Incorporating in canada by US resident -

I am an IT consultant and a Canadian working in US for
past few years. 
Recently, I won a contract in Canada. The agency that
I am working with recommend to incorporate a company
in Canada for getting better rates and tax return. 
My other option is as a sole Proprietor where I am
paid for stat holiday's, and also have an option to
enter in to our benefit program after 3 month (Cost). 
Having been away from Canada for many years and my
limited knowledge of new tax law, I am reluctant as
what is best for me. 
Is it to my advantage to register a cooperation for a
6 months contract? Tax wise? 
Could I use the cooperation for other international
contracts in future? 
What are the advantages of making a cooperation rather
than working on sole Proprietor? 
How many times a year I have to fill up taxes? 
Thank you 

david ingram replies:

If you intend to spend the money you earn, forget it.  By the time you finish with the corporation and extra legal and accounting bills, you are likely $2,000 down.

The only reason that the initial tax for the corporation is lower is so that you can leave the money in the corporation so that you can buy a gravel truck or a warehouse or more stock for sale, etc.

In addition, if you intend to return to the US or have a green card or are filing a US 1040, you will have to file form 5471 to report the  internal earnings of the Canadian corporation  or face a US $10,000 penalty.

this older question might help

Hello Taxman!!

I have a question for you. I am an IT Consultant working in the USA on a TN Visa, but with a Canadian Citizenship. I had been doing this for over a year with my former Canadian employer. This tax year, I submitted US federal and state income tax returns with foreign income, and then I filed a Canadian return. This coming year, my situation will change. I plan to incorporate myself in either Canada or the USA , I was thinking a Delaware LLC, but I’m not sure which would be more beneficial for me. I will be getting contracts on 1099 with no tax withholdings. My residence is in New Jersey , but I have real estate in Ontario as well. What will be my tax liabilities? I’m assuming I still have to do returns for both countries, personal and corporate, but who would I actually pay tax to, and to which country would I be reporting as foreign income?

Also, I’m wondering about RRSP’s? Are these deductible in the USA too, or do I need to open up an American IRA?

I will most likely dump off all my receipts to an international accountant and let them do it all for me. But I guess I could use some advice on what would save me the most in tax dollars. BTW, what are your fees like, to do personal and corporate returns, Canada and US?

Thanks a lot.


david ingram replies:

Watch out - incorporating could end up with your being denied a TN visa.  Remember that you need a separate TN for each company you consult for unless you are an employee of one company that is selling your service.  If so, you can NOT be the controlling or even a major shareholder.

Your tax liabilities depends upon where you are deemed to be a resident under Article IV of the US/Canada Tax Treaty.

An RRSP does you no good in the USA.  It also requires you to file forms TDF 90 and 8891.  If you already have an RRSP, these must be filed already.

If you are a resident =of the US, you will pay tax on your world income to the US.  If you have Canadian income, you will pay tax to Canada first on that income and then claim foreign tax credits in the US on form 1116 for the tax paid to Canada.


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This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.

$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
$1,200 would be the same with one rental
$1,300 would be the same with one business no rental
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above and you moved in and out of the country.
This is just a guideline for US / Canadian returns
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
A Business for $400 - Rental and business likely $550 to $700
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to $100.00 each.
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable.  In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years.  We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

This is a guideline not etched in stone.  If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.


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