Setting up corporation for contract work in US

[ustocanada49]

hi All,

Somebody suggested i setup a corporation in Canada and work as a contractor for a US company. What type of corporation should I setup in this case? Any one who is doing this or has done before?

 

[harirajmohan]

hi All,

Somebody suggested i setup a corporation in Canada and work as a contractor for a US company. What type of corporation should I setup in this case? Any one who is doing this or has done before?

Somebody suggested for some reason which may not be suitable for your situation. What are you trying to achieve? Did you employer/client asks you to have one?

 

[Nick1233]

hi All,

Somebody suggested i setup a corporation in Canada and work as a contractor for a US company. What type of corporation should I setup in this case? Any one who is doing this or has done before?

I would recommend for contract based work. You can set it up either at federal level or province specific.
I let all the income sit in the inc and pay 13% tax and take out a minimum as a pay.
Basically, you can play around to reduce your tax liability and claim genuine expenses (home office, laptops, test devices etc) before corporate tax.

 

[Nick1233]

hi All,

Somebody suggested i setup a corporation in Canada and work as a contractor for a US company. What type of corporation should I setup in this case? Any one who is doing this or has done before?

But yeah don't get too fancy like Income splitting. Play by the rules and you can still optimize.

Like instead of working 15 years and paying high taxes every year, you could plan to work for 10-12 years and let the corporation run the minimum pay for the remaining duration etc. Your personal net income in both scenarios would work out the same, except that with latter, you can call it a day sooner than later. All this depends on your situation, short term and long term needs and plans.

Take time to think through.

https://www.canada.ca/en/revenue-ag...uently-asked-questions-income-sprinkling.html

 

[ustocanada49]

Thanks @Nick1233

I want to continue my relationship with my US company after leaving US. I have been working for them on H1 visa. Ithought I can work as a contractor for them from Canada. I am currently only bothered about maintaining that relationship somehow. I haven't thought of income splitting and all those things.

I spoke to a tax consultant. He too talked about saving taxes and all those things. All those things are secondary for me.

I just want to know the best way I can legally continue my relationship with the US company from Canada.

It seems there is Sole Proprietorship, and Corporation and other types as I remember. Which one is good and legally & tax wise safe(in teh sense, not inviting trouble from CRA in future) for the type of work I am trying to do.?

 

[ustocanada49]

Somebody suggested for some reason which may not be suitable for your situation. What are you trying to achieve? Did you employer/client asks you to have one?

I have been working on H1 visa in the US and want to continue the same position as a contractor from Canada

 

[Nick1233]

Thanks @Nick1233

I want to continue my relationship with my US company after leaving US. I have been working for them on H1 visa. Ithought I can work as a contractor for them from Canada. I am currently only bothered about maintaining that relationship somehow. I haven't thought of income splitting and all those things.

I spoke to a tax consultant. He too talked about saving taxes and all those things. All those things are secondary for me.

I just want to know the best way I can legally continue my relationship with the US company from Canada.

It seems there is Sole Proprietorship, and Corporation and other types as I remember. Which one is good and legally & tax wise safe(in teh sense, not inviting trouble from CRA in future) for the type of work I am trying to do.?

You will have to find out if your employer can even support remote full time employment from Canada. Few US firms have branches in Canada and they transfer employees to this branch and you would get paid in CAD etc. You will get all benefits like insurance but will end up paying high income taxes. This is also a route for aged folks (30+) who can't get an ITA anymore. They work in Canada for a year or so and try to apply for a PR via CEC inland category.

If you are a PR and if your employer doesn't support remote full time or if you want to avoid high taxes and not cared about misc benefits, contracting via corporation makes sense. Downside with contracting (either within US or remote from Canada) is a possible abrupt cancellation in bad times for your employer. If you go through this route, try to negotiate for long term, look for exit clauses etc and finally negotiate for a better rate. Contract rates per hour should be more than full time employment as you don't any benefits. Your employer might try to be smart and under cut rates for a long term contract. See how long will they go for a contract.

