I'm a dual US/Can citizen who was recently offered a contract position with a local Canadian company. For contractors who are not employees of an agency they ask that you set up a numbered Canadian company and they then treat that company as a supplier and just pay a monthly invoice.
The Canadian side of owning a numbered company is pretty strait forward, however I'm trying to understand the implications to my US taxes. How much extra reporting (there is always extra) is involved in 'owning' a 'foreign' company? Would I be better off having my Canadian wife be the sole owner of this new company?
US Tax Implication of Owning Your Own Company in Canada
Moderator: Mark T Serbinski CA CPA
The reporting requirements are quite involved especially since you are a dual citizen for US purposes you must always pick up the income even if it has not been distributed to you. Your wife could own it but the question will arise that has earned the income or not, if she were to take the income as dividends not actually having to demonstrate that she was working the corp and pay you a salary then this would lower your tax reporting but taking a dividend she would pay more tax in the corp since it can not deduct this and having the income come from the US it would not qualify for the small business tax rate. To the extent you were paid a salary then this would lower the corp tax rate.
You have to do the numbers to see what the cost savings would be having her own the corp take the excess income as dividends and pay you a salary to lower the corp tax rate any salary you receive in Canada can be excluded from income in the US as earned income tax credit within the annual limits or taxed then you claim the foreign tax credit on your US filing for tax you paid to Canada on this earned income you took as a salary.
You have to do the numbers to see what the cost savings would be having her own the corp take the excess income as dividends and pay you a salary to lower the corp tax rate any salary you receive in Canada can be excluded from income in the US as earned income tax credit within the annual limits or taxed then you claim the foreign tax credit on your US filing for tax you paid to Canada on this earned income you took as a salary.
JG
"The reporting requirements are quite involved especially since you are a dual citizen for US purposes "
- just wondering what the criteria are for filing. Ours is a Canadian Corporation with 50% owned by a dual CDN/US citizen. Do we need to report business income tax (i.e. forum 1120-F) to the US? Thanks for any guidance. I had heard that the corporation needs to be more than 50% owned by US citizen before filing - is this correct?
- just wondering what the criteria are for filing. Ours is a Canadian Corporation with 50% owned by a dual CDN/US citizen. Do we need to report business income tax (i.e. forum 1120-F) to the US? Thanks for any guidance. I had heard that the corporation needs to be more than 50% owned by US citizen before filing - is this correct?
-- Jeff
Your corp activities is what determines whether or not you need to file a 1120F not the US control percentage. The US shareholder who owns at least 10% of the CND corp must file disclosure statement to the IRS and must pick up his personal share of income and include it on his 1040 if any income applies or not the disclosure still must be filed. THe corp does not have to file a 1120F if it does no US business or has an establishment in the US.
JG