Canada Treasury Management Profile 2018 - Together we thrive - HSBC Group
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Canada
Treasury Management
Profile 2018
Together we thrive
2 HSBC Treasury Management Profile 2018 | Canada HSBC Treasury Management Profile 2018 | Canada 3
Contents Introduction and
Purpose
Introduction and Purpose 3 Canada
This is one of a series of Treasury Management Profiles designed for finance and treasury professionals worldwide. By providing a
Legal and Regulatory 6 snapshot of banking, payments and cash management in selected locations, these profiles can help treasury managers to make
informed decisions, manage risks effectively and take advantage of new opportunities. However, this information is not intended
Taxation8 to be comprehensive and does not constitute financial, legal, tax or other professional advice. Accordingly you should not act upon
the information contained in this document without obtaining your own independent professional advice. The materials contained
Banking15
in this document were assembled in August 2017 (unless otherwise dated) and were based on the law enforceable and information
Payment Instruments 16 available at that time.
Payment Systems 19
Facts and Figures
Cash Management 22 Capital/Other major cities: Ottawa/Toronto, Montréal, Business hours: 09:00–17:00 (Mon–Fri)
Vancouver, Calgary, Edmonton,
Electronic Banking 24 Banking hours: 09:00–17:00 (Mon–Fri)
Québec City, Hamilton,
Winnipeg, Halifax Note: some banks open on Saturdays.
Trade Finance 26
Area: 9,984,670km 2
Stock exchanges: Bourse de Montréal (Mx),
Useful Websites 28 Toronto Stock Exchange
Population: 35.4m
Leading share index: MVX, MCWX, MPCX, S&P/
Languages: English, French
TSX Composite Index, S&P TSX
Currency: Canadian dollar (CAD) Capped Composite Index, S&P/
TSX 60 Index
Country telephone code: 1
Sectoral distribution Agriculture 1.7%,
Weekend: Saturday and Sunday
of GDP (% of GDP): Industry 28.1%,
Source: https://www.cia.gov/library/
National holidays: 2nd half 2018 — 3 Sep, 8 Oct, Services 70.2%
publications/resources/the-world-
Source: www.goodbusinessday.com. 12 Nov, 25, 26 Dec factbook/index.html. (2017 estimate)
2019 — 1, 2 Jan, 19 Apr,
20 May, 24 Jun, 1 Jul, 2 Sep,
14 Oct, 11 Nov, 25, 26 Dec
Government Head of state
Legislature Queen Elizabeth II, represented by Governor General David
Confederation with a bicameral parliament composed of the Johnston since 1 October 2010.
House of Commons and the Senate.
®® The governor general is appointed by the monarch, on the
®® House of Commons: 338 members are elected to serve prime minister’s advice, every five years.
five-year terms.
®® Senate: 105 members. Senators hold office until they reach Political leader
75 years of age. Justin Pierre Trudeau, prime minister since 4 November 2015.
The next federal elections are scheduled to be held on
21 October 2019.
4 HSBC Treasury Management Profile 2018 | Canada HSBC Treasury Management Profile 2018 | Canada 5
Country credit rating
Fitch Ratings rates Canada for issuer default as:
Term Issuer Default Rating
Short F1 +
Long AAA
Long-term rating outlook Stable
Source: www.fitchratings.com, April 2018.
Exchange rate & Interest rate (%) Consumer inflation & GDP volume growth (%)
Economy
2017
2011 2012 2013 2014 2015 2016
Q1 Q2 Q3 Q4 1.6 1.6 3.00 3.00
Exchange rate* (CAD/USD)** 0.9895 0.9992 1.0298 1.1061 1.2791 1.33 1.3228 1.3448 1.252 1.271
1.2 1.2 2.25 2.25
Interest rate (MMR) (%)
**
1.00 1.00 1.00 1.00 0.63 0.50 0.49 NA NA NA
Unemployment (%) 7.5 7.3 7.1 6.9 6.9 7.0 7.1 6.5 6.3 5.5 0.8 08 1.5 1.5
Consumer inflation*** (%) + 2.9 + 1.5 + 0.9 + 1.9 + 1.1 + 1.4 + 1.9 + 1.3 + 1.4 + 1.8
0.4 0.4 0.75 0.75
GDP volume growth*** (%) + 3.1 + 1.7 + 2.2 + 2.6 + 0.9 + 1.5 + 2.3 NA NA NA
GDP (CAD bn) 1,719 1,818 1,879 1,976 1,986 2,027 – – – – 0.0 0.0 0.0 0.0
2012 2013 2014 2015 2016 2012 2013 2014 2015 2016
GDP (USD bn) 1,737 1,819 1,825 1,787 1,552 1,524 – – – –
Exchange rate (CAD/USD) Consumer inflation %
GDP per capita (USD) 50,360 52,167 51,805 50,201 43,194 41,995 – – – – Interest rate (MMR) % GDP volume growth %
BoP (goods/services/income) as % GDP – 2.6 – 3.4 – 3.0 – 2.1 – 3.0 – 3.2 – – – –
* Market rate. ** Period average. *** Year on year. Sources: IMF, International Financial Statistics, May 2018 and 2017 Yearbook. Sources: IMF, International Financial Statistics, May 2018 and 2017 Yearbook.6 HSBC Treasury Management Profile 2018 | Canada HSBC Treasury Management Profile 2018 | Canada 7
Legal and
Regulatory
Non-resident Central bank
The Bank of Canada is a federal government-owned Crown
Exchange controls
The Canadian dollar (CAD) is Canada’s official currency.
Account opening procedures require formal identification of the
account holder and third parties. Formal identification is also
corporation, accountable to parliament, operating in accordance required for corporate clients and directors including beneficial
investment in with the Bank of Canada Act. ®® Canada does not apply foreign exchange controls. owners of companies and trustees. Financial institutions are
required to conduct ongoing due diligence.
