A tax consultant has offered to answer questions related to Canadian taxes

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Jonathan Elias a tax consultant has offered to answer questions related to Canadian taxes. His expertise is in taxes related to independent contractors/business owners and startups but you can ask him any tax-related questions and he’ll try answering as many possible.

Post your questions by Aug 4th

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Hi Jonathan - thanks for doing this. I have a question about US Investments. I am currently on h1b in USA and have investments in both tax advantaged (employer 401k, Roth IRA, HSA) and non-tax advantaged (individual investor accounts). Most of the funds are in etf’s such as VTI, but also some independent stocks. Would you recommend moving these funds to non-US domiciled ETFs so as not to trigger any US with holdings for non residents? Or are there enough tax treaties between USA and Canada for this to be a non issue?

  1. https://www.bogleheads.org/wiki/Non-US_investor's_guide_to_navigating_US_tax_traps
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Hello Jonathan,

I am a Motion Graphics Designer currently living in the US and I plan to move to Toronto soon. I am planning on working as a freelancer in Toronto with mostly American clients. My current employer is interested in working with me on freelance projects but wants me to register as a business and potentially sign a “w-8ben-e” form. Does this mean I need to Incorporate? Would it be beneficial to operate as a business vs an independent contractor?

I really appreciate you taking the time to answer our questions, Thank you.

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Hi Jonathan,

Thanks for taking the questions. I’d like to post a few frequent questions I have received and I think you’ll be the right person to answer those.

  • What are the steps involved in creating a corporation
  • Is it fine to open a corporation on our own or is it better to have a CPA create the corporation.
    • What are the costs involved?
  • What are the benefits of incorporating over working as contractor
  • GST/ HST: When invoicing a client, through a corporation, should such taxes be applied in addition to the sub-total amount (invoiced cost/hours),
    • if client is within Canada
    • if client is not registered in Canada (eg: a corporation in the US)
  • In a corporation with only the owner and no employees, once the corporation has received revenue/income from clients, what options does the owner have, to pay self, through
    • dividends only or
    • a combination of dividends and salary.
    • what are the tax benefits / implications
  • How to plan for RRSP, EI, Pension and other aspects of retirement, while minimizing tax liability.
  • What steps are required to be addressed, say if a Spain based contractor to works on a contract with a client in Germany, but the Canadian corporation is the vendor for the German client? (German client pays Canadian corp, and Canadian corp pays the contractor in Spain). Would this be same as having a Canadian Contractor and a Canadian Client?
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Hey Jonathan,

Thanks for offering your help in answering our questions here!

My questions are not related to independent contractors/business owners, but are general questions that a lot of new Canadian immigrants have, who moved here from US.

  1. Can I still continue investing in stocks using my US Fidelity/E-trade trading accounts?
    If Yes, do I have to continue filing taxes in US using 1040NR or I just have to include those transactions in my Canadian tax returns?
  2. Do you recommend moving 401K to RRSP? Is it even possible? If Yes, then what is the most tax efficient way to do so?
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thanks for your help

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Hey @deepac and Jonathan, thanks for doing this.

I had a few questions :

  1. I have been living in the US for the past 8 years, and lets say I move to Canada in October as a PR, would I be considered as a deemed resident for tax purposes from Oct to Dec 2020 in Canada? How does that play with the US resident alien calculation? Do I become a dual resident in US?
  2. How do stock options (especially ISO and NSO) granted in the US work with Canadian taxation? Lets say they are exercised a) before moving to Canada vs b) after moving to Canada and are sold later in Canada (as per the tax treaty, there are some appropriation law for this, but curious as to whether exercising in the US vs Canada is better)
  3. Any suggestions on a tax consultant who specializes in cross border tax (US and Canada) who can help out in such scenarios?
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I own some stocks listed on an American exchange. Now that I’m no longer an American tax resident, can I move over these to a Canadian broker and what is my cost basis for these?

Additionally since my spouse is no longer employed, can I gift here these investments for a favorable tax treatment upon disposal.

Thanks!

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Thanks for submitting your questions. Jonathan or I ( on his behalf) will update the thread soon.

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Hi there,

That is an important matter you bring up. My practice focuses on Canadian accounting and tax matters. As I am not in tune with the US tax code, I would suggest you contact a US CPA who would be better suited to provide guidance. Sorry about that.

If you want a couple of US based firms, you can contact me via email at jonathan@eliasaccounting.com and I would be able to provide you with a couple options.

Jonathan

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Hi Ajay,

For Canadian tax purposes, the decision to incorporate or not would likely come down to different factors. Business owners decide to incorporate for many reasons, which may include liability protection, tax deferral advantages and potential large tax savings if they decide to sell their company’s shares in the future.

However, there are situations where incorporation may not make sense to the owner, such as if the income is relatively low and liability is not a concern.

