Living in the UK while doing business in Canada

[bhogg]

Hey all,

Not sure if anyone's encountered this but maybe we can figure it out!

Thanks to the power of the Internet, I'm able to do work for people in Canada and the UK on a regular basis.

My thought is to incorporate in Canada (I'm already a Ltd company here) so when I'm in the UK, I can just keep the money in the Canadian incorporation instead of paying a salary. Though I believe just cause you have an income from Canada does not mean that you are resident, you just complete a form to declare it.

My question is does having an incorporated business in Canada make me a resident if I have no apartment, property, etc in Canada? If I pay out all my income here as salary there isn't much difference, but if I pay out in dividends for non-IR35 income it's a massive difference.

Cheers!
Brian

[Steven]

It doesn't make you resident but you wouldn't want to do it that way because if your tax home is the UK you cannot incorporate a CCPC, which means you'd have to pay the full whack of Canadian corporation tax. (Although having said that, it's still lower than UK corporation tax).

You should never pay out dividends in a personally-owned corporation that is earning income, because the dividends are not deductible against corporation income tax as salary is. You only use dividends if the corporation is essentially defunct and not earning money, to save all the paperwork with payroll withholding (or if you have arm's length shareholders).

It depends to some extent on how much retained earnings you keep in your UK corporation as to whether there is an advantage in terms of the corporation tax, but as 100% of your Canadian-source income would be retained in the Canadian corporation, the whole amount would be subject to corporation tax, whereas in the UK you pay yourself a salary which takes all the money out, so there is no corporation tax.

It does give you some control over the exchange rate I suppose because you get to choose when the payment is transferred but at the moment that doesn't matter given how low the £ is.