Bank supervision Non-resident investment in Canada’s financial, broadcasting,
Canada’s financial, The Office of the Superintendent of Financial Institutions (OSFI)
supervises the federally regulated financial institutions in Canada.
energy, fishery, telecommunications and transportation sectors is
restricted.
All credit and financial institutions have to identify clients for
transactions such as depositing funds, buying life insurance or
broadcasting,
buying a money order.
Resident/non-resident status Anti-money laundering/counter-terrorist financing1
A company is considered resident in Canada if it has been Canada has implemented anti-money laundering and counter- Financial institutions must identify account holders when issuing
energy, fishery, incorporated in Canada since 26 April 1965, or if its place of terrorist financing legislation. Notable legislation includes: travellers’ cheques or money orders exceeding CAD 3,000.
effective management is located there.
®® The Proceeds of Crime (Money Laundering) and Terrorist Individuals making occasional wire transfers exceeding
telecommunications Bank accounts
Resident
Financing Act of 2001, as amended, most recently in 2016
(these changes are effective from June 2017);
CAD 1,000 must be identified.
Foreign exchange accounts and domestic currency (CAD) ®® The Cross-border Currency and Monetary Instruments Large cash transactions and cross-border movements of currency
and transportation accounts can be held by residents both domestically and abroad.
Resident domestic currency accounts are freely convertible into
Reporting Regulations 2002;
®® The Regulations Amending Certain Regulations Made under
and monetary instruments, as well as electronic fund transfers
exceeding CAD 10,000 made in a single transaction or series
of linked transactions within 24 hours, must be recorded and
sectors is restricted.
foreign currency. the Proceeds of Crime (Money Laundering) the Terrorist
Financing Act 2003, 2007 and 2008; and reported to FINTRAC.
Non-resident ®® The Freezing Assets of Corrupt Foreign Officials Act 2011.
Non-resident bank accounts are permitted in both foreign and Financial institutions in the broadest sense are required to report
domestic currency. Non-resident domestic currency accounts are A Financial Action Task Force (FATF) member, Canada observes suspicious transactions and attempted suspicious transactions
freely convertible into foreign currency. most of the FATF-49 standards. It is also a member of the within 30 days of its detection to FINTRAC.
Caribbean Financial Action Task Force (CFATF), as a Cooperating
Interest can be offered on savings and current accounts. All records must be kept for at least five years after account
and Supporting Nation, the Asia/Pacific Group on Money
Overdraft facilities are available to residents and non‑residents. closure or the date of the last transaction.
Laundering (APG), as an observer jurisdiction, the Council
of Europe MONEYVAL Select Committee, as an observer
Reporting
jurisdiction, and the Organisation of American States/Inter-
There are no central bank reporting requirements for companies.
American Drug Abuse Control Commission (OAS/CICAD).
Transactions equal to or above CAD 10,000 are required to be
reported to the Financial Transactions and Reports Analysis The Financial Transactions and Reports Analysis Centre of Canada
Centre of Canada (FINTRAC) within 15 days of the transaction (FINTRAC), the country’s financial intelligence unit, is a member
taking place. of the Egmont Group.
1.
Data as at January 2017.8 HSBC Treasury Management Profile 2018 | Canada HSBC Treasury Management Profile 2018 | Canada 9
Taxation Tax can be imposed by both the federal and
1
provincial governments. General business
income is taxed federally at the rate of 15%.
The provincial general corporate tax rates
range from 11% to 16%.
Resident/non-resident Tax can be imposed by both the federal and provincial from a foreign company generally are subject to tax, but is available for an eligible CCPC. A non-refundable ITC of up
Companies are deemed resident if incorporated in Canada. governments. In two provinces, Quebec and Alberta, the deductions are available in respect of dividends from foreign to 15% is available for a CCPC when it is not eligible for the
A company incorporated outside Canada may be considered provincial corporate income tax system is administered by affiliates. Where the payer is not a foreign affiliate, a credit for refundable ITC and for a non-CCPC. Provincial incentives also
resident, if its central management and control are located the province, whereas in the other eight provinces and three withholding tax generally is available. are available.
in Canada. As central management and control are normally territories (the participating provinces), the federal government ®® Public corporations: dividends received from a taxable
exercised by the directors, a company is generally considered (through the CRA) administers both the federal and provincial Canadian corporation or a corporation resident in Canada are A federal production tax credit for qualified Canadian labour
resident where its directors meet. corporate income tax systems. deductible for corporate tax purposes. Dividends received expenditure incurred for an accredited production of films and
from a foreign company are subject to tax, but deductions are videotapes also is available. The provinces offer similar incentives.
Tax authorities Companies resident in Canada are taxable on their worldwide available in respect of dividends from foreign affiliates. Where
®® Canada Revenue Agency (CRA) and provincial authorities. income. Credit against Canadian tax is given for certain foreign Foreign non-business and business income tax paid in another
the payer is not a foreign affiliate, a credit for withholding tax
taxes. General business income is taxed federally at the rate of country may be credited against Canadian tax on the same
generally is available.
Tax year/filing 15%. profits, but the credit is effectively limited to the amount of
The income tax fiscal period of a company is selected in its Dividends received by Canadian corporations from foreign Canadian tax otherwise payable on the foreign business income.
first year, and cannot exceed 53 weeks. Once a fiscal period A federal small business rate of 10.5% is available on the first affiliates are exempt if paid from exempt surplus, and are taxable Excess foreign business income tax paid that cannot be claimed
is selected for income tax purposes, it cannot be changed CAD 500,000 of active business income earned by a Canadian- with deductions for underlying foreign tax and withholding tax may be carried over on a per-country basis and applied against
without the permission of the Canadian tax authorities. Whereas controlled private company (CCPC), provided the income is if paid from taxable surplus. Exempt surplus generally relates foreign business income of other years. The excess credit may be
taxpayers normally select an income tax fiscal period that earned from an active business in Canada. Income in excess of to active business income earned by an affiliate resident in, and carried back three years and carried forward ten years. Excess
coincides with the financial statement fiscal period, this need not CAD 500,000 is subject to federal tax at the general business carrying on an active business in, a country with which Canada foreign non-business income tax may be claimed as a deduction
be the case. income rate. Only the province of Ontario levies a corporate has signed an income tax treaty. in computing income.
minimum tax.
