Canada is rarely, if ever, associated with tax optimization. This makes entities registered there ideal from a tax avoidance standpoint as no one will ever suspect them of being used for such a purpose. In this article, I review one such entity, the Ontario LP. I also explain how to register one and how to handle compliance.
Canada is a large country, the world’s second largest in fact. It is divided into ten provinces and three federal territories. A province, in the Canadian context, is for all intent and purposes an independent country. Each runs its own education system, health care system, taxation system, police force, law code and in some cases, immigration system. Ontario is the subject of our focus today, or more specifically its Limited Partnership (LP) structure.
The Ontario LP is, as its name implies, a partnership. This means that it must have at least two partners (one general partner and one limited partner). Interestingly, the same individual or legal entity can be both. As such, it is possible to register a “one real partner” Ontario LP. There are no residency requirements for either partners but a foreign legal entity (including one registered in another Canadian province) must register as an Extra-Provincial Corporation (EPC) in Ontario before it can assume the role of general partner (it can assume the role of limited partner without registering as an EPC). This registration does not create a tax burden in Canada in and of itself but it may create an additional filing requirement depending on your business activities. Because of this, I usually recommend that a natural person assumes the role of general partner (unless the business is high risk).
An Ontario LP can conduct business in Canada without any restrictions. With that said, doing so may create a tax burden in Canada for the partners and as such, is not recommended. Do note that selling to Canadian customers from abroad, via an Ontario LP, will not usually be deemed as conducting business in Canada and as such, will not usually create a Canadian tax liability. This brings us to the next point, taxation.
An Ontario LP is a pass-through entity for tax purposes. This means that it is not a taxable entity in and of itself. Instead, the partners must include their share of the profits on their own tax returns in their country of residence (personal or corporate). Canadian resident partners are liable for taxation on the LP’s worldwide income while non-resident partners are only liable for taxation on the LP’s Canadian income. If no business is conducted in Canada, and all partners are non-residents, no tax liability will exist in Canada and no return will have to be filed.
Do note that an Ontario LP selling to Canadian customers will have to register for sales tax (HST/GST) after reaching the 30000 CAD annual threshold (only Canadian sales count towards the threshold).
Canada boasts some of the most stable banks in the world. They offer an excellent range of services and accounts / credit cards in multiple currencies. They are also tech-focused with the vast majority of banks supporting mobile payments (via Apple Pay, Android Pay and Samsung Pay), instant peer-to-peer transfers and mobile cheque deposit. Their fees tend to be high and wiring money overseas can be a bit of a hassle, however.
Opening a business bank account in Canada for a Canadian-registered entity is fairly easy. A personal visit is required (for non-residents) but that is usually it (no minimum balance, letter of reference etc). Canadian residents can open an account online in minutes provided that they have a valid social insurance number (SIN). A chequing account can be opened in Canadian dollar or US dollar. Savings accounts can be opened in nearly any other currencies. Most Canadian accounts come with a debit card (usually a mix of Visa and Interac) that can be used worldwide (including online). In exchange for a security deposit (for non-residents), a credit card can also be issued (including USD credit cards). An Ontario LP can also open accounts with the likes of TransferWise and Payoneer (they have CAD accounts, useful for Stripe and PayPal), remotely, and this is in fact a great solution if no traditional bank account is needed.
As for payment processing, an Ontario LP can apply for a merchant account with any of the Canadian banks. It can also use services like Stripe and Braintree (settlements can be received in either CAD or USD). Do note that Stripe supports settlements to TransferWise in USD. PayPal can also be used.
While it is possible to register a corporation in Ontario online, it is not possible to do the same with an LP. You have the option to either show up in person at the registrar or use the services of a third party.
If decide to go in person, you will have to fill form 3 and bring it to the address below. The registration fee is 210 CAD (they accept cash and credit cards).
Ministry of Government and Consumer Services
Central Production and Verification Services Branch
375 University Avenue, 2nd floor
Toronto, ON M5G 2M2
A company number will be issued on the spot, allowing you to immediately open your business bank account. I recommend TD, I have personally been with them for years and am happy with their services. Other banks worthy of consideration include CIBC, RBC and Scotia. Do note that you can open a USD account with any of these banks and link it to PayPal, Stripe and many other payment processing services. This will allow you to completely bypass the Canadian dollar.
If you prefer registering your LP remotely, you can do so with Freedom Surfer. For 397 EUR, we will prepare form 3 for you and mail it to the government along with a certified cheque for the 210 CAD fee. You can get in touch via this page if you wish to order this service.
In both cases, you will need an Ontario address (you can get one via AnytimeMailbox). Registration is valid for five years, after that you must pay the 210 CAD fee again for an additional five years. There is no annual filings or formalities to complete to maintain the LP.