The fact that you are incorporating a corporation in Canada and since it seems that the mind & management of your corporation will be in Canada, the corporation will be considered as a resident of Canada and subject to Canadian taxation on its worldwide income. You are also mentioning that the corporation may carry on a business in the U.S. Under U.S domestic legislation, the corporation will be subject to U.S. taxation where it has (a) profits attributable to a permanent establishment in the U.S. or (b) earns profits that are effectively connected to a U.S. trade or business. Based on your facts, it is not clear whether the corporation is subject to taxation in the U.S. and you should consult these matters with a U.S. tax expert.
Where the corporation is subject to tax in both Canada and the US, the corporation may obtain a foreign tax credit in Canada with respect to taxes paid on the same income in the U.S. Alternatively, the corporation may not be subject to taxation in the U.S. under the Canada-US Tax Treaty. This should also be reviewed with a U.S. tax expert.
In addition, to the extent the corporation pays wages to employees who render their services in both Canada and the U.S., similar Canada-US issues may arise.
The Canadian corporation may receive payments form its U.S. clients in U.S. dollars with no adverse tax implication.
Disclaimer
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
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