I also would strongly advice an outland application. Since your wife is German, it will go through Berlin, which is a pretty fast Visa Office.
It is not clearly written on the CIC website, but you do not have to in fact
be outside of canada to apply
from outside of Canada, confusing as it may sound.
Just in case you were wondering, here are the most important things you have to keep in mind when you have to choose between inland and outland:
Outland:
* you may visit Canada while you wait, but you may not work or study
* you are free to leave Canada if you want/have to
* right of appeal
* Most likely considerably shorter processing time. It currently takes Mississauga 2 to 3 months to assess sponsorship approval (1st step), then it takes Berlin (2nd step) 4 months to finalize 50% of applications and 8 months to finalize 80%.
* If an interview is required (usually not for Berlin family class) you have to fly to Berlin to attend it
Inland:
* you are advised to not leave Canada while you wait, but you will not be automatically allowed to stay, you have to arrange that seperately through visitor extensions.
* no right of appeal
* most likely considerably longer processing time. Stage 1 takes currently about 11 months. Stage 2 takes currently about 8 months.
* after stage 1 is done, you may apply for a temporary work permit
* a landing interview is usually required and will take place within Canada.
Since I am dutch, my outland case, like hers, is processed in Berlin. I applied outland, but am already in Canada as a "visitor" while we wait for me to become a PR. Meanwhile I volunteer and do all these things that I usually had no time to do, like scan and organize my complete photo collection.
My visitor status ran out on December 26, but I applied for an extension in late November. It will take 4 or 5 months to process, meanwhile I'm legally here on "implied status". This means that while I wait, it is assumed that I am supposed to be here. It is very possible that Berlin will be done with me before I even get an answer on that extension.
I would definitely apply outland in her case. Her chances of an interview for Family Class through Berlin are extremely low, especially if your case is straight forward and you include ample proof of your relationship. She will most likely be done in less than a year, probably even less than 9 months. If she applies inland, she will probably take 1½ years. If you ask me, inland is only advisable for people from countries with long processing times. Berlin is not one of those.