I wouldn't recommend Sole Proprietorship as any corporation liability like debt will fall on you on a personal capacity. Corporation safeguards against that. When you setup a corporation, you will most likely be the director with 100% equity and if you choose to expand business (weekend side hustles etc) and take on new partners, it opens a lot of possibility.

FWIW, most optimal case is I-140 approval + 180 days in US, PR in Canada, negotiate for long term contract and good rate, setup corporation and enjoy.

 

[Nick1233]

You will have to find out if your employer can even support remote full time employment from Canada. Few US firms have branches in Canada and they transfer employees to this branch and you would get paid in CAD etc. You will get all benefits like insurance but will end up paying high income taxes. This is also a route for aged folks (30+) who can't get an ITA anymore. They work in Canada for a year or so and try to apply for a PR via CEC inland category.

If you are a PR and if your employer doesn't support remote full time or if you want to avoid high taxes and not cared about misc benefits, contracting via corporation makes sense. Downside with contracting (either within US or remote from Canada) is a possible abrupt cancellation in bad times for your employer. If you go through this route, try to negotiate for long term, look for exit clauses etc and finally negotiate for a better rate. Contract rates per hour should be more than full time employment as you don't any benefits. Your employer might try to be smart and under cut rates for a long term contract. See how long will they go for a contract.

I wouldn't recommend Sole Proprietorship as any corporation liability like debt will fall on you on a personal capacity. Corporation safeguards against that. When you setup a corporation, you will most likely be the director with 100% equity and if you choose to expand business (weekend side hustles etc) and take on new partners, it opens a lot of possibility.

FWIW, most optimal case is I-140 approval + 180 days in US, PR in Canada, negotiate for long term contract and good rate, setup corporation and enjoy.

Not to mention, if you are fine with corporation, you will just be an employee of the corporation (along with board member etc). Your employer will have to deal with your corporation as a business entity located in Canada and not with you as a individual for payments, legal paperwork etc. Your corporation will generate invoice and charge your employer and your corporation will run your payrolls in Canada. In short, your corporation will be like one of those consulting firms in India with one employee to start with, except that it will be based in Canada and follow Canadian laws.

Some employers might not be fine with this as this goes beyond HR and involves legal team. Some employers route this through an intermediate firm and let them take care of the legal issues. Again, you will have to talk with your employer on this too.

 

[ustocanada49]

Thanks @Nick1233
How complicated is it to run payroll for self through one's own company?
In such a case, do I also have provide any benefits to myself through my own corporation?

Why do they have to go through legal team, intermediate firm etc? Can't they just issue a check in the corporation's name based on the invoice?

 

[Nick1233]

Thanks @Nick1233
How complicated is it to run payroll for self through one's own company?
In such a case, do I also have provide any benefits to myself through my own corporation?

Why do they have to go through legal team, intermediate firm etc? Can't they just issue a check in the corporation's name based on the invoice?

Its not complicated, one can do by themselves using online software for taxes, invoice and payroll management. Otherwise, you can find accountants charging between 800-1200 CAD per year for the services.

Its your corporation, you decide what benefits are given to employees (you), no obligation. Only obligation is when you pay, you will have to make timely payroll contributions to government (this is the tax deducted at source just like the ones by your US employer on every pay stub), quarterly corporate income tax etc.

Your employer would be dealing with a foreign business (and not you in a personal capacity) and more often than not would like to protect their interests against a potential lawsuit etc. It is like say when Apple setup their relationship with a foreign supplier, wouldn't they have done some legal due diligence? In any case, you are speculating, you have to talk to your employer. But once everything is setup, it is as trivial as having a check mailed to your business or via online deposits in your business account.

