinating approval processes; developing a national electronic system for regulatory filings; and coordinating compliance and enforcement activities. For now, Canada remains the only G7 country without a common securities regulator.

Financial Transactions and Reports Analysis Centre of Canada

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Canada’s financial intelligence unit, was created in 2000. It is an independent agency, reporting to the Minister of Finance, who is accountable to Parliament for the activities of the Centre. It was established and operates within the ambit of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its regulations. FINTRAC’s mandate is to facilitate the detection, prevention and deterrence of money laundering, terrorist activity financing and other threats to the security of Canada.

Bank supervision

Banks are supervised by the Office of the Superintendent of Financial Institutions (OSFI), a federal agency established under the Financial Institutions and Deposit Insurance System Amendment Act to supervise all federally regulated financial institutions. These include all banks, federally incorporated or registered insurance, trust and loan companies, cooperative credit associations and fraternal benefit societies. OSFI is also responsible for monitoring federally regulated pension plans. OSFI administers the Bank Act, which establishes capital adequacy, liquidity and asset-to-capital guidelines for banks.

Exchange controls


Business regulation

Canadian businesses operate in a relatively unrestricted commercial environment. However, the Investment Canada Act and certain federal statutes regulate and restrict foreign investment in specialised industries and sectors. Industries where foreign investment is currently affected by federal or provincial regulation include aviation, book publishing and selling, broadcasting, collection agencies, engineering, farming, fisheries, liquor sales, mining, oil and gas, optometry, pharmacies, securities dealers and telecommunications. Businesses benefit from several regional and bilateral free trade agreements, among them the North American Free Trade Agreement and the European Free Trade Agreement.

Taxation framework

Corporate income tax

Corporate income tax is levied by both the federal and provincial governments. Canadian corporations file tax returns on an individual basis. A conglomerate or holding company cannot use losses in one corporation to offset income in another. However, related companies may share certain tax concessions such as the lower tax rate band. The federal corporate income tax rate is 15%. According to the Department of Finance Canada, these corporate income tax reductions have given Canadian corporations the lowest tax rate on new business investment in the Group of Seven (G7). For Canadian-controlled private corporations claiming the small business deduction the net tax rate is 11%. This rate is applied to the first CAD500,000 of active business income.

  • Provincial and territorial rates – Generally, provinces and territories have two rates of income tax – a lower rate and a higher rate.
  • Lower rate – The lower rate applies to the income eligible for the federal small business deduction. One component of the small business deduction is the business limit. Some provinces or territories choose to use the federal business limit. Others establish their own business limit.
  • Higher rate – The higher rate applies to all other income.

Taxation of dividends

In general, dividends between affiliated corporations are tax-free. Dividends paid by a Canadian corporation to its non-resident shareholders are subject to withholding tax.

Indirect taxes

A federal value added tax (goods and services tax (GST)) is levied on the provision of most goods and services in Canada (including intangibles and real property). The province of Quebec levies a value added tax (Quebec sales tax (QST)) on the provision of most goods and services in Quebec. The QST generally is harmonised with the GST, but it is administered separately by the province. The provinces of New Brunswick (NB), Nova Scotia (NS), Prince Edward Island (PEI), Newfoundland (NL) and Ontario (ON) have a fully harmonised sales tax (HST) with the federal government under a single federal administration (the provincial sales tax (PST) regime still applies only to certain insurance premiums in ON). The provinces of British Columbia (BC), Saskatchewan (SK), and Manitoba (MB) levy and separately administer a more traditional single-incidence retail sales and use tax on the provision (or use) of most goods and certain services in the specific province. The federal GST rate is 5% and the HST rate is 13% for goods and services supplied in the provinces of NB, NL and ON, 14% for PEI and 15% for NS. The QST rate is 9.975%. The PST general rates are as follows: BC, 7%; SK, 5%; and MB, 8%.

