# Operating Canadian Businesses in other countries



## ITConsultant (Mar 5, 2014)

I operate several online businesses under a few CCPCs (Canadian Controlled Private Corporation).

I have several friends who travel to different countries as online entrepreneurs and I asked one of them about how he handles taxes and he claims it doesn't affect his taxes at all since it's still going through his Canadian Company regardless of what country he is in.

Does anyone know how accurate that is? For instance if I were to visit friends/family who are in different countries could I still operate under the CCPC assuming I don't give up my Canadian residency?


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## Eclectic12 (Oct 20, 2010)

This might be to specialised a question for this group.

I did a quick search where most of the links were focused on a Canadian temporarily working in the US. However, one link did say that a Canadian business owner visiting relatives for too long could be subject to paying US taxes on world wide income.

The link was not clear as to whether "owner" was a single proprietor. I wonder if a corporation would be fine as the person visiting might be a shareholder where the corporation is still deemed to be in Canada.


Regardless of whether any comments - I'd consult a US/Canada tax specialist before taking the risk of anything other than a short visit.


Cheers


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## Homerhomer (Oct 18, 2010)

visiting or going on business trips is different than having permanent establishment, so yes, just travelling for business trips doesn't trigger any foreign tax consequences, all expenses and revenues are still put through CCPC.


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## OhGreatGuru (May 24, 2009)

I suspect the answer will vary with each foreign country.

A foreign company "outsourcing" a job to a Canadian company is one thing. But if that Canadian company's principal (or sole) employee is invited in to do some of that work in that foreign country, it may be a different thing, in the eyes of either their tax people or their immigration people. Proceed with caution. And think carefully about what you are going to answer when their immigration officers ask "Is your visit for business or pleasure?"


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## Eclectic12 (Oct 20, 2010)

Homerhomer said:


> visiting or going on business trips is different than having permanent establishment, so yes, just travelling for business trips doesn't trigger any foreign tax consequences, all expenses and revenues are still put through CCPC.


This does not appear to be the case for our neighbour to the south as:



> ... the U.S. bases its right to tax a non-citizen on the number of days that a person physically spends in the U.S ...


There is apparently also a misconception that being in the US for less than 183 days in the current year puts one in the clear. 

The "substantial presence test" to determine residency for US tax purposes is a blend of 100% of this year, 1/3 of last year and 1/6 of the two years ago, where the US uses any part of a 24 hour period as a day.

http://www.knv.com/news/2014/01/kee...ates-are-you-an-inadvertent-u-s-tax-resident/

The link is pointing it out as frequent visitors can end up being over the limit without realising it, especially where one is making a lot of gas/grocery trips as one is close to the border.

Then too, where the frequent visitor is not aware of this - they are likely to miss the deadline file for the
"Form 8840 - Closer Connection Exception Statement for Aliens”.



Another link says:



> If a Canadian meets the Substantial Presence Test but is ineligible to meet the Closer Connection Exception (i.e. since he or she is present in the United States for more than 183 days in the current year), he or she will be considered to be a resident alien of the United States.
> 
> Resident aliens are taxed on worldwide income in the same manner as United States citizens.


http://www.americanlaw.com/ustxtmp2.html


Note that all of this is for visitors such as "snow birds" *before* considering any tax implications from running a business.

http://business.financialpost.com/2...up-could-have-tax-consequences-for-snowbirds/
http://www.grasmick.com/snowbird.htm


So if it's a short visit - it might be okay ... again, I'd visit a tax specialist.


Cheers


*PS*

Part of these links is that apparently the entry/exit of the US weren't tracked all that closely in the past, shortly it will be tracked closely with the info going to both Canadian/US authorities.


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## Eclectic12 (Oct 20, 2010)

OhGreatGuru said:


> I suspect the answer will vary with each foreign country...


+1 ... and yet another reason to check with a specialist.


Cheers


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## Homerhomer (Oct 18, 2010)

Yes, I am aware of the US rules.
For just about any case and country if anyone spends that much time there, they better contact a tax accountant familiar with the rules of that country, I was referring to short periods of stay as I thought this was a question. In addition to the time spent there will be an issue if and how the operations are run out of the foreign country, if that is the case, hence the issue of permanent establishment, again I didn't think this was the questions. That's were things get complicated, for normal short term business trips it's pretty easy ;-).


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## Eclectic12 (Oct 20, 2010)

Homerhomer said:


> Yes, I am aware of the US rules....


Fair enough ... though if it was me, I'd prefer the additional detail of what longer US stays could do.




