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When Is A Foreign Corporation Is Taxed In Canada

Question: I am looking to set up a foreign company which will earn both rental and investment income outside of Canada. As a Canadian citizen and resident, am I required to report that income annually to Revenue Canada or only the years that dividends are paid to myself ? Are there any other considerations or tax implications that I should be thinking about ? Thank you for your time.

Canadian Tax Based On Residency

In Canada, a person is liable for Canadian income tax based on their residency as opposed to their citizenship.  If you have family ties, a residence, or if you are in Canada for 183 days, you are a resident of Canada and liable for tax on your worldwide income.  A corporation is resident in Canada if the management and control of the corporation is resident in Canada.

Corporations vs Shareholders

It is important to first distinguish between the individual shareholder and the corporation.  If the shareholder is a resident of Canada any dividends that are received or other income paid to the shareholder would be taxed in the shareholders hands and subject to Canadian income taxes.

Taxation & Corporations

Similarly, any income earned by a corporation resident in Canada is taxed inside that corporation at the corporate income tax rates.  The location of the assets of the corporation or where the corporation is established is not a determining factor in avoiding Canadian income tax.

Tax Liability

Whether you establish a company as a corporation or as an individual proprietorship, if either is a resident of Canada they are taxed on their worldwide income.