Thin capitalisation

Thin capitalisation restrictions apply. Canada’s thin capitalisation rules required firms to limit their debt-equity ratio at 1.5:1. Tax information provided by Deloitte Touche Tohmatsu and Deloitte Highlight 2015 (

Accounting framework

Key principles

Canada’s Accounting Standards Board (AcSB) adopted International Financial Reporting Standards (IFRS) in 2011, replacing Canadian generally accepted accounting principles (GAAP) for publicly accountable enterprises; while the Public Sector Accounting Board mandated government business enterprises to adopt IFRS for fiscal years beginning on or after 1 January 2011. Entities with rate-regulated activities were given the option to defer their changeover to IFRS to 1 January 2015. For investment companies and segregated accounts of life insurance enterprises, the AcSB agreed to extend the option to defer their changeover by three years to 1 January 2014. Private enterprises were given the option to adopt IFRS or the new Canadian standards developed specifically to meet the needs of users of their financial statements for fiscal years beginning on or after 1 January 2011. Not-for-profit organisations were given the option to adopt IFRS for fiscal years beginning on or after 1 January 2012.

Accounting for financial instruments (derivatives and capital instruments)

The disclosure requirements of the Canadian Institute of Chartered Accountants (CICA 3862) on financial instruments were converged with those of the International Accounting Standards Board (IFRS 7) in October 2007, with few exceptions.

Banking service provision

There are three different types of banks under the Bank Act:

  • Schedule I banks – Domestic banks that are authorised to accept deposits and are widely held in that no one interest may hold more than 10% of the outstanding share of any class. Deposits held by Schedule I banks may be eligible for deposit insurance provided by the Canada Deposit Insurance Corporation.
  • Schedule II banks – Foreign bank subsidiaries controlled by eligible foreign institutions, authorised to accept deposits. Deposits held by Schedule II banks may be eligible for deposit insurance provided by the Canada Deposit Insurance Corporation.
  • Schedule III banks – Foreign bank branches (full service) of foreign institutions authorised to conduct banking business in Canada under certain restrictions. These branches may not accept deposits of less than CAD150,000. Some foreign bank branches are only permitted to engage in lending activities.

Foreign bank representative offices

A foreign bank representative office is established to represent a foreign bank in Canada. These offices are not permitted to carry on any activity in Canada other than promoting the services of the foreign bank and acting as a liaison between the foreign bank and its clients in Canada. A foreign bank representative may not accept deposits in Canada.

Trust companies

Trust companies operate under either provincial or federal legislation and conduct activities similar to those of a bank. They are regulated under the Federal Trust and Loan Companies Act.

Loan companies

Loan companies operate under either provincial or federal legislation and conduct activities similar to those of a bank. They are regulated under the Federal Trust and Loan Companies Act. Loan companies are authorised to accept deposits, which may be eligible for deposit insurance provided by the Canada Deposit Insurance Corporation. The Canadian banking system also permits market intermediaries such as discount houses and money brokers, but their role is limited. Banks are permitted to finance corporations by acquiring equity positions, but are generally prohibited from owning more than 10% of the voting rights. Currently, there are 27 domestic banks, 24 foreign bank subsidiaries, 26 full-service foreign bank branches and three foreign bank lending branches operating in Canada. In total, these institutions manage over CAD 4.6 trillion in assets (28 February 2015). The six largest Schedule I banks (by market capitalisation) are Royal Bank of Canada, The Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada (May 2015).

Clearing and payment systems

Types of payments

  • Canadian Payments Association – The Canadian Payments Association (CPA) is a not-for-profit organisation created by an Act of Parliament to establish, maintain and operate a national system for the clearing and settlement of payments.

In November 2014, the CPA had 114 members, including the Bank of Canada, chartered banks, trust and loan companies, credit union centrals, federations of caisses populaires and certain other financial institutions. Other eligible organisations include cooperative credit associations, life insurance companies, securities dealers and money market mutual funds. The clearing and settlement framework of the CPA comprises of three main clearing and settlement systems.