Homerhomer said:


> ... In addition to the time spent there will be an issue if and how the operations are run out of the foreign country, if that is the case, hence the issue of permanent establishment, again I didn't think this was the questions...


This seems to be saying that the question was read as "visiting with no work done".

The way I interpreted the phrases, "... travel to different countries as online entrepreneurs ..." as well as "... could I still operate ..." - said to me the OP planned on working.


Cheers


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## marina628 (Dec 14, 2010)

I try to stay in foreign countries under 59 days ,my brother in law has a home in Florida and is self-employed.Last year he spent 4 months in USA and his accountant was ok with that but warned him about potential estate issues if he died and the world asset issues.I think owning a property and spending 4-6 months there in one stretch would probably be different than going to visit friends and spreading these visits over the year.You are not even suppose to work on your own home in USA which seems a bit crazy to me but that is what the HOA told my brother in law when he purchased his home that required some work.
Judy


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## Eclectic12 (Oct 20, 2010)

^^^^

Re: Brother-in-law's accountant was okay with four months.

Weird ... because if it's been four months over three years, then it looks like the substantial presence test formula works out to:

a) current year - 4 months x 30 days = 120 days.
b) last year - 1/3 x 120 days = 40 days.
c) 2nd last year - 1/6 x 120 days = 20 days.

Since that's a total of 180 days, with a leeway of only 3 days for months longer than 30, trips outside the four months (say a training or business trip) or runs over to the US for gas/groceries etc.

It makes me wonder how familiar the accountant is with the rules and whether this is another case of the alleged misconception that only the current year's count matters.




marina628 said:


> ... I think owning a property and spending 4-6 months there in one stretch would probably be different than going to visit friends and spreading these visits over the year...


The IRS web site from what I can tell is not distinguishing between a series of visits or one big visit. 



> *Days of Presence in the United States*
> You are treated as present in the United States on any day you are physically present in the country, at any time during the day.


http://www.irs.gov/Individuals/International-Taxpayers/Determining-Alien-Tax-Status
http://www.irs.gov/Individuals/International-Taxpayers/Substantial-Presence-Test


It is consistent with the links quoted above, where their example happens to use the same numbers as mine (i.e. the four months over three years leaves little wriggle room before being considered an alien resident, subject to US taxation or at minimum, filing paperwork to avoid being subject to US taxation.


The additional info I don't recall from the links but that is on the IRS site is:



> ... You are treated as present in the United States on any day you are physically present in the country, at any time during the day.
> 
> However, there are exceptions to this rule. Do not count the following as days of presence in the United States for the substantial presence test...
> Days you are in the United States for less than 24 hours, when you are in transit between two places outside the United States...


So I suppose if one crossed at one point, bought gas/groceries and then crossed back somewhere else - one may be able to avoid counting this sort of short visit by claiming to be "in transit".

However, most I know cross into/return from the same US point so I'm not sure how many could successfully argue this.


Cheers


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## marina628 (Dec 14, 2010)

Are You sayng the total over past 3 years cannot exceed 183 days?They only bought their place last year but at that time he only took 8 weeks vacation a year but since they love it so much he has been there as much as possible.


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## ehrof (May 2, 2011)

To answer the original poster's question:

A CCPC is defined by the following:

- it is a private corporation;
- it is a corporation that was resident in Canada and was either incorporated in Canada or resident in Canada from June 18, 1971, to the end of the tax year;
- it is not controlled directly or indirectly by one or more non-resident persons;
- it is not controlled directly or indirectly by one or more public corporations (other than a prescribed venture capital corporation, as defined in Regulation 6700);
- it is not controlled by a Canadian resident corporation that lists its shares on a designated stock exchange outside of Canada;
- it is not controlled directly or indirectly by any combination of persons described in the three previous conditions;
- if all of its shares that are owned by a non-resident person, by a public corporation (other than a prescribed venture capital corporation), or by a corporation with a class of shares listed on a designated stock exchange, were owned by one person, that person would not own sufficient shares to control the corporation; and
- no class of its shares of capital stock is listed on a designated stock exchange.
(above is from here: http://turbotax.intuit.ca/tax-resources/sbt-small-business-deduction-qualify.jsp)

I would suggest reading this regarding whether or note your corporation remains a resident: http://www.cra-arc.gc.ca/tx/nnrsdnts/bsnss/bs-rs-eng.html however in general, you should be fine. Note that if you become a non-resident, any corporations that you control lose their CCPC status.