The corporate tax return should be filed within six months of the Dividends from affiliates located in non-treaty countries that Trading losses may be carried back for three years and carried
end of the taxation year. Provincial income tax rates vary, and provincial income taxes are enter into a tax information exchange agreement with Canada forward for 20 years. Capital losses may be carried back for three
not deductible for federal income tax purposes. The provincial also may qualify as paid from exempt surplus. A new category years and carried forward indefinitely.
Federal and provincial tax authorities require monthly or other general corporate tax rates for the various provinces and of ‘hybrid surplus’ (effective retroactively as from 19 August
periodic instalments payments on account of the current year tax territories range from 11% to 16%. Advance tax ruling availability
2011) relates to certain capital gains realised by foreign affiliates.
liability. Final tax payments generally are due within two months Subject to specific exclusions, the federal tax authorities will issue
Dividends from hybrid surplus are 50% taxable.
of year-end. Small business rate reductions are available in some provinces. an advance income tax ruling to taxpayers, which is a written
No surtax is levied. Canadian public and private corporations are required to track statement of how they will apply a particular section of the tax
Consolidated returns are not permitted; each corporation is law to a definite transaction that has not yet occurred. Once
dividends paid out of general and low-rate income pools, as this
required to file a separate return. The taxation of dividend income is dependent on the status of issued, the ruling is binding, provided all the facts – which remain
determines the availability of enhanced tax credits for Canadian-
both the dividend recipient and the dividend payer. confidential – have been presented by the taxpayer to the tax
Corporate taxation resident individuals.
authorities.
Residents are taxed at the federal and provincial/territorial levels ®® Private corporations: dividends received from a taxable
Certain types of passive income earned by certain foreign
on their worldwide income. Certain income of controlled foreign Canadian corporation or a corporation resident in Canada Property taxes
companies with Canadian shareholders may also be subject to
affiliates is taxed on an accrual basis. Taxation also can arise in are deductible in computing corporate income tax. However, Local governments collect property taxes. Rates vary based
Canadian income tax on a current year basis in the hands of the
respect of investments in certain non-resident trusts and offshore dividends from non-connected corporations are subject to an on the classification of properties. Property taxes are generally
Canadian shareholders.
investment funds. Non-residents are taxed on certain types of additional tax, which is refunded when the corporation pays based on the assessed value, which is derived from current
Canadian-source income. out taxable dividends to its shareholders. Dividends received A refundable investment tax credit (ITC) of up to 35% of qualified market conditions and may be determined according to different
expenditure on scientific research and experimental development methodologies, depending on the province. This tax is deductible
1.
All tax information supplied by Deloitte Touche Tohmatsu (www.deloitte.com) and in calculating the corporate tax liability.
Deloitte Highlight, 2017.10 HSBC Treasury Management Profile 2018 | Canada HSBC Treasury Management Profile 2018 | Canada 11
Land transfer taxes Withholding tax (subject to tax treaties)
Withholding tax (subject to tax treaties)
All provinces and cities levy taxes on the transfer of land. The tax Generally, there is no withholding tax on payments made to
rates vary depending on the jurisdiction, and when combined Canadian resident companies. Payments to: Interest Dividends Royalties/fees Branch remittances
in the cities of Toronto and Montreal, the rate is as high as 4%.
Canada imposes a 25% withholding tax on the gross Resident companies None None None NA
Outside of these cities, the rate is as high as 2%. Other provinces
levy only a document registration fee. Canadian‑sourced income paid or credited to non-residents. Non-resident companies 25% 25% 25% 25%
Rates may be reduced under applicable tax treaties to as low
Stamp duty as 5% for dividends, 0% for interest and 0% for some types of
There is no stamp duty. royalties.
Country-by-country reporting obligations apply for tax periods Anti-avoidance
Capital gains tax The withholding tax rules apply to interest, dividends, rental beginning on or after 1 January 2016. The first exchanges under These are numerous anti-avoidance rules to address specific
Gains and losses on the disposition of capital property are subject payments, royalties or similar payments, including guarantee fees the MCAA will begin in 2017–18, based on 2016 information. perceived abuses and a general anti-avoidance rule (GAAR),
to federal and provincial taxes, but only on 50% of the gains or and management fees. Exemptions are allowed for management which is meant to be an all‑encompassing anti-avoidance rule
losses. Capital losses may generally only be deducted against fees paid on account of services provided in the ordinary course Thin capitalisation where no specific rule applies.
capital gains. Any excess in the year may be carried back three of business of a non-resident, and provided that the participants Thin capitalisation rules apply to Canadian resident companies to
years or carried forward indefinitely to be offset against future are dealing at arm’s length. restrict the deduction of interest paid on debts, including trade Disclosure requirements
capital gains. debts, payable to non-resident shareholders holding 25% or Canadian corporations, trusts and individuals that hold or acquire
Tax treaties/tax information exchange agreements (TIEAs) more of any class of shares of the Canadian company (owned investments outside of Canada are required to report any holdings
The untaxed portion of a capital gain (net of capital losses) of Canada has exchange of information relationships with 117 directly or cumulative with related parties), where the ratio of that are in excess of CAD 100,000 to the Canadian tax authorities
a Canadian private corporation can be distributed tax-free to a jurisdictions through 93 double tax treaties and 24 TIEAs. debt to equity held by related non-residents exceeds 1.5:1. on an annual basis. In addition, Canadian corporations, trusts and
Canadian resident shareholder. Any disallowed interest is deemed to be a dividend, subject to individuals are required to report to the Canadian tax authorities
Canada, as part of the OECD/G20 Base Erosion and Profit Shift withholding tax of 25% (generally reduced under most treaties). any transfers or loans made to, distributions received from or
The tax on a portion of capital gains may be deferred on disposals (BEPS) initiative, is a signatory of the Multilateral Competent indebtedness to a non-resident trust.