  • Large Value Transfer System – The Large Value Transfer System (LVTS) is Canada’s primary system for clearing and settling large value, time critical Canadian dollar transactions. It provides participants and their customers with the certainty that, once a payment has passed the system’s risk-control tests, the transactions are final and will settle on the books of the Bank of Canada on the same day. LVTS payments represent 87% of the value of payments processed by the CPA or an estimated 72% of the value of all Canadian non-cash transactions. In 2014, LVTS cleared and settled 7.9 million transactions representing CAD38.7 trillion in value.
  • Automated Clearing Settlement System – The Automated Clearing Settlement System (ACSS) is a system through which Canadian dollar cheques and electronic payment items, such as direct deposits, ATM withdrawals, point of sale transactions, online payments, pre-authorised debits and bill payments are cleared and settled. The system tracks the exchange of payment items and the resulting balances due to and from participants. Balances are calculated and netted on a bilateral basis between each pair of participants. ACSS payments represent 99% of the volume of payments processed by the CPA. In 2014, the ACSS cleared and settled 6.8 billion payment items, representing CAD6.23 trillion in value. AFT debit and credit transactions were the fastest growing payment types in 2014, increasing 4.7% and 3.7% respectively. The volume of paper cheques continued to decline (7%) in 2014, but still accounted for more than 47.5% of the total value of ACCS transaction.
  • US Dollar Bulk Exchange (USBE) – The US Dollar Bulk Exchange (USBE) is a parallel system to the ACSS used for payment items in US dollars in Canada. The USBE tracks the exchange of US dollar payment items and the resulting balances due to and from participants. Balances are calculated and netted on a bilateral basis between each pair of participants. In 2013, the USBE cleared and settled over 8.5 million transactions, representing USD100.5bn in value.
  • Other CPA Networks – In addition, the CPA develops and operates other systems to support payments and payment-related services:
- The CPA Services Network (CSN) is a network used to exchange batch payment transaction files such as Automated Funds Transfers (AFT) and Electronic Data Interchange (EDI);
- The Financial Institution File (FIF) is an electronic directory of CPA member branches used for the routing of payments;
- The Corporate Creditor Identification Number (CCIN) is a database that allows corporate creditors to be uniquely identified for the purpose of EDI and paper-based electronic bill payment processing.

On average, some 27 million payment items, representing approximately CAD173.4bn in transactions, were cleared and settled through the CPA’s systems each business day during 2013. In total, the CPA cleared and settled CAD44 trillion in 2013.

Foreign exchange clearing and settlement

CLS Bank

Canada is a participant in CLS Bank, the market standard for foreign exchange settlement. CLS Bank is overseen collaboratively by the central banks whose currencies are included in the system, with the US Federal Reserve acting as lead overseer. CLS Bank settles payment instructions for foreign exchange transactions in 17 currencies, including the Canadian dollar. All six major Canadian banks use CLS Bank as one means of settling their eligible foreign exchange transactions. The top five Canadian chartered banks are direct participants in CLS. In 2014, CLS Bank settled an average daily value of CAD5.93 trillion from an average daily volume that exceeded 800,000 instructions. CLS has introduced same-day settlement for US dollar/Canadian dollar trades. CLS is considering other currencies for expansion of its same-day settlement service.

Derivatives clearing and settlement

The Canadian Derivatives Clearing Corporation (CDCC) currently operates a central counterparty for the clearing and settlement of derivatives traded on the Montreal Exchange. In 2012, the CDCC operations were expanded to include fixed income (repo) transactions. The Montreal Exchange is Canada’s only standardised derivatives exchange.

Bank connectivity

Electronic data interchange (EDI) based on the ASX X12 standard has expanded rapidly in Canada and is now used by many large corporations. The banks exchange financial EDI on the due date for same-day settlement. They are also able to act as a value-added network (VAN) through processing subsidiaries and are therefore allowed to process all EDI transaction sets as well as to initiate and complete financial transfers. The cost of sending and receiving EDI payments depends on the volume of information sent with the payment.

