Moving Between Canada and the US With a Company

What decides whether I keep, pay out, or close the company?

The answer depends on who owns the company, when the owner changes tax residence, what the shares and assets are worth, and whether the business will operate after the move. Compare the same company and move date under all three choices; a payout changes the remaining share value but does not erase the tax on the payout.

An owner's move does not itself move the company. A corporation incorporated in Canada after April 26, 1965 generally remains resident there even if run from the US. A US company managed from Canada may also become Canadian resident; check actual central management and control (CRA: corporate residence). State and provincial duties depend on where operations continue.

Should I take a Canadian corporation dividend before or after moving to the US?

Compare two dates: when Canadian tax residence ends and when US income-tax residence begins. A US citizen or existing US tax resident may owe US tax before Canadian departure. Record the payment date and test both countries' treatment then (IRS: resident aliens report worldwide dividends; CRA: nonresident withholding).

First classify the payment: an ordinary dividend, a capital dividend backed by the corporation's capital dividend account, or repayment of a documented shareholder loan. A qualifying capital dividend is tax-free in Canada to a resident shareholder if the corporation elects on Form T2054 by the earlier of the payable or first payment date; an authorized officer signs it. Paid to a nonresident, it is subject to 25% Canadian withholding, reduced to 15% for a qualifying US individual (CRA: Form T2054; CRA: capital dividends). US citizens and residents must also test US treatment.

For a qualifying individual beneficial owner resident in the US, the Canada–US treaty generally limits Canadian tax on a dividend from a Canadian resident company to 15% of the gross dividend. Before paying, document treaty eligibility, for example with Form NR301 or equivalent information. The corporation must remit withholding by the 15th day of the following month and file the NR4 by the last day of March after the payment year. If business ceases, remit within seven days and file the NR4 within 30 days. A shortfall can leave the corporation and, subject to statutory conditions, its directors liable (treaty Article X; CRA: NR4 guide; Income Tax Act: director liability). See the nonresident owner guide for withholding mechanics.

Does Canadian departure tax on my shares change the payout date?

It can: Canada generally treats an emigrant as having sold shares at fair market value on departure, even if the owner keeps them. A predeparture dividend may lower their value, but the dividend itself has a separate tax result; a postdeparture dividend does not retroactively lower the departure value (CRA: deemed dispositions).

Estimate the share gain using fair market value less adjusted cost base, then compare it with the dividend and remaining share value. If the shares qualify for the lifetime capital gains deduction, unused room may shelter the departure gain; a predeparture dividend can change both the gain and the shares' eligibility under the asset tests. Minimum tax may still apply (CRA: capital gains deduction). Check the deemed-disposition exceptions, especially for recent immigrants. Deferring departure-tax payment changes cash needed, not the gain; see leaving Canada for the election and deadline. The treaty election concerning later US tax on the same gain is covered in moving from Canada to the US.

What if I keep my Canadian corporation after moving to the US?

Keeping the corporation can preserve its business and contracts, but it can add US owner reporting while Canadian company returns continue. If a nonresident controls a Canadian corporation, it may lose Canadian-controlled private corporation status; that is a different test from whether the corporation remains resident in Canada (CRA: corporation type; CRA: corporate residence).

A Canadian-resident corporation generally files a T2 every tax year, including an inactive year (CRA: corporation returns). A US citizen or resident controlling it may have Form 5471 reporting and current US tax on some company income (IRS: Form 5471 instructions). US services can create a US trade or business and Form 1120-F filing even where treaty relief exempts the profit; see Canadian corporation US tax return (IRS: Form 1120-F instructions). A Canadian corporation continued abroad can cease Canadian residence if its management also leaves, triggering separate corporate departure taxes (CRA: corporate emigration). See US owners of foreign companies for owner filings.

Does winding up a Canadian corporation before or after moving change what I receive?

Yes. Canadian law can treat money or property distributed on a winding up as a deemed dividend to the extent it exceeds the relevant paid-up capital. After the owner moves, that deemed dividend may also attract Canadian nonresident withholding; before the move, it belongs in the Canadian resident period (CRA: deemed dividends; CRA: NR4 guide).

Departure tax and later dividend withholding can fall on the same retained profits. Canadian relief is narrow: if the shares are taxable Canadian property on later disposal, an election in that year's return may reduce the departure gain by a later share loss. A withholding credit also requires the shares to remain taxable Canadian property throughout and dividends to reduce that loss (Income Tax Act: sections 119 and 128.1(8)).

The US generally treats a complete liquidation as a share exchange, but section 1248 can treat gain as a dividend up to earnings accumulated while you held the shares and the company was a controlled foreign corporation. Canada may also deem part of the distribution a dividend (US Code: sections 331 and 1248; CRA: deemed dividends). If section 116 applies to taxable Canadian property shares, notify the CRA within 10 days of disposal unless valid advance notice was given (Income Tax Act: section 116). See closing a corporation for final returns.

