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Hi Allan,
I am working as a freelance technical solutions provider in a mideastern country. Due to my family and home being in Canada, I am a Canadian Tax resident. As of now, I just send monthly expenses to my family. But can I set up a sole proprietorship in Canada and declare my overseas business activity as earnings and expenses on sole proprietorship?
Or Is incorporation a better option?
Also if I go for incorporation, whats needed to prove my wife as active partner in business as she helps me with business activities? Please reply in context of new income sprinkling rules 2018. Thanks a lot.
Salem
Hi Salem,
You can operate as a sole proprietor in Canada with overseas income. The income along with the related business expenses should be reported in Canadian dollars on form T2125, Statement of Business Activities. Form T2125 should be attached to your Canadian personal tax return for the year. If you are operating in your own name, then registration of your sole proprietorship is not required.
A Canadian corporation can also have overseas sales. If the overseas sales are attributable to a permanent establishment in Canada, then the resulting profit will be taxed at the small business rate (13.5% - 2018).
This corporation can pay dividends to your spouse, for the purpose of income splitting, if:
- Your spouse is a shareholder of the corporation;
- Your spouse works at least 20 hours / week in the business consistently; and
- The amount paid to her is reasonable based on her experience, position in the company, and the work performed.