Electronic banking

Financial institutions accept consumer payments through branches, automated banking machines, the internet, and increasingly through mobile telephones for onward forwarding to billers. Banks offer corporate services via the internet and by mainframe host-to-host transmission. These services, used by most institutions, may include:

  • previous-day balance and transactional activity;
  • same-day real-time balance and transactional activity;
  • EFT payment initiation;
  • commercial paper issuance;
  • securities management services;
  • foreign exchange and money market information.

The CPA is adopting the international payment messaging standard ISO 20022. The transition to this standard will enable straight through processing and electronic invoicing. Phase 1 of the project, which ran from February 2013 to February 2015, included the development of the standard for AFT, LVTS and EDI payments. The next phase will focus on the implementation of the standard in Canada over the next few years.

Cash concentration and pooling

Cash concentration and zero-balancing services are available.

Other payments and collections

Corporate cash management services are provided by the major retail banks, which operate on a national basis, through over 6,000 branches.

Interest-bearing accounts

Banks pay interest (often tiered) on corporate bank accounts, depending on the size of the balance and the volume of bank services used by the company, and impose service charges on interest-bearing accounts for cheque clearing and other services.

Account opening and anti-money laundering requirements

Canadian legislation requires bank personnel, accountants, lawyers and others to report the importing or exporting of large sums of currency or monetary instruments to the Canada Customs and Revenue Agency (CCRA). As part of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, the legislation makes it mandatory for financial intermediaries to report on certain financial transactions to an independent anti-money laundering agency, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

Treasury centres

Some Canadian corporations with overseas operations have centralised their treasury operations in tax-advantaged centres in Europe.

Liquidity management

Short-term investments

In addition to bankers' acceptances and commercial paper (see below), short-term investments include:

  • Treasury bills – The treasury bill rate is the reference point for all short-term negotiable instruments. T-bills, like most money market instruments, are sold in bearer form at a discount during a bi-weekly auction and are thereafter actively traded by major investment dealers and banks as well as the Bank of Canada itself through open market operations. Provincial governments also auction their own T-bills. The bills are generally issued in maturities of 91, 182 and 364 days in denominations as little as CAD1,000 for federal T-bills and of various denominations for provincial T-bills. Occasionally, the Bank of Canada may issue shorter term T-bills (from a few days to maturity, to perhaps a couple of weeks), normally referred to as Cash Management Bills.
  • Repurchase agreements (repos) – There are two types of repos available. The first type usually involves the purchase of an instrument and concludes in the following 24 hours but it can be rolled over indefinitely. This repo market is extremely liquid and any sudden need for funds is easily met. The second type involves the purchase of an instrument and the repurchase at a fixed date. Repos can range from one to 365 days and while there are no set minimums, the ideal minimum denomination is CAD50m.
  • Bearer deposit notes (BDNs) – BDNs are issued in bearer form at a discount for terms usually ranging from one month to a year. They are issued in multiples of CAD1,000 and there is a minimum issue of CAD1m. The secondary market is liquid and the principal repayment is a direct obligation of the issuing bank. The yield is generally higher than bankers’ acceptances.
  • Term deposits – These are interest-bearing deposits issued in registered form and can be pre-encashed at a predetermined rate. They are available in multiples of CAD1,000 and at corporate level are usually for a minimum of CAD500,000. Canadian dollar deposits with a term to maturity of five years or less booked with domestic branches are insured, under the Canadian Deposit Insurance Corporation (CDIC), for amounts of up to CAD100,000.

