We have a BC incorporated small business that is a trading company. All current customers are in Canada. However all our purchases, travel expenses, etc. for trade are in USD. We currently have a Canadian bank account in USD and some investments in USD so that we do not have to pay exchange fees every time we purchase a container load of goods, or buy plane tickets. As a Canadian resident corp we off course are subject to the 15% withholding on dividends and interest received on US investments. No US reporting requirements since it's investment income only (although I suppose that the IRS could conceivably say that it's income used in an active business, but they are getting 15% so I guess they wouldn't bother). As long as the CCPC is profitable and paying taxes more than the total amount withheld then we get credit for US taxes withheld. But the past several years we have been in a zero tax position in Canada. Therefore the US withholding is lost to us.
Proposed solution is to have the CCPC incorporate a US subsidiary to hold all USD denominated investments and pay all the USD COGS and travel expenses. No withholding taxes to the US sub. As long as ongoing annual expenses divided by 15% are less than the total USD revenues, it should be tax advantageous. Have to be careful not to have profits after COGS and expenses of over $50K otherwise tax rate is greater than 15%. Am I missing anything?
Is C corp in US, wholly owned by the CCPC the way to go? We don't want to have any personal tax returns due in the US. Or would it be better to form an LLC so that investment income could be treated as passive income?
Canadian CCPC with US assets
Moderator: Mark T Serbinski CA CPA
You have a CCPC thats a trading company so it earns active business income subject to tax rate of 13.5% in BC, then you are saying you have passive investments in USD that earn investment income that has 15% withoolding tax that you can not claim because the corp tax is zero.
Are you doing your tax calculation properly, the investment income is subject to tax at 44.67 % with a built in refundabale div tax component or Part IV tax which is a penalty tax for earning investment income in a corp until you dividend out to shareholders then the tax is reduced to 18% well within the 15% witolding.
Aslo to qualify from SBD your active business income must be CND not US sales.
In no way would one want to incorporate a sub in the US to get around witholding you would be engaging in more issues than its worth and filing conditions would become burdensome.
I think your CA or whoever is not properly allocating the income on the T2S(7) and you maybe passing off the income as passive from the investments otherwise I do not see why you can not absord the tax.
Are you doing your tax calculation properly, the investment income is subject to tax at 44.67 % with a built in refundabale div tax component or Part IV tax which is a penalty tax for earning investment income in a corp until you dividend out to shareholders then the tax is reduced to 18% well within the 15% witolding.
Aslo to qualify from SBD your active business income must be CND not US sales.
In no way would one want to incorporate a sub in the US to get around witholding you would be engaging in more issues than its worth and filing conditions would become burdensome.
I think your CA or whoever is not properly allocating the income on the T2S(7) and you maybe passing off the income as passive from the investments otherwise I do not see why you can not absord the tax.
JG