Wed | Sep 23, 2020

Immigration Corner | Tax implications of setting up a business in Canada

Published:Tuesday | August 4, 2020 | 12:05 AM

Dear Miss Powell,

I am a businessman in the Caribbean, and I’m interested in setting up business in either Ontario or British Columbia. Can non-residents set up businesses in Canada? May I have some information on how to do this? What are some of the tax implications? Your guidance would be appreciated.

– A.R.

Dear A.R.,

Non-residents are permitted to set up businesses in Canada. However, he or she could be taxed at a higher rate, depending on the type of business and the conditions in the tax treaty that Canada has with your home country.

This is a particularly important decision that will entail more analysis and discussion than I will be able to give in this article. However, I will give you and other readers some basic information to assist you with planning for a meeting with an immigration lawyer.

The general rule is that a non-resident corporation must file an income tax return with Canada Revenue Agency (CRA) if the corporation carried on business in Canada, or if the company has disposed of a taxable Canadian property at any time in a tax year. This requirement applies even if any profits or gains claimed are deemed to be exempt from Canadian tax due to the provisions of a tax treaty.

The tax rate will be based on the amount of income or revenue you generate. A non-resident can expect that his federal corporation tax rate will increase 38 per cent over an above a local corporation. This means that for an income of $500,000, you should expect to pay additional federal tax of $145,000, plus be subject to provincial taxes.

Additionally, you will need to decide if you are going to register your business provincially or federally. Each province has its own rules and tax regulation regarding non-resident corporation. Ontario requires that 25 per cent of the directors must be Canadian residents, and profits to non-residents are subject to withholding tax, which could be between five and 25 per cent.

WORK PERMIT AND PERMANENT RESIDENCE APPLICATION

For British Columbia, 51 per cent of the directors or shareholders are required or the corporation could be subject to taxes as high as 26.5 per cent. You can find more information at https://www.canada.ca/en/services/taxes/income-tax.html.

For the above reasons, most individuals who are interested in establishing a business either seek to get a work permit or become residents There are several work permits available for investors and owners of international businesses. For example, there are the intracompany transfer start-up work permit and the owner/operator work permit, to name a few.

You could consider becoming a permanent resident, and then a citizen of Canada, to have the best tax advantage. There are several ways to become a permanent resident of Canada. Canada has one of the most generous immigration systems worldwide. Your eligibility for any programme would be based on your education, language skills, work experience, the amount of funds you have for investment and the type of business. I recommend consulting with an experienced immigration lawyer to explore ways to become a permanent resident.

Where you establish your business is a personal decision that should be carefully considered with the help of an experienced Canadian lawyer. You should consider one who can assist you with both your incorporation and immigration business plans.

The above is just to help you to start a conversation with an authorised Canadian lawyer to assist you further.

Deidre S. Powell is an immigration lawyer, mediator and notary public in Ottawa, Ontario, Canada. Submit your questions and comments to info@deidrepowell.com or call 613-695-8777. You can also find her at www.deidrepowell.com, Facebook, Twitter and Instagram.