professional corporation income

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
plethorama2
Posts: 1
Joined: Mon Aug 11, 2014 11:43 pm

professional corporation income

Post by plethorama2 »

Hi,

I am an american physician potentially moving to alberta from the us. I anticipate this would be a permanent or very long term move. In Alberta I will be taking a job in which a large portion of my income is placed in a professional corporation. This would be very beneficial for me if I was not a us citizen. However, as a us citizen I understand that this professional Corp income would be taxed at ?the current Corp income rate in the us without any tax credit for Canadian taxes since it is not earned income...so it becomes punitive taxation. I understand that setting up a unlimited liability corporation can help to avoid these issues but it is conplex. I am not sure I understand how a ulc works from the tax standpoint. Does the transfer to a ulc from a prof corp equal a distribution from the prof corp? Is the ulc not liable for any tax in the us? Am I best served just distributing the entire amount from the corporation to myself so that I can claim all the tax credit?

In general, what are ways to maximize savings for retirement etc. I will have a pension as well...is there any way to prevent that from being taxed punitively?
JGCA
Posts: 754
Joined: Thu Nov 18, 2010 3:05 pm
Location: Montreal, QC Canada

Post by JGCA »

I am assuming that since you stated the income is not considered as earned income that the prof corp in Canada will give you the money you earned as a dividend T3 thereby you will not be able to exclude some of the income by using the foreign earned income exemption but you can still use the Foreign tax credit form and any tax you pay in Canada will be credited to you in the US.

As a USC you are taxable on worldwide income so any tax paid to Canada will be given to you as a credit in the US within certain computing restrictions which you need to do when you file.

Using an unlimited corp in Canada will not change anything they will tax you in Canada and you receive the credit in the US the only thing is you may declare the income you get as a salary instead of a dividend thus allowing you to get some foreign earned income exclusion up to teh current yr limit say about $90K but you need to see if its more beneficial to use the tax credit instead of teh Foreign income exclusion you can not claim both.

Any income you receive including pension will go on top of the other income you declare so you will be taxed at the marginal tax rate of all income combined if you take it in the same year as a dividend or salary.

Remember also as a USC you have to comply to reporting requirements if you own any corp in Canada to the US annually this is costly to simply have to report the accumulated income retained in the corp they will wwant to know this for estate tax purposes also, its quite complex so you need t6o consult with a CPA that will alert you on the reporting issues also not just the tax rates.
JG
Post Reply