Consulting Issue

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webcite_99
Posts: 46
Joined: Fri Feb 18, 2005 8:45 pm

Consulting Issue

Post by webcite_99 »

I am a US citizen and a 50% shareholder of a US based S corp. We are a technology consulting company and we have been approached about doing a project for a Canadaian based company. To perform the work, I would have to be physically present in Toronto and Montreal and the project would last approximatley 3 to 5 months. (I'm assuming that I would rent an appartment during this time and fly back to visit home from time to time). The Canadian company would pay my company and I would receive my salary from my S corp.

My question is, what if any permissions (visas, permits, etc.) from the Canadian government would I need to perform this work? Also, are there any tax implications that I would need to worry about other than just my US return. i.e. would I be subject to any Canadian taxes?

Thanks

Rick
nelsona
Posts: 16654
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

I thought you were about to move to canada?

In general, US contractors are not subject to Cdn tax unless they have a 'fixed-base' in Canada.

The rules on 'fixed-base' can be pretty hard to nail down, so a talk with a Cdn accountant would be in order.

Sometimes, even a desk at your clients can be interpreted as a 'fixed-base'.

While there is no linit on the number of days you could work under this arrangent an not be subject to Cdn tax, under the deemed resident rules, if you spend 183 days in one calendar year, you would become taxable on all your income.

<i>nelsona non grata... and non pro</i>
webcite_99
Posts: 46
Joined: Fri Feb 18, 2005 8:45 pm

Post by webcite_99 »

This is an ongoing debate with my Canadian wife. Thanks for the reply. Do you happen to know if CRA has anything published on the subject?

Thanks again for this and all other replies as my situation seems to continue to evolve weekly.

Rick
Carson
Posts: 182
Joined: Wed Oct 27, 2004 1:00 pm
Location: Toronto

Post by Carson »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by webcite_99</i>

This is an ongoing debate with my Canadian wife. Thanks for the reply. Do you happen to know if CRA has anything published on the subject?
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Rick, as Nelson indicated, where your corporation has no fixed base in Canada, the company will not be subject to income tax (I'll assume for my comments that is true).

But because the company has an employee that performs services in Canada, a 15% withholding tax will likely be applied to payments to your S corp under Regulation 105. This is not a final tax, but a prepayment of the corporation's ultimate Canadian tax liability. Where there is no fixed base, the liability will be zero. To get the withholding back, a Federal T2 corporate tax return will have to be filed. Even without the withholding, you would be required to file a T2 return no later than 6 months after the corp's fiscal year-end. This requirement is essentially to acknowledge doing business in Canada, and to claim a Treaty exemption from tax. A large penalty applies if you do not file on time.

/crh
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