For those with questions about how to avoid becoming a U.S. resident, I suggest reading the attached: http://www.advisor.ca/tax/tax-news/residency-rules-snowbirds-need-to-know-65336/2


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## Eclectic12 (Oct 20, 2010)

marina628 said:


> Are You saying the total over past 3 years cannot exceed 183 days?


The short answer is yes ... though first off - it's the tax links and IRS web site that are saying this ... unless you can find something I am misreading .... :biggrin:

The original link that caught my attention said:


> There is a common misconception that if you spend less than 183 days a year in the U.S., you will not be considered a U.S. resident and as a result, will not have a U.S. tax filing obligation.
> 
> The reality is that the Internal Revenue Service (IRS) uses the “substantial presence test” to determine residency for tax purposes.
> This test, ... *considers the total number of days spent in the U.S. over a three-year period,* ...


http://www.knv.com/news/2014/01/keep...-tax-resident/


Which is also backed up by the IRS web site that says:



> ... You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year.
> 
> To meet this test, you must be physically present in the United States on at least:
> a) 31 days during the current year
> ...


The IRS web site then repeats the same formula as the other link of (current year days x 1) + (one year ago days x 0.3333) + (two years ago days x 0.1666).


So going back to my example, if the last two years was 120 days each (i.e. 2012, 2013), before one sets foot in the US in the current year (i.e. 2014) - there's 60 days recorded.

So if for whatever reason, one stays 130 days in the current year, then the test says the total is 190 days resulting in the classification of a US resident. Where one is aware of this, is tracking the days correctly and the *current year days is under 183*, then form 8840 "Closer Connection Exception Statement for Aliens" must be filed on time to avoid US taxation (I believe by June 15th, 2015, for my example years).

I see two trouble spots. 

The first is if people aren't aware it's a three year period - they can think "it's only 130 days - I'm fine" as the US gets more aggressive to find sources of tax revenue, they may be in for an expensive shock.

Secondly, as the US/Canada collect as well as share more information about who is crossing, where and when - how many will think a two hour trip won't count as a day?


One of the links I posted earlier says:


> If a Canadian meets the Substantial Presence Test but is ineligible to meet the Closer Connection Exception (i.e. since he or she is present in the United States for more than 183 days in the current year), he or she will be considered to be a resident alien of the United States.
> 
> Resident aliens are taxed on worldwide income in the same manner as United States citizens.


So there appear to be significant tax implications if one is not paying attention and taking appropriate steps.
Now there appear to be a couple more options that may mean not paying US taxes (see the last link ehrof was kind enough to post) ... but I plan on staying will under the 183 days to keep life simple!!! :biggrin:




marina628 said:


> ... They only bought their place last year but at that time he only took 8 weeks vacation a year but since they love it so much he has been there as much as possible.


They will have to run the numbers ... unless there have been lots of trips the US, it sounds like they should be okay at the moment.

It goes back to the "if one is not aware, one can't plan" situation.


Cheers


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## Homerhomer (Oct 18, 2010)

marina628 said:


> *Are You sayng the total over past 3 years cannot exceed 183 days*?They only bought their place last year but at that time he only took 8 weeks vacation a year but since they love it so much he has been there as much as possible.





Eclectic12 said:


> *The short answer is yes* ... though first off - it's the tax links and IRS web site that are saying this ... unless you can find something I am misreading .... :biggrin:


Thankfully that's not how it works, it's the average over the last three years not the total;-) that can't exceed 183 days.

Reading your post further down it seems like you got the calculations right, but the answer to Marina's question about the total of 183 days is not correct, unless I misunderstood what you said ;-)


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## Eclectic12 (Oct 20, 2010)

Homerhomer said:


> Thankfully that's not how it works, it's the average over the last three years not the total;-) that can't exceed 183 days.
> Reading your post further down it seems like you got the calculations right, ...


In terms of total ... yes it is not a straight sum of the days from the three years.
Mea culpa for overly focusing on the "over three years" and neglecting to repeat the details posted up thread that the previous year numbers are counted at reduced rate.

In terms of average ... you will have to explain that one to me. :biggrin:
To get the average, I would have summed the three years numbers to a total then divided by number of years. 
Applying this to the 120 days for three years example, this comes out to 120 days - where the IRS web site calculates this to be 180 days (where 120 are current year, 40 are previous year and 20 are two years ago).




Homerhomer said:


> ... the answer to Marina's question about the total of 183 days is not correct, unless I misunderstood what you said ;-)


A more complete answer is that yes the total is over three years where previous year days are reduced before being summed. 

The formula sums 100% of the days of the current year, 33% of the days of last year and 16% of the days of two years ago.



Cheers


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