Is My Corporation a Resident of Canada?
Through the process of incorporation, a corporation is considered a legal person that is distinct from you. As a corporation has no physical existence, questions often arise about the residence of a corporation. For tax purposes, it is important to ensure that your corporation is considered a resident of Canada to ensure the corporation meets its tax liabilities. Specifically, if the corporation is considered a resident of Canada it will be taxed on its worldwide income for the whole year as opposed to only Canadian source income.
An overarching rule in the Income Tax Act that governs the residency of a corporation is that if a corporation is incorporated after April 26, 1965, it is deemed to reside in Canada. If your company was incorporated before April 26, 1965, attention must be given to the central management and control rule to confirm your company’s residency.
Generally, the central management and control rule states that a corporation is considered to reside where the corporation’s board of directors meets. The place of the meeting is important for residency as it is understood that this is the location where decisions are made about the general policy and direction of the corporation. As control is a key aspect in determining residency, consideration should be given to whether there is unanimous shareholders’ agreement as this may cause a corporation to reside where the controlling shareholders reside.
If the corporation was incorporated after April 26, 1965, it is deemed to reside in Canada. If it was incorporated before April 26, 1965, residency is determined by where the board of directors meets or where the controlling shareholders reside.
If your corporation is a resident of Canada, it will be taxed on its worldwide income for the whole year.
Caution – Consult Your Tax Advisor
There are rules in the Income Tax Act that prevent taxpayers from selecting the residence of a corporation based solely on reducing the corporation’s tax liability. Consult your tax advisor or lawyer for more information.
-Julian Franch, Associate Lawyer
© Kalfa Law, 2018
The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.