rivingtonpike

Aside from the factory insurance we have home insurance for us to have a "home office". This is where we hold most meetings so public liability was necessary. It is not insurance for production or distribution from home. I think that would be an entirely different matter (hence separate "business" insurance and indemnity cover for the factory and products).

Aviator

It depends entirely on the nature of the business and the insurer. What one will do, another may not. If a business does not involve people coming to the property this is often easier to get, as the risk is lower. For one of our businesses we have a house eon the property and have to carry a policy for the business and another for the house and residents.

izzi81

Well I just went and had a meeting with an accountant, which was hugely disappointing. Despite emailing them in advance and explaining the situation (my questions about UK-Canada business partnership or sole trader and so on) and them saying I should come in for a meeting, it turns out the guy really doesn't know much about foreign tax and income at all. So I paid for a chat that really wasn't very useful because I'm not sure he really knew what he was talking about

He mentioned 'withholding taxes', which I don't really understand but which might cause problems if I'm paying my sister for 'services' for the Canada side of the business...
He suggested 2 options, one was splitting the business into two sole trader businesses and then paying each other 'consulting' fees to even up the profits, or to have the business be solely UK based and my sister the sole trader and she pays me a 'consulting fee' and I bill her for expenses. The 2nd option sounds simpler for tax purposes, although you guys previously mentioned if the business has a base here in Canada it has to be registered here, I don't know if that also means the business has to pay tax here.

The UK tax return for partnerships allows you to say one partner is non-resident... if all the money came in to the UK business, could we not stay a UK partnership and I declare foreign income? Or is that not possible because I will be doing work for the business here?
Speaking to an accountant has not helped my sore head over this stuff at all

JonboyE

That seems like good advice to me. Simple and effective.

This works too. You bill the UK business for your time and expenses.

You will be based in Canada so you will be taxed on your business activities in Canada. If your revenues will exceed $30,000 pa you will have to register for HST (though the rate you charge the UK business is 0%). Then report your income and expenses on your tax return.

Stay as a sole proprietor and, at some point in the future when the business grows, consider incorporation. International taxation gets very complicated (and very expensive) very quickly. Keep it simple.

There is a non-resident withholding tax that applies to many types of income. Payment for business services to a non-resident business that does not have a permanent establishment in Canada is an exception. However, if you paid a consulting fee to the UK business you still have to file an NR4 form by the end of March the following year. You claim the exemption from withholding tax on the NR4.

Steve_

What I said in post #4 applies, the simplest way of doing it that you register as self-employed, get a business number and you invoice your sister (or she invoices you as the case may be) in the UK and the whole thing is separate. You get a GST number etc.

All the accountant needs to know is that you're have a small business and you want to be self-employed, the reason you do this is because of the problem you ran into - accountants know nothing (or nearly nothing) about foreign tax law so it's best if you avoid that problem by keeping it separate. At least with a small business.

Aviator

If revenues are under $30k, the OP does not need to register for a business number for GST, unless exporting then they need an export number. No GST is chargeable to overseas clients. Self employment as a proprietorship does not require any registration, however they may need a business license.

Steve_

As I said earlier in the thread, it's to your benefit to register for GST as you can claim input tax credits. It's very simple to do GST/HST returns for small businesses. Can't comment on PST in other provinces, depends on the province.

izzi81

First of all I have to say thanks for all the info

so it rather sounds like I don't need to involve an accountant... if we go for one of the 'simple' options, either 2 separate businesses or one UK based one?

Re. HST etc., we'll be shipping our product across Canada, and I'll be getting deliveries of stock here in Canada. If we register for HST(GST/PST/whatever!) this means we'd have to charge the differing rates for customers in different provinces, is that right? And would I be able to claim HST back on imports and purchases I make here, even if we go for the option where I am a 'consultant' for the UK business making the purchases on behalf of it? Or does that not work - I wouldn't be surprised if I can't get the HST back.

So I wouldn't be charging HST to the UK business, all I would be doing would be collecting HST/GST from Canadian customers, and possibly - depending on the answer to the question above - being able to claim it back...


This is a very clear way of putting it, thanks So if the business stays a UK business, and I am working for it in Canada, then the income is *my* income, rather than business income? So the only place where business accounts get done is in the UK, I just do self-employed accounts with an income being paid to me (as a consultant) by a UK business.

You mentioned if I was exporting I need an export number. I will be shipping out to customers in the US, so I presume I'd need to get whatever this is?

So this only applies if I am paying my sister for her 'consulting services', ie. if we went for 2 separate businesses, it is not applicable on income I would receive from the UK? This would suggest keeping it all as a UK business would be the simplest option?