where all or part of the proceeds are payable after the end of the Authority Agreement (MCAA). Under this multilateral agreement, Transfer pricing
year. information will be exchanged between tax administrations, When a taxpayer enters into transactions to buy or sell goods or A non-resident that disposes of, or plans to dispose of, taxable
giving them a single, global picture on some key indicators of services with a non-arm’s-length non-resident, the price charged Canadian property is required to disclose this to the CRA within
Capital tax economic activity within multinational enterprises (MNE). should be the price that would have been set between persons ten days of the disposition, subject to a possible exception for
Historically, various provincial governments imposed an annual dealing at arm’s length. If the price charged differs from an treaty‑protected property (notification within 30 days of the
tax on Canadian companies and the capital used by foreign With country-by-country reporting, the tax authorities of arm’s-length price, upward or downward adjustments will be disposition).
companies attributable to a Canadian permanent establishment. jurisdictions where a company operates will have aggregate made to ensure the price charged reflects an arm’s-length price.
There is no federal capital tax. information annually relating to the global allocation of income Proper documentation must be maintained to support the transfer A person who sells tax shelters is required to register for an
and taxes paid, together with other indicators of the location of pricing methodology used. If contemporaneous documentation ID number, provide investors with tax shelter ID numbers and
All provinces have eliminated provincial capital taxes. However, economic activity within the MNE group. The reports will also is not prepared, penalties may apply if adjustments exceed statements, and file an annual information return disclosing
a number of provinces and the federal government do impose a cover information about which entities do business in a particular specified amounts. certain information about the persons who have invested in
capital tax on financial institutions. The territories do not impose jurisdiction and the business activities each entity engages in. those tax shelters.
this tax. The information will be collected by the MNE group’s country Controlled foreign companies
of residence, and will be exchanged through exchange of Canadian residents must pay Canadian income tax on a current The province of Quebec and the federal government have
Business licence fees information supported by such agreements as the MCAA. basis to the extent of their share of foreign accrual property introduced measures, including disclosure requirements and
Various provinces and municipalities impose business licence income (FAPI) earned by a controlled foreign affiliate. The additional penalties, to combat what is perceived to be aggressive
fees that depend on the type of business and the location in definition of controlled foreign affiliate is broad, and an anti- tax planning.
which it is carried on. avoidance rule may apply if shares are acquired or disposed of
and the principal purpose is to avoid this status.12 HSBC Treasury Management Profile 2018 | Canada HSBC Treasury Management Profile 2018 | Canada 13
Sales taxes The vendor registration rules for each PST province vary, and
A federal value added tax (Goods and Services Tax (GST)) is some provinces have ‘reach out’ provisions to require registration
levied on the provision of most goods and services in Canada by out-of-province vendors selling taxable property into the
(including intangibles and real property). province.
The province of Quebec levies a value added tax (Quebec Sales Financial transactions/banking services tax
Tax (QST)) on the provision of most goods and services in There are no specific financial transactions/banking services taxes
Quebec. The QST generally is harmonised with the GST, but it is in Canada.
administered separately by the province.
Payroll and social security taxes
The provinces of New Brunswick (NB), Nova Scotia (NS), Prince Newfoundland, Manitoba, Quebec, Ontario, Nunavut and the
Edward Island (PEI), Newfoundland (NL) and Ontario (ON) have Northwest Territories impose payroll taxes ranging from 1.95% to
a fully harmonised sales tax (HST) with the federal government 4.3% of the annual gross wages, salary and other remuneration
under a single federal administration. paid by an employer. Such taxes are generally deductible for
income tax purposes.
The provinces of British Columbia (BC), Saskatchewan (SK) and
Manitoba (MB) levy and separately administer a more traditional Both the employer and the employee are required to make
single-incidence retail sales and use tax on the provision (or use) employment insurance and government pension plan
of most goods and certain services in the specific province. The contributions, with the amount based on the employee’s
PST rates in these provinces are 7% in BC, 6% in SK and 8% earnings.
in MB. Certain provinces also impose provincial sales tax on
insurance premiums Workers’ compensation schemes are administered provincially.
Generally, they are mandatory for certain industries and voluntary
The federal GST rate is 5% and the HST rate is 13% for goods for others. Employers make monthly contributions per employee.
and services supplied in the province of ON, 15% for the
provinces of NL, NS, NB and PEI. The QST rate is 9.975%. The SK
rate increased to 6% effective 23 March 2017. Only the 5% GST
is levied in Alberta and the territories.
GST/HST registration generally is required for every person
engaged in a commercial activity in Canada. Registration is
not required for small suppliers (i.e. persons who have under
CAD 30,000 in worldwide taxable sales, over four consecutive
quarters) or non-residents of Canada who do not carry on
business in Canada.
QST registration is generally required for every person engaged
in a commercial activity in Quebec, including certain businesses
that do not have a physical or significant presence in Quebec
but make taxable sales to Quebec residents. Registration is not
required for small suppliers.14 HSBC Treasury Management Profile 2018 | Canada HSBC Treasury Management Profile 2018 | Canada 15
Banking
Overview
Major banks
There are 87 banks operating in Canada, including 55 commercial
banks (32 domestic banks and 23 foreign bank subsidiaries) that Total assets
offer wholesale and retail banking services. There are also 32 Bank (USD millions)
branches of foreign banks and five federally regulated cooperative 31 October 2017
credit associations.
The Toronto-Dominion Bank 991,623
Canada’s banking sector is dominated by five domestically owned Royal Bank of Canada 940,342
commercial banks. These banks account for approximately 90%
of the banking sector’s total assets. The Bank of Nova Scotia 709,624
Bank of Montréal 550,147
Foreign banks play an active role in the country’s financial sector.
