Moving to Canada - huge potential obstacle Help!

nelsona · Post by **nelsona** » Sun Oct 22, 2017 12:22 pm

Thanks JG, was hoping you would explain it so clearly.

rapchik · Post by **rapchik** » Mon Oct 23, 2017 2:38 pm

Thanks JG and Nelsona. My US corporation was originally a C Corp. I made a Sub Chapter S election which I can easily rescind and make it a C Corp again. Would that change anything from the Canada perspective then? Would that affect the Cash Balance Plan contribution treatment in Canada?

nelsona · Post by **nelsona** » Mon Oct 23, 2017 4:45 pm

It would not change the treatment. You can only have the US firm contribute to a US pension for the least of (a) 5 years, or (b) when you switch to a Cdn corporation (which I'm pretty sure you will end up needing to do sooner, based on JG's comments).

rapchik · Post by **rapchik** » Mon Oct 23, 2017 6:15 pm

nelsona in the tax treaty technical explanation document if says that the pension deduction which is available for up to 5 years is not available to self-employed people. Would that include me?

Also, based on what LGCA said, my question is if I switch to a C Corp and since I am temporarily (i.e. <5 years) assigned to work in Canada: Can my C corp not pay me a US salary which is deductible to the C Corp for Canadian tax purposes?

JGCA · Post by **JGCA** » Mon Oct 23, 2017 8:30 pm

Changing it back to a C corp would help you a lot in the tax treatment especially claiming foreign tax credits since you would be getting a salary and the salary would be taxes as such on both sides allowing you to claim FTC. However as Nelson explained you will still need to set up a payroll in Canada because the salary in CND sourced even if it was paid by a US C corp so yes C corp is good but it has to open up a payroll account in Canada for you.

rapchik · Post by **rapchik** » Mon Oct 23, 2017 9:10 pm

Thanks JGCA. So the scenario would work like this? Using $100,000 for ease of numbers:

C Corp earns $100,000
Corp Pays me $60,000 salary (taxed in US and Canada, where will the primary income
tax be paid on US return or US return?)
Corp Puts $40,000 in Defined Benefit Plan
C Corp Net income $0 (so no Corporate taxes in US or Canada)

On the $60,000 salary:
Is this considered US salary or Canada salary/? I have to pay payroll taxes in US or Canada or both? If it is Canadian salary then how can I be an employee of the US Corp wth no US salary?

Will the $40,000 retirement plan contribution deduction be allowed in Canada or will I be disqualified (considered self employed)?

nelsona · Post by **nelsona** » Mon Oct 23, 2017 9:12 pm

You are being paid as an employee of your corporation, so you are not self-employed.
You aren't self-employed right now, which is why your corporation able to fund a pension for you, rather than using a SEP.

I think I have stated sufficiently that you have this option for 5 years if it is paid by a US corporation. IF/WHEN you set up the Cdn corp, there are other vehicles you can use to fund a pension, albeit Cdn.