Contracting in Canada

[knight007]

Like I said, my client is not based in Canada or the UK. I was contracting remotely for them from the UK through my Ltd. company and have kept them on as a client now that I have moved to Canada. Basically I need to see an accountant here to determine the most tax efficient thing to do, as this is a complicated situation. I imagine I will need to set up a Canadian corporation. If anyone has any advice, it would be appreciated.

Right, so you wish to continue supplying services to your client but be physically based in another country?

Your client will continue to deal with your UK Ltd Co. You can be a company director resident anywhere in the world and have a UK based company. So I doubt there will be any impact on your business to business dealings.

However if you are now resident in Canada for tax purposes, you need to declare your UK based income and file a Canadian personal tax return at year end. Canada and UK have a double tax treaty to ensure you are not taxed twice.

If you have not fully moved from the UK I.e still have residential ties such as a house, you can file for non residency in Canada and then no need to file a tax return.

The accountants in Canada are very poorly educated. I doubt they will be of much help.

[trebor123]

Right, so you wish to continue supplying services to your client but be physically based in another country?

Your client will continue to deal with your UK Ltd Co. You can be a company director resident anywhere in the world and have a UK based company. So I doubt there will be any impact on your business to business dealings.

However if you are now resident in Canada for tax purposes, you need to declare your UK based income and file a Canadian personal tax return at year end. Canada and UK have a double tax treaty to ensure you are not taxed twice.

If you have not fully moved from the UK I.e still have residential ties such as a house, you can file for non residency in Canada and then no need to file a tax return.

The accountants in Canada are very poorly educated. I doubt they will be of much help.

Thanks, this is good information. From what I read, because the control of my UK Ltd. Company is now in Canada(i.e. me), the company is now subject to Canadian corporation tax. Although I appreciate double taxation relief will apply it sounds like a bit of a headache.

I am not maintaining any ties to the UK, but I will actually only be in Canada for about 6 months, before I move the country my client is based in(waiting on visa to come through).

From what I read, there is little benefit tax wise to drawing dividends over salary under Canadian tax law? Is my understanding correct? I thought the simplest solution might be for my UK company to pay all revenue to me as salary. I would pay personal income tax on this in Canada and my company would have no corporation tax to pay either in the UK or Canada as my company would not have made a profit. Please tell me if this is a terrible idea.

[knight007]

Thanks, this is good information. From what I read, because the control of my UK Ltd. Company is now in Canada(i.e. me), the company is now subject to Canadian corporation tax. Although I appreciate double taxation relief will apply it sounds like a bit of a headache.

I am not maintaining any ties to the UK, but I will actually only be in Canada for about 6 months, before I move the country my client is based in(waiting on visa to come through).

From what I read, there is little benefit tax wise to drawing dividends over salary under Canadian tax law? Is my understanding correct? I thought the simplest solution might be for my UK company to pay all revenue to me as salary. I would pay personal income tax on this in Canada and my company would have no corporation tax to pay either in the UK or Canada as my company would not have made a profit. Please tell me if this is a terrible idea.

I don't think that's the way it works. I know a few directors based outside the UK controlling a UK company. In fact I've done it myself whilst in Canada for 6 months. The company is only liable for UK corporation tax. If the physical location of your company changes, then it might change things but I would double check. Remember the company is not yours. You are simply a shareholder and a employee of the company. You and the company are two independent entities.

Canadian taxation favours drawing dividends. There is much to be gained from having a good share structure set up in a Canadian corporation. You can do things like dividend sprinkling, which you won't get away with in the UK with HMRC. But disregard all of this since I dont think it applies to your situation.

If I were you I wouldn't change things. If your Ltd Co maintains a trading address in the UK , continue billing your client as normal. Money will get paid to your UK company bank account. This model doesn't change.

What you do with this revenue is up to you. Paying yourself UK dividends or UK salary whatever you want.

You simply pay the UK taxes due and your done. If staying in Canada greater than 180 days, you may be considered a deemed resident for tax purposes.

[trebor123]

I don't think that's the way it works. I know a few directors based outside the UK controlling a UK company. In fact I've done it myself whilst in Canada for 6 months. The company is only liable for UK corporation tax. If the physical location of your company changes, then it might change things but I would double check. Remember the company is not yours. You are simply a shareholder and a employee of the company. You and the company are two independent entities.

Canadian taxation favours drawing dividends. There is much to be gained from having a good share structure set up in a Canadian corporation. You can do things like dividend sprinkling, which you won't get away with in the UK with HMRC. But disregard all of this since I dont think it applies to your situation.

If I were you I wouldn't change things. If your Ltd Co maintains a trading address in the UK , continue billing your client as normal. Money will get paid to your UK company bank account. This model doesn't change.

What you do with this revenue is up to you. Paying yourself UK dividends or UK salary whatever you want.

You simply pay the UK taxes due and your done. If staying in Canada greater than 180 days, you may be considered a deemed resident for tax purposes.

Thanks, I think it is 50/50 whether I will end up being tax resident in Canada this year. I could certainly stay here more than 180 days or I could choose not to.

It looks like if I am tax resident in Canada and I use a Canadian corporation, I would pay as little as 15% Canadian corporation tax and could pay very little in personal income tax if both myself and my partner split the income as dividends. This would be about half what I would pay HMRC. Does this sound roughly correct?

[knight007]

Thanks, I think it is 50/50 whether I will end up being tax resident in Canada this year. I could certainly stay here more than 180 days or I could choose not to.

It looks like if I am tax resident in Canada and I use a Canadian corporation, I would pay as little as 15% Canadian corporation tax and could pay very little in personal income tax if both myself and my partner split the income as dividends. This would be about half what I would pay HMRC. Does this sound roughly correct?

If you decide to become resident in Canada.
1)You would need to form a new company

2)Would your existing client be happy to trade with a Canadian company (check whether they have any trade restriction in their country)

3)your end client will need to pay into a canadian bank account for the company

4) Depending on the province in which you are planning to incorporate, check the residency requirements for directors. For example Ontario - 51% of directors must be canadian residents.

5) Taking ONLY dividends could raise alarm bells with the CRA (like HMRC). They expect to collect a little bit of tax. I personally would't do this. The equivalent of IR35 exists in Canada but isn't as strict as UK. But you can proceed with this option if you need to. I would also set up more than 1 class of shares if you have more than 1 shareholder.

6) Accountants in Canada charge around $1200 to file your corporation tax return. Keep that in mind too.

[BlasterBates]

I am going to be in Canada for 6 months or so before moving to the US. I am currently contracting through my UK Ltd. company for a client based outside Canada(and outside the UK/EU). Should I just continue using my UK Ltd. company in Canada, pay UK corp tax and pay Canadian tax on personal income? Is there a more efficient way?

The rule is you set up your company where you do the work. So what you can't do is work in Canada for your UK company. I would visit a Canadian accountant when you get to Canada, and let him sort it out. No point in taking unnecessary risks that will wipe out all your earnings in fines etc. It maybe possible to have a UK company and a Canadian company and bill the UK from Canada,

[knight007]

The rule is you set up your company where you do the work. So what you can't do is work in Canada for your UK company. I would visit a Canadian accountant when you get to Canada, and let him sort it out. No point in taking unnecessary risks that will wipe out all your earnings in fines etc.

No I don't believe this is the case. A company can have employees anywhere in the world. Many companies have employees working from abroad.