HSBC Bank Canada is the country’s largest foreign bank. Canadian Imperial Bank 438,257
of Commerce
Digitalisation of banking services, from mobile banking to virtual
Sources: Office of the Superintendent of Financial Institutions and
account opening to digital mortgages, is transforming the www.accuity.com, April 2018.
country’s banking sector, as banks reduce branch networks and
move customers on to their digital platforms. According to the
Canadian Bankers Association, 68% of Canadians do most of
their banking online banking, and increasingly via mobile. Digital
innovation, and the launch of online and mobile only banks such
as Zag Bank, EQ Bank and Tangerine, is recognised as essential
to meet customer needs by all of the country’s largest banks.
This includes an overhaul of traditional banking practices and
networks.
In 2017, Canadian banks were rated the third soundest in the
world, having been rated the soundest for the previous nine years
by the World Economic Forum.16 HSBC Treasury Management Profile 2018 | Canada HSBC Treasury Management Profile 2018 | Canada 17
Payment
Instruments
New AFT rules will Cash
Cash remains an important payment medium in Canada,
Payment Statistics
particularly for low-value retail transactions. However, cash use Millions of transactions % change Traffic (CAD billions) % change
enable features has decreased by 20% since 2011 and is predicted to continue
along this trend, as Canadians continue to move towards
2014 2015 2015/2014 2014 2015 2015/2014
electronic payments1.
such as same-day
Credit transfers: 1,270.3 1,325.7 4.4 41,073.5 45,596.5 11.0
Credit transfers – low-value 1,262.4 1,317.6 4.4 2,420.7 2,570.3 6.2
payroll, expedited bill
All credit transfers in Canada are automated. – high-value 7.9 8.1 2.5 38,652.8 43,026.2 11.3
®® High-value and urgent credit transfers are cleared and settled Direct debits 762.3 791.3 3.8 642.5 676.9 5.4
payments and faster via the LVTS, the national RTGS system, on a same-day basis.
LVTS transfers are typically used by financial institutions
Debit card payments 4,899.0 5,169.0 5.5 211.0 217.0 2.8
and their corporate clients for interbank transfers and the Credit card payments 3,897.8 4,072.9 4.5 403.7 415.9 3.0
settlement of invoices settlement of large financial and commercial transactions.
The number of LVTS transactions increased 2.5% between
Cheques 708.9 648.2 – 8.6 2,977.5 2,997.7 0.7
2014 and 2015, to 8.1 million. The average value of each LVTS
and will come into
Total 11,538.3 12,007.1 4.4 45,308.2 49,904.0 10.1
transaction is approximately CAD 5.31 million.
Source: CPMI – Red Book statistical update, December 2016.
®® Low-value and non-urgent credit transfers are batched and
effect in the Autumn processed through the ACSS as AFT (automated funds
transfers) credits. AFT credits include payroll deposits and Direct debits are processed through the ACSS as AFT debits. Cheques with a value of CAD 25 million or less are processed via
regular government payments and generally require at least AFT debits are pre-authorised transfers and typically require the ACSS. Cheques with a value greater than CAD 25 million are
of 2018. one business day for processing exchange, posting and
settlement. The number of interbank AFT credit transfers
at least one business day for processing exchange, posting
and settlement. Subject to authorisation and notification
processed via the LVTS.
increased by 4.4% between 2014 and 2015 to 1,317.6 million requirements, direct debit transactions may also be used for Cheques drawn in USD and deposited at banks in Canada are
transfers. The average value of an AFT credit is approximately non‑recurring or one-time transactions. cleared and settled through the US Dollar Bulk Exchange (USBE).
CAD 1,9512.
Direct debits accounted for 6.6% of the volume of all cashless Cheque images are transmitted directly to data centres, where
Payments Canada has announced new AFT rules as part of its payments in 2015, and just 1.4% of the value2. they are then printed as clearing replacement documents
modernisation programme. The new rules will enable features such (CRDs) and cleared as a paper item. Banks are permitted to
as same-day payroll, expedited bill payments and faster settlement Cheques make proprietary arrangements for the exchange of cheque
of invoices and will come into effect in the Autumn of 2018. The cheque is a popular cashless payment instrument for both images, and corporate clients are permitted to transmit deposits
retail and commercial payments. However, retail cheque use is in data directly to their banks. The introduction of image-based,
Credit transfers accounted for just 11% of the volume of all decline due to an increasing preference for electronic payments fully MICR-encoded documents, known as return replacement
cashless payments in 2015, but 91.4% of the value2. for both high-value and low‑value payments. Commercial cheque documents (RRDs), has improved the time taken to return
use for supplier and government payments remains high. dishonoured items.
Direct debits
Direct debits are available in Canada for low-value recurring Post-dated cheques are permitted and used in Canada. They can Cheques accounted for 5.4% of the volume of all cashless
payments such as utility bills. be deposited on or after the due date. payments in 2015, and 6.0% of the value2.18 HSBC Treasury Management Profile 2018 | Canada HSBC Treasury Management Profile 2018 | Canada 19
Payment
Systems
Card payments
Payment cards, particularly credit cards, are a popular payment
% volume of all cashless
payments 2015 Payments Canada Type
There are two national payment systems in Canada, both of
method in Canada. They accounted for 77.0% of the volume of all which are operated by the privately owned Payments Canada
cashless payments in 2015, but just 1.3% of the value.
is developing a new (formerly the Canadian Payments Association):
There were approximately 24.8 million debit cards and ®® The LVTS (Large Value Transfer System): a real-time gross
72.1 million credit cards in circulation in Canada at the end of
20152. Visa, MasterCard and American Express are the principal
Low-Value Credit Transfers 11.0%
High-Value Credit Transfers 0.07%
real-time settlement settlement (RTGS) system used to transfer irrevocable
CAD payments across Canada. A hybrid system, the LVTS
system called Lynx,
credit card brands issued. Credit cards can also be issued by Direct Debits 6.6% combines key features of the two main payment system
banks, other financial institutions and retailers. All cards issued Debit Cards 43.0% models. It provides the certainty of settlement of an RTGS
are EMV-compliant. Contactless credit and debit cards are Credit Cards 33.9% system, together with the lower collateral costs of a netting
as part of its multi-
available. Cheques 5.4% system. In December 2016, Payments Canada announced
plans to develop a new real-time settlement system called
Credit card payments are processed through the card‑issuing Lynx, as part of its multi-year modernisation programme. Lynx
network. Debit card payments are cleared via the ACSS.
year modernisation will replace the existing LVTS system.
