I have received landing papers from immigration office and do plan to migrate to Canada in the next three or four months.

Currently I am working in US on H1-B. I am in the process of negotiating a contract with a US firm. What I plan to do is, migrate to Canada, open a business entity (corporation or sole prop) that provides IT related services. Company in US will pay to canadian business entity for all the services provided during that time. I can then withdraw my salary from Canadian company. I will be paying all my taxes in Canada ( I belive under NAFTA, I have to pay tax in just one of countries).

I was wondering if this time (working in US for a Canadian Co.) will be counted towards my eligibility for Citizenship in Canada, and
what kind of tax rate would be applied to income earned by me and the business?

Thank You

With respect to the citizenship issue, this question should be directed to the general section of the website.

A Canadian taxpayer, whether it is a corporation or an individual, may be subject to taxation in the U.S. under U.S. domestic rules. This should be discussed with a U.S. tax consultant. At the same time, as the Canadian taxpayer is resident in Canada, it will be fully taxable on its income earned anywhere in the world. To the extent taxation of the corporation rendering the services is taxed in both the United States and Canada, relief from double taxation can be sought by virtue of foreign tax credit mechanism in Canada. Also, under U.S. rules, the corporation may be subject to a branch tax over and above the regular income tax. Both the U.S. income tax and branch taxes may be reduced or eliminated under the U.S.-Canada Income Tax Treaty depending on the nature of the U.S. operations.

With respect to the salary you intend to draw from the Canadian corporation, similar rules will apply. As you are rendering services as an employee in the United States, you may be subject to U.S. income tax regime and the Canadian corporation may be required to pay U.S. withholding taxes on any salary paid. At the same time, because you are a Canadian resident, you will be subject to Canadian tax and Canadian withholdings on the income. Relief from double taxation again can be sought by virtue of the foreign tax credit regime. If you are subject to source deductions in both Canada and the U.S., it may be possible to apply for a reduction in Canadian source deductions to avoid “undue hardship”.

The nature of this facility is to provide a general response to a general question. Under no circumstances should anyone act on this information without obtaining analysis and counsel from a qualified advisor with respect to the specific situation.

Phillip Nadler, CA
Richter Usher & Vineberg
http://www.richter.ca