Do we need to register for Canadian sales tax before incorporating?
The two questions are unrelated. Registration for sales tax turns on carrying on business in Canada, and that test does not wait for a Canadian entity to be incorporated. A US company can be required to register while it is still selling as a US company, and incorporating later does not cure a period when registration should already have been in place. The same is true of payroll, which turns on where the work is done, and of permanent establishment, which is a third test with its own trigger. The mistake we see most often is treating incorporation as the event that starts everything. It starts the Canadian entity's obligations; it does not start yours.
Why file a Canadian return if the company owes no Canadian tax?
Because a return can protect a position rather than pay a bill. A protective Canadian return preserves treaty positions and deductions even where no tax is owed, and it puts the authority on notice of the basis you are relying on. Without one, the treaty position exists only in your own files, and deductions that would have reduced a later assessment may no longer be available when you need them. The work involved is also small relative to the alternative, which is arguing the same position years afterwards, from records assembled after the fact, against an assessment already issued. Filing where nothing is owed feels pointless in the year you do it. It stops feeling pointless later.
When does sending US employees to Canada create a payroll obligation?
Payroll turns on where the work is done, not on who signs the cheque or where the employee lives. An employee performing duties in Canada can create a Canadian payroll obligation for a US employer with no Canadian entity and no Canadian bank account. That obligation runs on its own trigger, separately from whether the company has a permanent establishment and separately from whether it must register for sales tax. Companies usually discover this when someone has been going back and forth for a while and nobody logged it. The practical fix is recording who is in Canada, and on what days, from the first trip rather than from the first query.
Does one sale in Canada create a Canadian filing obligation?
It can. A first Canadian sale can create a filing obligation before it creates a profit, because the two are not linked and profitability is not the test for any of the three. Sales tax registration, payroll and permanent establishment each have their own trigger, and a first sale can touch one of them without touching the others. What matters is the shape of the sale: what was sold, where the work behind it was done, and who did it where. A single transaction reviewed properly at the time takes very little effort. The same transaction reviewed years later, alongside everything that followed it, does not.
What are the first compliance red flags for a new Canadian subsidiary?
The common ones are timing problems rather than structural ones. Activity in Canada that began before the entity existed, so the parent's own obligations were never tested. Intercompany charges running between parent and subsidiary with no agreement behind them. Staff working in Canada with no payroll registration, because the work was treated as the parent's. Sales invoiced without sales tax, on the assumption that registration follows incorporation. Each of these is straightforward to fix in the opening months and expensive to fix once several years of filings sit on top of it. The review worth doing is of what has already happened, not of what is planned.
Can we run Canadian sales through the US parent instead?
You can, and for genuinely small Canadian activity it is often the sensible answer. What it does not do is remove the tests; it decides which company they apply to. If the parent is the contracting party, then it is the parent that may have to register, the parent that may acquire a Canadian filing obligation, and the parent whose staff raise the payroll question when they work in Canada. That is a heavier place to carry those obligations than a Canadian company would be, because it puts a US entity directly into the Canadian system. Choosing to sell through the parent because the activity is small is reasonable. Choosing it in order to postpone Canadian obligations is not, because they arrive regardless, and they arrive on the parent.
When does a construction project create a permanent establishment?
Most treaties give building sites and installation projects their own rule, turning on how long the work continues rather than on whether an office exists. Time is generally counted per site, and related contracts split between group companies are commonly aggregated to stop the threshold being avoided by paperwork. The period differs between treaties, so it is read from the one that applies. See permanent establishment risk.
Should I use a branch or a subsidiary abroad?
A branch is the same legal entity operating in another country, so its profits and losses sit with the parent and it is taxed there as a permanent establishment. A subsidiary is a separate company, taxed in its own right, with dividends and withholding on the way home. Losses, repatriation cost and liability usually decide it, and the answer differs by country pair. See branch vs subsidiary.