®® The ACSS (Automated Clearing Settlement System): a
Interac, Canada’s principal debit card network provider, offers two % value of all cashless
shared services to the debit cardholder: payments 2015 programme. Lynx will national deferred net settlement (DNS) system. Most ACSS
payment items are for relatively small amounts, and while
®® Interac Cash, which allows the withdrawal of cash from any of 99% of the daily transaction volume is cleared through the
Canada’s 66,400 ATMs; and
®® Interac Debit, which allows payment for purchases at over 1.3
replace the existing ACSS, these transactions represent just 10% of the total value
cleared. Approximately 90% of the total value is cleared via the
LVTS.
LVTS system.
million POS terminals. Low-Value Credit Transfers 5.2%
High-Value Credit Transfers 86%
The USBE (US Dollar Bulk Exchange), a parallel system to
All POS terminals have been EMV-compliant since October 2016. Direct Debits 1.4%
the ACSS, is used for the clearing of payment items in USD.
Debit Cards 0.4%
Electronic wallet Each participant makes entries to reflect the exchange of
Credit Cards 0.8%
Electronic money schemes are available in the form of reloadable payment items in various streams with every other participant.
Cheques 6.0%
pre-paid cards. Balances are calculated on a bilateral basis between participants
rather than on a multilateral basis, as is the case for the
Contactless payment card schemes such as Interac Flash, Source: CPMI – Red Book statistical update, December 2016.
ACSS. Settlement of USBE balances is carried out through
MasterCard PayPass and Visa payWave are also available. In correspondent banks in New York. The Bank of Canada is not
2015, contactless payments were used in 12% of all consumer involved in this process.
debit and credit transactions1.
Participants
Mobile wallet apps such as Apple Pay and Android Pay are The LVTS has 17 direct participants, including the Bank of
available. Canada, and approximately 65 indirect participants.
The ACSS has12 direct participants and approximately 120
indirect participants.
1.
Payments Canada-Canadian Payment Methods and Trends, 2016.
2.
CPMI - Red Book statistical update, December 2016.20 HSBC Treasury Management Profile 2018 | Canada HSBC Treasury Management Profile 2018 | Canada 21
Transaction types processed ®® 18:00: LVTS closes for third-party (client) transactions.
The LVTS processes high-value, same-day client and interbank ®® 18:00–18:30 ET: pre-settlement period in which participants
electronic credit transfers in CAD. There is no minimum value can effect bilateral transactions with each other in order to
threshold. In addition, the LVTS effects the final settlement of balance out positions and reduce any need to borrow from the
participants’ net balances originating from the ACSS. Bank of Canada overnight.
®® 18:30–19:30 ET: settlement period in which the multilateral
The ACSS processes all CAD interbank payments not processed
net position of each direct participant is registered with its
by the LVTS. These include paper-based payment items –
settlement account held at the Bank of Canada. Settlement
cheques (CAD 25 million or less), low-value or non-urgent credit
entries are final and irrevocable.
and debit transfers, as well as low-value electronic payment items
®® 20:00 ET: unused collateral is released to the participants.
such as POS and ATM transactions. Settlement of Electronic Data
Interchange (EDI) is also included in the ACSS settlement stream. ACSS – AFT Electronic Credits and Debits
®® Prior to 09:30 and 16:30 ET: direct clearers exchange files
Operating hours
containing AFT electronic credit and debit instructions.
The LVTS operates from 00:30 to 19:30 ET.
®® 05:00 ET: each direct clearer inputs entries into the ACSS
The ACSS operates from 07:00 to 05:30 ET. against each of the other direct clearers from which it has
received credit transactions or delivered debit transactions.
Clearing cycle details ®® 08:00 ET: funds are debited or credited to beneficiary
LVTS accounts.
®® 00:00–00:30 ET: participants sending Continuous Linked ®® 09:30 ET: initial net balances available from the ACSS to direct
Settlement (CLS) or CLS-related payments determine net debit clearers.
caps and bilateral credit lines. Collateral is pledged to the Bank ®® 11:00–12:00 ET: final settlement with the Bank of Canada.
of Canada. (CLS Bank is a New York-based multicurrency
clearing bank that settles foreign exchange transactions.)
®® 00:30 ET: the LVTS opens only for CLS and CLS‑related
payments. Currency centre holidays
®® 00:30–06:00 ET: CLS participants send and receive payments
2nd half 2018 3 Sep, 8 Oct, 12 Nov, 25, 26 Dec
to/from the CLS Bank via the Bank of Canada. Adjustment of
debit caps and credit lines. 2019 1 Jan, 18 Feb, 19 Apr, 20 May, 1 Jul,
®® 07:00–08:00 ET: all other participants set net caps, credit lines 5 Aug, 14 Oct, 11 Nov, 25, 26 Dec
and pledge collateral.
Source: www.goodbusinessday.com.
®® 08:00–18:00 ET: participants exchange payments and
track and adjust their positions and limits. The LVTS settles
transactions individually in real time and with immediate
finality. Settlement takes place via the participants’ accounts
held at the Bank of Canada.
