When non-Canadian residents decide to start a corporation in
Canada to operate a business, an important typical question is how
to fund that business. Businesses can get funding in a variety of
ways, from external funding sources such as selling equity, raising
debt from third parties, or even crowdfunding through organizations
like Kickerstarter or Indiegogo, to internal financing through
contributed capital or taking on debt from shareholders. When it
comes to internal financing, debt is often an attractive option
because the interest payments on debt can be deducted as business
expenses, reducing the business' tax liability. Furthermore,
when considering how to extract retained earnings in the Canadian
corporation to a non-Canadian resident shareholder, interest
payments can also be attractive as some tax treaties offer a
reduced withholding tax rate on interest compared to dividends.
