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Assume a Canadian contractor is working remotely from Canada for a US based contracting company. Is it advisable to incorporate, in Canada, in this situation?

Also, once incorporated in Canada, is it possible for the contractor to solicit other US based work, assuming the corporation has a single owner/employer, and does not have a US office?

Has anyone been in a situation like this and found it profitable to incorporate?

I'm looking for hints whether this setup would be worth while investigating further with a lawyer and/or accountant

  • Contradiction in terms: "The corporation is a sole-proprietorship". Not possible. The business is either a corporation, or a sole-proprietorship ... it can't be both. Perhaps you mean to say the corporation will have only a single employee? – Chris W. Rea Jan 24 '11 at 16:12
  • I mean that it will only have a one owner/employee. What's the correct way to describe that? – blueberryfields Jan 24 '11 at 16:14
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    Perhaps "a corporation with a single owner/employee." Anything but "sole proprietor", which is a distinctly different form of business unrelated to a corporation. Sole proprietor is the form of business when you don't incorporate. See also sbinfocanada.about.com/od/formsofbusinessownership/a/… – Chris W. Rea Jan 24 '11 at 18:17
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Interesting as I am in the exact same situations as yourself. I, in fact, just incorporated. You will be able "save" more in taxes in the end. The reason I put "save" in quotes, is that you don't necessarily save on taxes, but you can defer taxes. The driving factor behind this is that you specify your own fiscal calendar/year. Incorporating allows you to defer income for up to 6 months. Meaning that if you make your fiscal year starting in August or September, for example, you can claim that income on the following year (August + 6 months = February). It allows you to keep the current year taxes down. Also, any income left over at year end, is taxed at 15% (the Corporation rate) rather than the 30-40% personal rate you get with a sole-proprietorship. In a nutshell, with sole-proprietorship, all income is taxable (after write-offs)... in a corporation, you can take some of that income and keep it in the corporation (gives your company a "value"), and is only taxed at 15% - big saving there.

I primarily work with US businesses. I am, however, a dual-citizen, US and Canadian, which allowed me as a sole-proprietor, to easily work with US companies. However, as a sole-proprietor or a Corporation, you simply need to get an EIN from the IRS and any US company will report earnings to that number, with no deductions. At year end, it is your responsibility to file the necessary tax forms and pay the necessary taxes to both countries. Therefore you can solicit new US business if you choose, but this is not restricted to corporations. The real benefit in incorporating is what I mentioned above.

My suggestion to you is to speak with you CA, who can outline all benefits. Revenue Canada's website had some good information on this topic as well.

Please let me know if you need anything else explained.

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