If I move to Canada, should I keep my US LLC or C corporation?

Keeping a US company depends on its Canadian tax position and the value of its continuing US work. The US tax classification matters: a one-owner LLC is usually disregarded for US income tax unless it elects corporate treatment, while a C corporation is taxed as a corporation (IRS: single member LLCs; IRS: Publication 542).

Actual management can make a US company Canadian resident, but a C corporation created only under US law is generally treated as US resident under treaty Article IV (CRA: corporate residence; treaty Article IV). Record the US company interest's fair market value on becoming Canadian resident: Canada generally uses it as cost for a later disposal (CRA: newcomers). Closing can tax transferred assets or proceeds. See closing a US company and moving from the US to Canada.

Can I keep my US S corporation after becoming a Canadian resident?

Possibly. Moving to Canada does not itself disqualify a US citizen, but an S corporation cannot have a nonresident alien shareholder (IRS: S corporation eligibility). A green card holder who claims Canadian treaty residence and notifies the IRS can cease being a US lawful permanent resident for tax purposes; if no other US residence test applies, the S election is at risk. Surrendering the green card can have the same result (US Code: section 7701(b)(6)). See moving from the US to Canada for personal exit tax.

For an eligible shareholder, the US taxes earnings as earned, while Canada generally taxes distributions later, potentially limiting credits. Under treaty Article XXIX(5), the shareholder may request a CRA competent-authority agreement for Canadian current-income treatment; approval is conditional and generally prospective. Ask well before the filing due date for the first year it should cover (CRA: competent-authority guidance). If the S corporation is a foreign affiliate, Form T1134 may apply, subject to the first-time resident exception above. Resolve US eligibility before the change; see cross-border tax.

What if the company is inactive or only holds investments?

No operations does not automatically end filings. A Canadian-resident corporation generally still files a T2, and a US owner may still have Form 5471 reporting. A US C corporation generally still files a federal return; a foreign-owned disregarded US LLC may need Form 5472 with a pro forma Form 1120 for reportable related-party transactions. Missing required Forms 5471 or 5472 can trigger initial penalties of US$10,000 per foreign corporation per year or US$25,000 per reporting corporation (CRA: corporation returns; IRS: Form 5471 instructions; IRS: Form 5472 instructions).

If the company holds investments, list each asset and its unrealized gain before comparing dividends with a windup. Investment income can change when the US taxes a controlled foreign corporation's owner, even without a distribution; the IRS Form 5471 instructions separately identify dividends, interest, rents, and other passive items (IRS: Form 5471 instructions). Canadian real property held by the company may make its shares taxable Canadian property on a later sale or cancellation, including a windup (Income Tax Act: taxable Canadian property). Dormant companies with no planned use may still be costly to keep because filing duties can continue.

What should I gather before comparing the three choices?

Gather one dated set of records and estimate the owner and company tax under each choice in both currencies. Use the same move date and projected operations for every scenario.

Price the keep scenario over the period you actually expect to use the company. Price each payout and windup on its own date. Then compare cash received after tax, remaining assets and debts, and filing costs; do not compare a predeparture dividend with a postdeparture windup using different starting balances.

Example

Illustrative Canadian-dollar amounts only; no tax rate or final tax bill is assumed. An owner has a Canadian corporation worth C$400,000, including enough cash for a C$100,000 dividend. The owner's share cost is C$50,000. With no payout, the illustrative share gain at Canadian departure is C$350,000.

If the company pays the C$100,000 dividend before departure and nothing else changes, its value falls to C$300,000 and the departure gain falls to C$250,000. The owner still has C$100,000 of dividend income. If the shares qualify and the owner has enough unused lifetime capital gains deduction to shelter either gain, the smaller gain may save no departure tax. If paid after departure, the original C$350,000 gain remains, and withholding and US tax may apply to the dividend. Canadian relief for overlapping taxes is limited as described above. A windup adds company asset tax and different treatment of final proceeds; the lower share gain alone does not decide the choice.

Different for you?

• Your Canadian residence date or departure return is uncertain: see leaving Canada or moving from Canada to the US.
• You will keep a Canadian corporation as a US person: see US owners of foreign companies and nonresident owners of a Canadian corporation.
• You will keep a US LLC in Canada: see Canadian owner of a US LLC.
• You need to dissolve a company: see closing a Canadian corporation or closing a US company.
• The move is near, profits are retained, assets have unrealized gains, or share value is uncertain: bring the records above to a cross-border tax review before declaring a dividend or approving a windup.