®® 06:00–18:00 ET: the LVTS accepts all interbank and third-party
transactions. Communications are made via SWIFT.22 HSBC Treasury Management Profile 2018 | Canada HSBC Treasury Management Profile 2018 | Canada 23
Cash
Management
The US-based Domestic
Notional pooling
Cross-border
Cross-border payment instructions are routed via SWIFT and
®® Treasury bills (T-bills) are issued by the Canadian federal
government as well as by the provincial governments. A range
Notional pooling is permitted in Canada provided the financial settled through accounts held with correspondent banks abroad. of maturities are available; three‑month terms are the most
FedGlobal Canada institution has the ability to offset unconditionally pooled deposits
and overdrafts. The US-based FedGlobal Canada Service (also known as Canada
common. There is a secondary market for T-bills.
®® Repurchase agreements are available.
Connection) offers a low-cost funds transfer service for payments
Service offers a low-
®® Banker’s acceptances are available with maturities ranging
One or more legal entities may be included. Where more than from the USA to Canada. The US client chooses whether the
from overnight to 12 months.
one legal entity participates, this will generally consist of a parent credit transfer will be paid in USD or CAD via a foreign exchange
®® Money market funds are available.
cost funds transfer
and its wholly owned subsidiaries. process. Settlement in Canada is typically on a T+1 or T+2 basis,
depending on transaction type. The FedGlobal Canada Service ®® Promissory notes are also available.
Notional pooling may consist of either CAD or USD account offers banks based in the USA the option of sending both ACH
Custody and securities settlement1
service for payments structures.
Cash concentration
debits and ACH credits to Canada.
Depository
®® CDS Clearing and Depository Services Inc.
Lifting fees
from the USA to Cash concentration is permitted between resident and non-
resident companies, if the non-resident company is part of
Fees are rarely applied on funds transfers between resident and
non-resident accounts. The CDS is Canada’s national securities clearing, settlement and
the same legal entity. Single-currency physical cash pools are depository organisation. It links electronically with the Depository
Canada. Settlement is permitted in CAD and USD. Short-term investments
®® Interest can be earned on resident and non-resident current
Trust & Clearing Corporation (DTCC) in the USA, and its subsidiary
the National Securities Clearing Corporation (NSCC), and has
Companies with multiple accounts at other banks in Canada may
typically on a T+1 or
and savings accounts. custodial links with Euroclear and Japan Securities Settlement &
transfer funds to a concentration account using LVTS transfers, ®® Demand deposits accounts are available to residents and Custody.
AFT credits or AFT debits. non-residents. Interest can be earned on demand deposits
T+2 basis. accounts. A growing number of equity, and most debt, securities are
Interest paid to non-residents is subject to Canada’s thin immobilised in the CDS, with some available only in book entry.
®® Time deposits are available in CAD or major foreign currencies.
capitalisation and transfer pricing rules. Equities are processed in two batch cycles each day. Government
Maturities are typically less than one year. For members of the
of Canada debt and all money market securities settle online in
Cross-border physical cash pools are permitted between Canada Deposit Insurance Corporation (CDIC), deposits of up
real time with finality of securities settlement.
Canada and the USA. Credit balances from the header or master to CAD 100,000 are guaranteed for deposits with a maturity of
accounts are swept into overnight deposit accounts or money less than five years. Central counterparties (CCP)
market accounts. ®® Commercial paper is issued with maturities ranging from The CDS acts as CCP for Government of Canada bonds, Treasury
overnight to one year. The minimum investment amount is bills, Government of Canada-guaranteed corporate bonds,
Collections CAD 100,000. Provincial bonds, Notes and Treasury bills.
Banks in Canada and the USA offer customers a lockbox service ®® Certificates of deposit (CDs) are offered as guaranteed
to help reduce payment delays for mailed payments. investment certificates (GIFs) by commercial banks in both The Canadian Derivatives Clearing Corporation acts as CCP for
CAD or major foreign currencies. Maturities range between equity derivatives, Index derivatives, interest rate derivatives.
Lockbox services are used in Canada and offered by the major one day and five years. The minimum investment amount is
cash management banks. Clients send their payments by mail CAD 5,000. Settlement cycle
to a special post office box for pick‑up, processing and deposit ®® T+2 from 5 September 2017.
by the lockbox provider for credit to the collecting company’s
account. Detailed remittance information about the payments
1.
Data as at August 2017.
can also be electronically captured and transmitted for use in
updating receivables systems, or viewed online.24 HSBC Treasury Management Profile 2018 | Canada HSBC Treasury Management Profile 2018 | Canada 25
Electronic
Banking
The Bulk Interac Electronic banking is available in Canada and offered by all of
the country’s banks. There is no bank-independent electronic
banking standard; each bank offers its own proprietary system for
e-Transfer service corporate banking purposes. These are typically based on SWIFT
or EDIFACT standards.
enables businesses Payments Canada (formerly the Canadian Payments Association)
has launched a multi-year project for the adoption of the
to use a recipient’s
international payment messaging standard ISO 20022. The
project will enable straight through processing and electronic
invoicing. The first phase of the project included the development
e-mail address or of ISO 20022 standards for AFT, LVTS and EDI payments and
ran from February 2013 to February 2015. The second phase will
focus on the implementation of the new standards. AFT batch
mobile phone number payments will continue to operate along with any new real-time
system. AFT payments should be transitioned to ISO 20022 by
to send payments. No
the end of 2019.
Internet and mobile banking is offered by all of Canada’s banks
financial information is and is popular among both retail users and companies.
®® Approximately 83% of Canadian residents use online banking
required. services1.
®® Approximately 44% of Canadian residents use mobile banking
services2.
The Bulk Interac e-Transfer service eliminates the need to issue,
track or reconcile cheques or handle cash payments. No financial
information is required for payment. Businesses need only a
recipient’s e-mail address or mobile phone number to send
payments. Beneficiaries receive a notification and after answering
a security question they are able to deposit funds directly into
the CAD account of their choice. Five financial institutions (BMO,
DirectCash Bank, RBC, Scotiabank and TD Bank) currently offer
the service to their business customers.