Short-term borrowing

Borrowing instruments include:

  • Bankers’ acceptances (BAs) – Issuance of BAs does not have to be trade-related, so they represent the most common form of money market funding. Therefore, the BA rate is used as the reference floating index for most interest rate hedging products. BAs are considered to be of high quality since they are obligations of Canada’s chartered banks and the product is actively traded in a secondary market. The yield is somewhat lower than commercial paper although the cost to the borrower is generally higher because of a stamping fee, which can exceed 1%, levied by the accepting bank. BAs are issued in CAD100,000 denominations. Maturities at issue are generally 30, 60 and 90 days but can reach up to one year.
  • Commercial paper – This is issued only by high-quality corporations including crown corporations in minimum denominations of CAD100,000 and in maturities ranging from one day to a year. The yield is generally higher than T-bills, reflecting risk and liquidity, and there is an active secondary market. Commercial paper issued by crown corporations tends to trade at lower yields than straight corporates due to lower risk resulting from government backing. Commercial paper rates tend to be lower than prime rates, although the interest rate differential is offset by fees for distribution of up to one-eighth of 1% levied by the dealers. Commercial paper can be issued in US dollars as well as Canadian dollars. Increasing volumes of commercial paper have been issued by securitisation conduits, often backed by receivables of corporations wishing to take advantage of this relatively new market.

Benchmark rates

Canadian benchmark rates include:

  • Prime rate – This is charged by the banks for operating loans to high-quality customers.
  • Day and loan call rates – These are used by investment dealers to finance their inventories of government of Canada securities as well as the remaining inventories of commercial paper, bankers acceptances, etc.
  • Bank rate – This is similar to US Federal discount rates at which the Bank of Canada, as a lender of last resort, will advance funds to major Canadian banks. It is set on eight predetermined dates annually by the Bank of Canada.
  • Overnight rate – The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or "overnight") funds among themselves; the bank sets a target level for that rate. This target for the overnight rate is often referred to as the bank’s key interest rate or key policy rate. Changes in the target for the overnight rate influence other interest rates, such as those for consumer loans and mortgages. They can also affect the exchange rate of the Canadian dollar.

Capital markets issuance

  • Equity – About half of all companies that are listed on the Toronto Stock Exchange (TSX), Canada’s premier exchange, were first listed on one of the country’s regional exchanges in Montreal, Vancouver and Alberta. These smaller exchanges have now been consolidated into a single exchange, the TSX Venture Exchange (TSX-V). The TSX and the TSX-V are now part of the TMX Group which operate cash and derivative markets for multiple asset classes, including equities, fixed income and energy.

As of December 2014, the total market capitalisation of the 3,485 issuers listed on the Toronto Stock Exchange and the TSX-V exceeded CAD2.5 trillion; making the TSX and the TSX-V together the third largest in North America and the ninth largest in the world. Canada also has an alternative stock exchange, the Canadian Securities Exchange (CSE) (formerly Canada National Stock Exchange - CNSX), which was established in response to the consolidation of stock exchanges in the country. Trading on CSE is accomplished in the same way as on other exchanges – through Canadian investment dealers. The CSE deals with junior companies.

  • Debt – Canada’s bond market is highly developed and is relatively liquid. Corporations issue the largest volume and selection of long-term debt. Purchase and sale transactions occur by negotiation rather than auction. Bonds issued by the Government of Canada are considered to be among the safest in the world. Government bonds issued as at December 2014 amounted to almost CAD650bn.

Bond market instruments may be secured or unsecured, in bearer or registered form. Terms of corporate debt products can vary greatly in maturity (one to 30 years) and credit quality (AAA through to B-rated) and include extra features or structures (eg sinking funds, extendible, retractable, callable, amortising and exchangeable securities). Certain government bonds can have similar features, especially if issued on a one-off basis to a large buyer.

Risk management instruments

The normal full range of currency and interest rate hedging instruments are available. Exchange traded instruments are available through the Toronto Stock Exchange and its parent the TMX Group. The TMX Group offers both individual and institutional investors a wide range of equity, interest rate and index derivatives, and exchange-traded funds. It also offers clearing services through its corporation, the Canadian Derivatives Clearing Corporation (CDCC).



Bank of Canada

Investment Canada

Electronic Commerce in Canada

Statistics Canada

Toronto Stock Exchange

Canada National Stock Exchange

Department of Finance Canada

Canada Customs and Revenue Agency

Financial Executives Institute

Canadian Bankers Association

Payments Canada

Office of the Superintendent of Financial Institutions

Useful websites on taxation:

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