A client runs a small 2 person corporation - Federally & Provincially incorporated. Both directors work in the business. It earns less than 100k per year, they receive dividends in lieu of salary.
The business is 100% online, all clients are based in Canada.
The directors want to emigrate back to their country of origin and they cannot afford to pay departure tax on the business which would probably be 50k.
Do they dissolve the corporation before they leave so there are no shares to declare on day of departure?
Can they set up a LLP in their next country, register for a GST account, and carry on their online business from overseas?
What would you advise them to look into so that they could continue their business from abroad?
They will trigger the departure tax no matter what. However, this can be deferred by way of a collateral to the CRA by electing under form T1244. There is no need to dissolve the corporation completely.
As the residency status of the corporation will change by way of the “mind and management” provisions as outlined within the ACT, the company will cease to be a CCPC for business purposes moving forward; subsequent to emigration and will be taxed at the general rate accordingly. You will need to factor in withholding taxes on any future dividends to shareholders. You can work around this by restructuring the controling votes to a resident shareholder.
Consider all your circumstances before jumping to my conclusion, but this is the foundation of what will transpire.
The shares they own are deemed capital property and subject to departure tax at their FMV at the time of departure. The corporation still exists, it just looses it’s CCPC status if the controlling shareholders cease to be residents of Canada.
Wow. Why would they do that? Isn’t that twice as much work and four times as much cost?
If they want to, sure - why not? It’s their decision.
That will depend on the laws in THAT country - what types of business structures are allowed, and what they are called. For example, what does “LLP” mean in that country?
If that country has a GST system, they would have to determine how it works. GST is not something universal around the globe. If they continue to sell online goods or services to Canadian customers, they may need to register for a new Canadian GST account under the new cross-border rules:
Business laws and taxes that exist in the foreign country.
You’re contradicting yourself… you just asked if dissolution was an option, but now you’re saying it’s dissolved anyways? That’s not how that works. The corporation is still an entity for tax purposes regardless if the departure tax is triggered on the personal side. As I mentioned, you would loose CCPC status.
If you’re stating however, that you are going to dissolve the corporation prior to departure, than yes, you are correct.
The intention is to dissolve the corporation prior to leaving at the end of the year. There would be no assets/shares left to declare from the dissolved corporation at that point.
If its $50k now, there will still be that to pay upon dissolution, whenever that is.
With a detailed knowledge of section 84, and also emigration effects, on studying the detail you can determine more precisely what it will be.
Also, the directors must be able to afford to pay the $50k, otherwise it would not calculate to $50k in the first place.