Canada has an internet penetration rate of 93.3%3. Smartphone
penetration is 73%4.
1.
Canadian Bankers Association.
2.
Canadian Bankers Association.
3.
www.internetworldstats.com.
4.
CRTC, Communications Monitoring Report, 2016.26 HSBC Treasury Management Profile 2018 | Canada HSBC Treasury Management Profile 2018 | Canada 27
Trade
Finance
Imports Canada has concluded negotiations for an expanded and Licences Key import partners
Documents modernised free trade agreement with Israel. All exports that require permits (such as softwood timber
In order to import goods into Canada, a Cargo Control Document products, roe herring, armaments, ammunition, dual-use items
(CCD), Canada Customs Invoice (CCI) or commercial invoice, The Canada-Ukraine Free Trade Agreement (CUFTA) entered into and chemical, biological and nuclear products) are identified in
bill of lading, packing list, Canada Customs Coding Form and, in force in August 2017. the Export Control List.
certain cases, certificate of origin are required. USA 53.0%
Canada has signed a Comprehensive Economic and Trade Licences are not generally needed for exporting goods. Licences China 12.0%
Licences Agreement (CETA) with the EU. are mandatory for all goods to be exported to countries identified Mexico 6.30%
Licences are required for importing certain armaments, in the Area Control List (such as Syria and North Korea). Germany 3.30%
ammunition, nuclear products, endangered species of animals Canada is a member of the 21-member Asia-Pacific Economic
Japan 3.00%
and plants, natural gas and internationally controlled drugs. Cooperation (APEC) forum, which intends to lift all trade and Export licences are issued by the Department of Foreign Affairs,
investment barriers in the region. Trade and Development.
Import licences are issued by the Foreign Affairs and International
Trade Canada. Taxes are not imposed on the majority of imports into Canada, Taxes/tariffs and other fees
although all agricultural imports are subject to tariff rate quotas. Key export partners
No taxes are charged on the majority of exports from Canada.
Taxes/tariffs and other fees Tariffs average below 1%.
Canada currently has free trade agreements with its fellow NAFTA Export tax is levied on tobacco products.
members, Mexico and the USA. Most trade tariffs between the Higher tariffs are applied to over-quota agricultural products,
three countries have been abolished. such as dairy products, poultry and eggs, and products such as Prohibited exports USA 76.0%
apparel, footwear and ships. A negative list (of products that may not be exported) is in China 4.10%
In addition to NAFTA, Canada has established free trade operation.
UK 3.30%
agreements with Chile, Colombia, Costa Rica, Honduras, Israel, Prohibited imports
A negative list (of products that may not be imported) is in The Area Control List outlines a number of countries to which all Japan 2.10%
Jordan, Panama, Peru, South Korea and the European Free Trade Mexico 1.50%
Association member states (Iceland, Liechtenstein, Norway and operation. exports are controlled.
Switzerland).
Exports Armaments and ammunition cannot be exported to a number of Source: The World Factbook. Washington, DC: Central Intelligence Agency, 2017
Documents countries, including Burma, Iraq, North Korea and Zimbabwe. (https://www.cia.gov/library/publications/resources/the-world-factbook/index.html).
Canada and ten other Pacific Rim countries have agreed to
proceed with the Trans‑Pacific Partnership Agreement (TPP), In order to export goods from Canada, an export declaration
form, commercial invoice and customs declaration are required. Financing imports and exports
renamed the Comprehensive and Progressive Agreement for
Imports
Trans‑Pacific Partnership (CPTPP), despite the withdrawal of the
The export declaration can be done through the Canadian There are no financing requirements for imports.
USA from negotiations of the TPP. The new agreement can take
Automated Export Declaration (CAED) system or the G7
force 60 days after at least six signatories complete domestic Exports
Electronic Data Interchange (EDI) Export Reporting system. The
procedures. There are no financing requirements for exports.
export declaration can also be completed through the B13A
Canada is negotiating free trade agreements with the Caribbean paper form, although this method is being gradually phased out
Community (CARICOM), the Central America Four (El Salvador, by the Canadian Border Service Agency (CBSA).
Guatemala, Honduras and Nicaragua), the Dominican Republic,
India, Japan, Morocco and Singapore.28 HSBC Treasury Management Profile 2018 | Canada HSBC Treasury Management Profile 2018 | Canada 29
Useful
Websites
Bank of Canada www.bankofcanada.ca
Leading banks: Bank of Montreal www.bmo.com
Canadian Imperial Bank of Commerce www.cibc.com
Royal Bank of Canada www.rbc.com
Scotiabank www.scotiabank.com
TD Bank Financial Group www.td.com
Office of the Superintendent of Financial Institutions www.osfi-bsif.gc.ca
Canadian Bankers’ Association www.cba.ca
Department of Finance Canada www.fin.gc.ca
Global Affairs Canada www.international.gc.ca
Canadian Chamber of Commerce www.chamber.ca
Disclaimer
Innovation, Science and Economic Development Canada www.ic.gc.ca
This document has been produced by HSBC Bank plc and members of the HSBC Group (“HSBC”), together with their third-party contributor, WWCP Limited. We make no
Montréal Exchange www.m-x.ca representations, warranties or guarantees (express or implied) that the information in this document is complete, accurate or up to date. We will not be liable for any liabilities
arising under or in connection with the use of, or any reliance on, this document or the information contained within it. It is not intended as an offer or solicitation for business
Toronto Stock Exchange www.tsx.com to anyone in any jurisdiction. The information contained in this document is of a general nature only. It is not meant to be comprehensive and does not constitute financial,
legal, tax or other professional advice. You should not act upon the information contained in this document without obtaining your own independent professional advice. The
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services provided by HSBC or any form of cooperation between HSBC and the respective third parties.
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or projection contained in this document or any other written or oral information provided in connection with the same, or (ii) any loss or damage (whether direct, indirect,
consequential or other) arising out of reliance upon this document and the information contained within it.
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