Hi there, we are Indonesian citizen, US greencard holders moving to Ontario for work. MY wife will likely live in Ontario but attend school in the US over the next 4 years.
I will make about 550k CDN. I was planning to incorporate (not sure LLC or ULC). I was planning to pay myself about 150k and leave 400k in corporation for Canadian and worldwide investing (possibly avoid the US if taxation is complicated). I understand corporate taxes are more favorable compared to personal taxes in Canada.
On the 150k of personal income, I expect not to owe the IRS much because of the tax credits for paying higher personal Canadian tax.
However for the remaining 400k in the corporation- I expect to be taxed at @16-17%. Will the remaining amount be subjected to US taxes? If so, would in then be beneficial for me to give up my greencard (and my wife keep hers since she is still going to school there)?
Thanks gurus!
US GC holder moving to canada, applying for PR
Moderator: Mark T Serbinski CA CPA
I assume you are going to own more that 10% of the shares of the Canadaian corp and since you state the corp tax is about 17% you are saying that it qualifies as a CCPC meaning you will be reisent of Canada otherwise you do not pay corp tax on income at this rate.
Having said that you then have to see how to take out the money your CNd accountant will suggest dividends to benefit from the lower tax if you are a CCPC otherwise salary is the better choice since your corp tax rate as a non CCPC is about 28%.
Problem as a green card holder you are considered to be a US person taxed on worldwide income the US tax rules even on active business income will treat you since you own more than 10% of the shares as having a CFC meaning whether or not you distribute the money to yourself you must take it into income for US purposes as if it was a dividend meaning 100% income to you and you get NO deduction for the corp tax paid by the CND corp so all the income is taxed to you. The corp tax you paid out either 17% or 28% depending on the type of corp CCPC or non CCPC you pay tax on that income even if you did not keep it no credit for corp tax paid.
The IRS has these rules specifically for this type of situation you can not "PARK' money in other countries corp and not pay tax until you decide to distribute it.
If you do this just remember you have to include income to yourself even if not distributed to you so to avoid paying tax on the corp tax paid to CRA you either take it out all as salary no corp tax but all pers tax or use a ULC this is treated by CRA as a corp and IRS as a partnership but no parking of money is availabe either way its all taxed to you.
Not to mention the reporting and filing requirements required also on both sides of the border. Your plan will not fly.
Having said that you then have to see how to take out the money your CNd accountant will suggest dividends to benefit from the lower tax if you are a CCPC otherwise salary is the better choice since your corp tax rate as a non CCPC is about 28%.
Problem as a green card holder you are considered to be a US person taxed on worldwide income the US tax rules even on active business income will treat you since you own more than 10% of the shares as having a CFC meaning whether or not you distribute the money to yourself you must take it into income for US purposes as if it was a dividend meaning 100% income to you and you get NO deduction for the corp tax paid by the CND corp so all the income is taxed to you. The corp tax you paid out either 17% or 28% depending on the type of corp CCPC or non CCPC you pay tax on that income even if you did not keep it no credit for corp tax paid.
The IRS has these rules specifically for this type of situation you can not "PARK' money in other countries corp and not pay tax until you decide to distribute it.
If you do this just remember you have to include income to yourself even if not distributed to you so to avoid paying tax on the corp tax paid to CRA you either take it out all as salary no corp tax but all pers tax or use a ULC this is treated by CRA as a corp and IRS as a partnership but no parking of money is availabe either way its all taxed to you.
Not to mention the reporting and filing requirements required also on both sides of the border. Your plan will not fly.
JG
Would it be a fair summary that as it stands, these are my options:
1. Do not incorporate and pay personal canadian taxes on all earnings. Since personal tax rates are higher than the US, likely not much due to IRS. Keep greencard.
2. Incorporate, and get double taxed on corporation earnings after paying salaries with a good chunk going to the IRS. Keep greencard.
3. Lose the green card, incorporate and play solely by Canadian tax laws.
fair summary?
1. Do not incorporate and pay personal canadian taxes on all earnings. Since personal tax rates are higher than the US, likely not much due to IRS. Keep greencard.
2. Incorporate, and get double taxed on corporation earnings after paying salaries with a good chunk going to the IRS. Keep greencard.
3. Lose the green card, incorporate and play solely by Canadian tax laws.
fair summary?
1) If you remain a green card holder and do not incorporate then yes you pay tax to Canada and get tax credit in the US side , since Canada is higher it should work out but your taxed at 50% basically.
2) Incorporate and if you salary off the earnings there will be no tax owing by corp so no double tax exits since no corp tax was paid, but added filing and reporting requirements still apply even if no tax owed.
3)Lose the green card then as long as your resident in Canada no Us tax applies you can incorporate in Canada and take advantage of the CCPC mix and take out salary and dividends to lower teh 50% tax rate as above.
2) Incorporate and if you salary off the earnings there will be no tax owing by corp so no double tax exits since no corp tax was paid, but added filing and reporting requirements still apply even if no tax owed.
3)Lose the green card then as long as your resident in Canada no Us tax applies you can incorporate in Canada and take advantage of the CCPC mix and take out salary and dividends to lower teh 50% tax rate as above.
JG