As for the W-8BEN Form, I don’t deal with these as it is a US tax matter, but my understanding is that there are 2 versions of the form, depending if you are an individual or a business. The following links contain the different versions of the form. My suggestion is to ask the employer whether they require you to operate as a corporation or an individual.

Individual - https://www.irs.gov/pub/irs-pdf/fw8ben.pdf
Entity - https://www.irs.gov/pub/irs-pdf/fw8bene.pdf

If you are interested in incorporating in Canada, I can provide you with further guidance. You can email me if you would like at: jonathan[at]eliasaccounting[dot]com

Jonathan

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Hi @ntn - Please see my responses below:

  • What are the steps involved in creating a corporation

-The most common ways to incorporate are either through the services of a lawyer or you can use a third party provider, which is likely cheaper, to assist with the requirements. Examples include https://www.ownr.co and https://www.founded.co. If you are interested in using the services of a lawyer, you can email me and I can provide you with a referral.

You can also incorporate yourself (by going in person to the Ministry’s office), but as there are several important steps, I would suggest either a lawyer or a third party provider.

  • Is it fine to open a corporation on our own or is it better to have a CPA create the corporation.

-Typically, CPA’s don’t create the corporation as it is more of a legal process. The main steps include choosing a corporate name, choosing a jurisdiction, and submitting your articles of incorporation. The articles are an important process, which is why a lawyer or a third party provider is suggested.

  • What are the costs involved?

-A lawyer would likely charge anywhere between $800 and $2,000, which would include the associated registration and incorporation fees. If you use a third party site, it would be cheaper, but you would not be getting the professional guidance of a lawyer.

  • What are the benefits of incorporating over working as contractor

-The main advantages are liability protection, tax deferrals and the lifetime capitals gains exemption (if eligible), which would allow you to sell your company’s shares in the future without any capital gains tax, up to a maximum amount. There are of course other benefits, but the above are important ones.

  • GST/ HST: When invoicing a client, through a corporation, should such taxes be applied in addition to the sub-total amount (invoiced cost/hours),

  • GST/HST would be added to the cost of the services. For example, if your fee is $100 for a job, you would invoice $113 in Ontario (which is $100 plus 13% HST)

    • if client is within Canada

-If your company is GST/HST registered, then yes, generally speaking, you would need to charge your GST/HST (depending on the province). Please note there are certain goods/services that are exempt, but this assumes GST/HST is required.

  • if client is not registered in Canada (eg: a corporation in the US)
  • The situation may not be ‘cookie-cutter’ as it depends on the situation. If the client is a true, Non-Canadian entity located outside of Canada, then it very well be no GST/HST is required. I would have to discuss this over the phone to determine the exact scenario.

  • In a corporation with only the owner and no employees, once the corporation has received revenue/income from clients, what options does the owner have, to pay self, through

    • dividends only or
    • a combination of dividends and salary.
    • what are the tax benefits / implications
  • Salary can be paid out without restriction (assuming there is cash flow to pay out the salary). For Dividends, if there are profits within the company, then dividends can be paid out also. An owner can decide to pay either, both, or a combination of salaries and dividends, depending on the optimal tax plan. For the benefits/implications, my objective is to design a salary/dividend package that optimizes the individuals and business tax situation. For further specifics, you can contact me if interested.
  • How to plan for RRSP, EI, Pension and other aspects of retirement, while minimizing tax liability.

-This is a very good question. Although not complex, there are various factors to consider. I would suggest contacting me so we can get an understanding of your situation.

  • What steps are required to be addressed, say if a Spain based contractor to works on a contract with a client in Germany, but the Canadian corporation is the vendor for the German client? (German client pays Canadian corp, and Canadian corp pays the contractor in Spain). Would this be same as having a Canadian Contractor and a Canadian Client?

-Essentially, the revenues and expenses would need to be accurately reported in the Canadian entity to pickup the underlying transactions/activity. If the revenue is $1,000 and the expense is $750, then the taxable income is $250 in that situation. There may be unique tax considerations but I would need to explore this further depending on the facts.

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Hi @sysout,

That is an important tax matter you bring up. My practice focuses on Canadian accounting and tax matters. As I am not in tune with the US tax code and intricacies, I would suggest you contact a US CPA who would be better suited to provide guidance. Sorry about that.

If you want a couple of US based firms, you can contact me via email at jonathan@eliasaccounting.com and I would be able to provide you with a couple options.

Jonathan

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Thanks @deepac. To the readers of this thread, I addressed some of the topics above, but there are a still a couple outstanding. I will review and respond to the remaining ones next week. If anything is urgent, you are welcome to email me at jonathan@eliasaccounting.com

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Thank you Jonathan for the reply. I will email you once I get close to my move date on how to proceed. Thank you for your time.