 

[ustocanada49]

Thanks very very much for the info @Nick1233

 

[Nick1233]

Thanks very very much for the info @Nick1233

Good luck

 

[adlerjohn557]

Hi, I'm in a similar position, I appreciate your comment and help.
I'm a PR in Canada and with no status in US. I have a job offer to work remotely for a US company. Previously, they have asked me to be an independent contractor for them, but recently they have changed their mind and they want me to be their employee (I think I can negotiate back to be their contractor though). The US company doesn't have any branch in the US and as far as I know, I'm the only person in Canada that will work with them. I have the following questions, but I want to not have any complications for the citizenship application that I will file in future.

Employee option
1) Do I need to pay US taxes while working remotely from Canada as their employee?
2) I don't think they will give me a T4 at the end of the tax year since I'm the only employee working from Canada for them. How should I file my taxes at the end of the year? What happens to my CPP and EI payments?

Contractor option
1) I know being a contractor would make a lot of stuff easier (as I pay myself at the end), but does CRA cares about having only one client (the US company) and think of me as the employee of them? I don't want to have any complications to my record as I love Canada and I would like to apply for citizenship in the future.

Thanks for your time

 

[Nick1233]

Hi, I'm in a similar position, I appreciate your comment and help.
I'm a PR in Canada and with no status in US. I have a job offer to work remotely for a US company. Previously, they have asked me to be an independent contractor for them, but recently they have changed their mind and they want me to be their employee (I think I can negotiate back to be their contractor though). The US company doesn't have any branch in the US and as far as I know, I'm the only person in Canada that will work with them. I have the following questions, but I want to not have any complications for the citizenship application that I will file in future.

Employee option
1) Do I need to pay US taxes while working remotely from Canada as their employee?
2) I don't think they will give me a T4 at the end of the tax year since I'm the only employee working from Canada for them. How should I file my taxes at the end of the year? What happens to my CPP and EI payments?

Contractor option
1) I know being a contractor would make a lot of stuff easier (as I pay myself at the end), but does CRA cares about having only one client (the US company) and think of me as the employee of them? I don't want to have any complications to my record as I love Canada and I would like to apply for citizenship in the future.

Thanks for your time

CRA doesn't care as long as follow all laws and don't try to under cut on taxes like trying income-split, fake business expenses etc.

Irrespective of full time or contractor, some one has to run your payroll and deduct CPP, taxes etc at source before you get paid. In case of contracting, the company that you establish would do so. You would be the employee of your own company and your company has to follow all Canadian laws wrt inc and employing folks.

In case of full time option, your employer need to figure that out. This could be a challenge as they don't seem to have a branch in Canada. If they insist, let them figure it out. My guess, it would be a no go as Canadian laws would come in play and your employer's legal division will have to figure all that out even before offering you a job. Not to mention benefits would differ between US and Canada and would mean additional overhead for your employer.

 

[adlerjohn557]

CRA doesn't care as long as follow all laws and don't try to under cut on taxes like trying income-split, fake business expenses etc.

Irrespective of full time or contractor, some one has to run your payroll and deduct CPP, taxes etc at source before you get paid. In case of contracting, the company that you establish would do so. You would be the employee of your own company and your company has to follow all Canadian laws wrt inc and employing folks.

In case of full time option, your employer need to figure that out. This could be a challenge as they don't seem to have a branch in Canada. If they insist, let them figure it out. My guess, it would be a no go as Canadian laws would come in play and your employer's legal division will have to figure all that out even before offering you a job. Not to mention benefits would differ between US and Canada and would mean additional overhead for your employer.

Thank you Nick for your prompt response,
I agree that being an employee would make situation a lot more complex, and difficult to handle.
I have read in the forums about Professional Employer Organizations that can handle the employee situation, do you have by any chance any comment on this?
articles like : https://hcbtax.com/2019/08/29/canadian-resident-working-for-a-u-s-company/
or this : https://canadianpayrollservices.com/legalities-hiring-remote-canadian-workers-us-companies/