As far as my 'consulting' role, at that start (up until we outsource if that ever happens) it would be very like a separate version of the UK business, in that I would be buying stock, packaging it up and shipping it out to customers. Is it still OK to treat this as a 'consulting' role? It seems odd, but maybe it's just all about how you choose to describe things for tax purposes.


Aaaaaaand.... I have one more question. Apologies
My partner has a business here, but he also has a small business back in the UK that makes a very small amount of money (he's selling it in the next couple of months). He is registered as a sole trader in the UK and pays tax there, the income goes into a UK account. The accountant today said we didn't have to mention this to the Canadian tax people at all, but just to treat the money as money Iain has in the UK. This sounds great, but also seems to go against other things I've heard. Do we need to declare this?

The same goes for the UK business as it's set up at present. The business is there, making money, and every month my sister and I pay ourselves a small wage, which goes into my UK bank account and which I pay UK tax on. Do I need to declare this? And if so, how do they know it's already been taxed? I'm concerned about all this because I know someone else in Canada with a UK business who is currently in struggle with the Canadian tax people who won't accept that she's already paid tax on her UK income. Granted I have no idea how she's filled out forms or anything. Is it like the UK and you can declare foreign income? How do they know it's already been taxed? (That is of course if I have to declare it here at all).

OK this post is quite long enough. Once I've worked all this stuff out I'm sure I'll be fine, it's just complicated to work out what to do and obviously I don't want to get it wrong!

JonboyE

I will take this in parts. For this one, you have received terrible advice. Of course you (and he) needs to declare this UK income in Canada. If you have paid tax on it in the UK then you can claim a credit against Canadian tax owing on the same income. The CRA will want to see copies of your UK tax returns to verify the tax you paid. I am not surpised the person you know is having trouble with the CRA.

JonboyE

You should decide on the business arrangement first.

i) You provide services, e.g. marketing, design etc. to the UK company. The UK company sells and ships product to Canada and the US. With this setup the post office / courier company collects sales taxes from customers and remits to the government(s). UK business is responsible for collecting cash from customers.

ii) You purchase product from the UK company and re-sell it to customers in Canada and the US. In addition to registereing for HST you will need to open an import/export account. Customs will charge you HST on the product you buy and you can deduct this from GST/HST you owe on your sales. You will have to bill your customers GST/HST as appropriate and possibly PST and remit this to the government(s). You will be responsible for collecting cash from customers.

Aviator

If you ship across Canada, you have to charge PST at the prevailing rate in the province you ship +GST or HST to some provinces. It is the hokiest most primitive system.

Imported goods will attract GST, plus duties if applicable. A good idea to engage a broker to do your imports.

izzi81

That's what I thought, it didn't sound right to me! That advice came from the accountant by the way (!). I presume we enter is at foreign income, and they assume that is already taxed, and then we provide documentation to show that? What if the amount earned is too small to have been a taxable income, does it still count as having been through a tax system or, if when combined with our Canadian income, might we have to pay tax on it here as part of a larger income?

izzi81

Ok neither of these would work.... I'm thinking we may have to go down the two separate businesses route.
The intention is the following:

iii). I buy product in North America to ship to North American customers. Payments are taken through our website and go directly into the UK business account. The business model will be the same, but North American customers will receive different products to our UK customers.

Does that make sense? And is it still doable with the 'me as consultant' model, or do I really have to set up a separate business? I'd rather the one business with me consulting model as it seems more straightforward and would require less expense for payment processing online as well.

(Having looked a little at shipping here it might make not much difference at all to ship all the product from the UK, however logistically this would be very difficult for my sister on her own, plus we're trying to work with UK businesses to help promote them, which probably isn't as applicable if we start shipping across here too).

Steve_

They've got to be separate for this to work, if the money goes into a bank account registered to a different business, they're not separate.

From your more detailed description you've basically got two options from the sounds of it:

1) Become self-employed, get a GST/HST account, get a business bank account at the bank. You have two separate websites or at least when they make payments at the North American end through the website, it goes to your business bank account. If you need to transfer things back and forth to the UK, you just invoice each other.

2) The company in the UK registers in Canada, gets a payroll account and GST/HST account and has to file a T2 every year in Canada which also means a corporation tax account. You get a T4 from that entity. Then the bank accounts and so on can be the same.

#2 is obviously more complex, depends on how much business you are doing as to whether it is worth the hassle.

But it's typically the case companies have separate offices and separate corporations in different countries because of all the tax rules. You don't want the CRA for example wanting to audit the company in the UK and you don't want HMRC wanting to audit you.

There is another option, you set up a corporation and do your own payroll but that might be overkill.

Remember the objective of the tax authority is to collect the tax they are owed, they don't care how you do it as long as they get their money.