I invest using contracts for difference (CFD), through Oanda brokerage. CFD’s are leveraged products 1:50. The broker loans money to trader and charges daily interests ONLY if positions are held overnight . These charges are called holding costs or overnight financing charges. Do you know if these charges are tax deductible expenses?
Background on FAPI The foreign accrual property income (FAPI) rules are a set of anti-deferral rules designed to prevent the (potentially indefinite) deferral of Canadian taxes on passive income earned in a low-income jurisdiction by a controlled foreign affiliate (CFA).
How is corporate residency determined in Canada? Why is it relevant? MASOOD ABDULLAH The residency status of a corporation - just like an individual - will determine where it is taxed and on what sources of income. If a corporation is considered to be resident in Canada, it will be taxed on its worldwide income. If a corporation is considered to be a non-resident, then it will be taxed on its Canadian source income only. Corporations can be ‘deemed’ resident or found to be resident under ‘common law’. Deemed Resident There are several deeming provisions in ITA 250(4) however the most important deeming provision is that any company incorporated in Canada after April 26, 1965 is deemed to be resident in Canada. Deemed non-resident According to the Income Tax Act (ITA) Subsection 250(5), a corporation which would be resident of Canada, is deemed to be non-resident if it is considered to be resident in another country based on the tax treaty rules between Canada and the other country. If a corporation is not deemed to be resident under the ITA, it may still be a resident of Canada under common-law. Although there is no proper definition of ‘common law’ residency rules in the ITA, it is based on the following common-law principles. Common-law Unlike the deemed residency rules, Common Law does not take into importance the place where a corporation is incorporated. According to the Common-law, a corporation is considered resident in the country in which central management is present and control of the corporation is exercised. The following criteria are considered when assessing whether a corporation is resident under common law: Place where the principal business is done Books and records are present Bank accounts maintained and kept Company seal is present Residence of the directors. It is to be noted that International Tax Treaties override the ITA. The tiebreaker rules in tax treaties will consider the corporation to be resident of the country where it has continued to operate rather than the country where it was incorporated. Part year resident Note that the concept of part-year residency (which may be applicable to individuals) is not relevant to corporations. When a corporation is considered resident in Canada it is considered to be resident for the entire year.
I agree. I think FAPI rules will apply in this scenario. CRA will either deem this as passive income. Alternatively, it would be deemed as investment income and thus taxable in the hands of the Canadian shareholder person or entity.
TY for this James. I live in Toronto and found this so helpful.
Keep up the great work James 👍
As a Canadian would I have to pay taxes on U.S. LLC if I cash in when I’m in the U.S. ?
thanks!
Couldnt you just open a US bank account like Tangerine and work w a US brokerage?
What if you only trade once a week or once a month selling options
I invest using contracts for difference (CFD), through Oanda brokerage. CFD’s are leveraged products 1:50. The broker loans money to trader and charges daily interests ONLY if positions are held overnight . These charges are called holding costs or overnight financing charges.
Do you know if these charges are tax deductible expenses?
Hi! Follow the link in bio or find me at www.jamesbakercpa.com/ for a free consultation! 😁
"That might apply" so up to everyone to figure that out....
What if I do it as a side hustle and make 5-10 k in one year should I have to pay tax ?
No this doesn't work.
Corporate residency rules, & either source income or FAPI rules prevent this
Background on FAPI
The foreign accrual property income (FAPI) rules are a set of anti-deferral rules designed to prevent the (potentially indefinite) deferral of Canadian taxes on passive income earned in a low-income jurisdiction by a controlled foreign affiliate (CFA).
How is corporate residency determined in Canada? Why is it relevant?
MASOOD ABDULLAH
The residency status of a corporation - just like an individual - will determine where it is taxed and on what sources of income. If a corporation is considered to be resident in Canada, it will be taxed on its worldwide income. If a corporation is considered to be a non-resident, then it will be taxed on its Canadian source income only. Corporations can be ‘deemed’ resident or found to be resident under ‘common law’.
Deemed Resident
There are several deeming provisions in ITA 250(4) however the most important deeming provision is that any company incorporated in Canada after April 26, 1965 is deemed to be resident in Canada.
Deemed non-resident
According to the Income Tax Act (ITA) Subsection 250(5), a corporation which would be resident of Canada, is deemed to be non-resident if it is considered to be resident in another country based on the tax treaty rules between Canada and the other country.
If a corporation is not deemed to be resident under the ITA, it may still be a resident of Canada under common-law. Although there is no proper definition of ‘common law’ residency rules in the ITA, it is based on the following common-law principles.
Common-law
Unlike the deemed residency rules, Common Law does not take into importance the place where a corporation is incorporated. According to the Common-law, a corporation is considered resident in the country in which central management is present and control of the corporation is exercised. The following criteria are considered when assessing whether a corporation is resident under common law:
Place where the principal business is done
Books and records are present
Bank accounts maintained and kept
Company seal is present
Residence of the directors.
It is to be noted that International Tax Treaties override the ITA.
The tiebreaker rules in tax treaties will consider the corporation to be resident of the country where it has continued to operate rather than the country where it was incorporated.
Part year resident
Note that the concept of part-year residency (which may be applicable to individuals) is not relevant to corporations. When a corporation is considered resident in Canada it is considered to be resident for the entire year.
I agree. I think FAPI rules will apply in this scenario. CRA will either deem this as passive income. Alternatively, it would be deemed as investment income and thus taxable in the hands of the Canadian shareholder person or entity.
James, Can you use this stratagy if you are trading crypto?
What if i am a dual citizen living in Canada?
Hi. Please reach out my support team support@jamesbakercpa.com
how much you charge to setup my us llc. i am from canada and i want to go for option 3.
Hi! Follow the link in bio or find me at www.jamesbakercpa.com/ for a free consultation! 😁