American (Startup Shares) moving to Canada

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CareBear
Posts: 2
Joined: Thu Aug 20, 2020 12:04 pm

American (Startup Shares) moving to Canada

Post by CareBear » Thu Aug 20, 2020 12:17 pm

Hi,

We've been doing our online research and reading up as much as we can on this forum. Thank you so much this awesome forum and for reading.

My wife is a US citizen and I am a US permanent resident. We are thinking of moving to Canada. We think this will be the right move for us and our children in the long term, but ultimately I think we need to try living there to find out if this is a permanent move.

We are cofounders and the only share holders of a private C-corporation tech startup in US. This is where things gets a bit complicated and I'd like to double check my understanding before chatting with a professional.

We've put in USD $500K into the startup and thus far it has made a loss of $250K over 3 years. The company is cash flow neutral and we expect to turn a profit in the next year. i.e. in a few years we expect the company to be valued at $2-3M. We're planning to start a Canadian branch of our company and employ ourselves in Canada through our branch office.

We're specifically trying to better understand the tax implications as US private share holders living as Canadian Tax residents.

Based on our research, I think there are 4 outcomes and their corresponding tax consequences we should be aware of.

1) We love it in Canada and decides to make this move permanent. For the most part this isn't too complicated tax wise. We're taxed by any salary we pay ourselves and potentially any dividends our company might payout in the future. The US-Canada tax treaty reduces or eliminates double taxation in this scenario.

2) The Company becomes hugely profitable but we decide to leave Canada after LESS than 5 years. In this case, the tax implications for the departure tax with respect to our company shares held in US is simple, there isn't any.

3) The company becomes hugely profitable but we decide to leave Canada after MORE than 5 years. The Canadian departure tax will require us to add 50% of (FMV of the company's valuation at departure - FMV at arrival) to be taxed. This is potentially a red flag situation for us, as the cash is tied up in the company and we may not be able to pay this "sudden" tax liability.

4) The company does not turn a massive profit as projected. It doesn't matter if we decide to leave or stay, as it is a capital loss, which will reduce our tax liability not increase it.


Is our understanding of our situation correct?

p.s. We're definitely finding a tax professional, but want to be prepared as well. Thank you!

nelsona
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Re: American (Startup Shares) moving to Canada

Post by nelsona » Thu Aug 20, 2020 1:05 pm

Sounds about right. I presume you have also looked into how you will immigrate to Canada?
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

nelsona
Posts: 16516
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: American (Startup Shares) moving to Canada

Post by nelsona » Thu Aug 20, 2020 1:06 pm

On #4 any capital losses will only used against other cap gains.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

CareBear
Posts: 2
Joined: Thu Aug 20, 2020 12:04 pm

Re: American (Startup Shares) moving to Canada

Post by CareBear » Fri Aug 21, 2020 10:22 pm

Thank you so much!

Yes we have looked into the immigration side. Nelson's are you with Serbinski? We're also looking into options for a cross border tax professional. If you're practising we'd love to have your contact.

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