Tax Implications for US Citizens working in Canada

Allan Madan, CA
 Feb 14, 2013
Share
71 Comments

US citizens working in Canada have to file a Canadian tax return and pay Canadian tax.

If you are a US Citizen working in Canada as an employee, you should be aware of what tax obligations are applicable to you or you could end up facing large penalties.

Here are the tax-related responsibilities that you may face in Canada and in the United States.

Filing Canadian Tax Return – April 30
US citizens are required to file a Canadian tax return if they worked in Canada. The Canadian tax return will be due on the April 30th of the following year. Unlike the US, only one tax return is filed for both Federal and State taxes in Canada.

Statement of Employment Earnings – February 28
Note that your employer will issue a T4 Slip (statement of Canadian employment earnings, similar to a W2) to you by February 28 of the following year. The T4 Slip is used to prepare your Canadian tax return and calculate Canadian taxes owing (Federal and State).

Residents & Non-Residents of Canada
As a US citizen, you can either be a resident or non-resident of Canada, both of which have differing tax implications.

If you are deemed to be a resident of Canada, then you are required to pay tax on your world-wide income [income from Canada, the US, and other countries]. To be considered a Canadian resident, you,

  • must have significant ties to Canada (e.g. your permanent home is in Canada, your spouse and child(ren) have moved to Canada with you); or
  • have resided in Canada for 183 days during a calendar year.

Non-residents of Canada are only liable for tax on employment income earned in Canada. If you are a non-resident working for an American company in Canada, there are additional tax considerations; for more detailed information please consult our article on tax implications for US Companies expanding to Canada.

U.S. Tax Responsibilities
The United States treats all of its citizens and green-card holders as residents of the US for tax purposes. As residents of the US, you must pay tax on your worldwide income. Note that your Canadian tax residency status (i.e. non resident or resident of Canada) has no bearing on your US tax residency.

Normally, as a US resident, you must file a US personal tax return by April 15 of the following year. However, if you are a US citizen or a green card holder working in Canada, and have significant residential ties to Canada, your filing deadline is automatically extended to June 15 of each year. In addition, you may also file for an extension of the filing deadline to October 15. The drawback of extensions is that interest on any tax balance owing will begin accruing on April 15.

U.S. Tax Disclosure Requirements
As a US Citizen or Green card holder living in Canada, you are required to disclosure a substantial amount of financial information to the IRS. Below are some of the disclosures that may apply to your situation:

1. Form 5471 – Information Return of U.S. Persons with Respect to Certain Foreign Corporations

  • This form is used to disclose ownership in any non-US corporations that an individual and certain family members control.

2. Form 8865 – Return of U.S. Persons with Respect to Certain Foreign Partnerships

  • This form is used to disclose an interest in any foreign Partnership that an individual holds.

3. Report of Foreign Bank and Financial Accounts

  • This form must be filed separately from your tax return if the total value of your foreign bank and financial accounts (e.g. RRSP, brokerage accounts, TFSA, etc.) exceed US$10,000 at any time during the year.
  • The due date is June 30 of the following year

4. Specified foreign financial assets

  • This form must be filed along with an individual’s US income tax return if the person has more than $50,000 worth of foreign assets (If you are a US citizen living in Canada, the $ threshold is higher).
  • Specified foreign financial assets include bank accounts, RRSP, Pension accounts, etc.

As you can see, US tax return and disclosure requirements can be complex and penalties for failing to file, very significant. Therefore, we highly advise that you consult a US-Canada tax expert if you are a US citizen working in Canada.

We can assess if you or your company is carrying on business or has a permanent establishment in the United States.
Please contact us for a free consultation by using form below.





We are secure and confidential. We respect your email privacy.
* Required field

Disclaimer

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.

Related Resources

Leave Your Comment Here:
Required fields are marked.

Your email address will not be published. Required fields are marked *

two × three =

Comments 71

  1. Hi,
    If I am a U.S. citizen and work in Canada (Canadian resident for tax purposes), I have to pay Canadian tax as well taxes in the United States. Hence I will be paying taxes twice on the same employment income. Correct?

    Julie

  2. Hi Katherine,

    Thank you for your question.

    You would still need to file your US1040 NR in the year you relinquished your green card. You may also be subject to expatriation tax, if you qualify as a long-term resident for US tax purposes. Your considered a long term resident, If you were a lawful permanent resident in the US for at least 8 out the last 15 years, ending with the year you relinquished your green card. You should consult with a professional accountant to ensure you are in compliance with the IRS and don’t have any remaining tax obligations subsequent to surrendering your green card.

    Regards,
    Allan Madan and Team

  3. Hi Julie,

    As you had indicated, you will have to pay taxes in both Canada and the United States. However, in order to prevent double taxation, you can claim foreign tax credits on your tax return. This will ensure that you are only taxed in one country on your employment income.

    Regards,
    Allan Madan and Team

  4. I am looking into opening a TFSA account but I heard from some people that this is not advisable for US citizens. Is this true?

  5. Hello Frank,

    Yes. In Canada, a Tax Free Savings Account (TFSA) is a great way to invest your money tax free. However, the US does not recognize TFSA as a tax free savings vehicle and as such, will treat TFSA as a regular investment account. This means that the growth within the TFSA will be taxed by the US tax authority. Furthermore, the US considers TFSA (and RESP) as a Foreign Trust which means that the holder of these accounts will be liable for filing form 3520 and form 3520-A on an annual basis with the US tax authority.

    Regards,
    Allan Madan and Team

  6. Hi Cecil,

    Generally, extensions to file the FBAR are not granted. Any filing extension granted by the IRS to file a tax return does not extend the time to file an FBAR. So it is imperative that you file the FBAR by June 30 of the following year.

    Regards,
    Allan Madan and Team

  7. Hi, I reside and work in Canada, but am not a Permanent Resident yet. Do I
    need to be a Permanent Resident of Canada to contribute to RRSPs?

  8. Hi Tanisha,

    To contribute to RRSPs, you do not need to be a Permanent Resident of Canada. However, you do need to have RRSP contribution room (also known as RRSP deduction limit). The calculation of this deduction limit is based on the “earned income” of the prior year as well as pension adjustments, past service pension adjustments, pension adjustment reversals, and unused RRSP contribution room from years before.

    Contributing in excess of the deduction limit may result in a penalty. RRSP contributions can be made by visiting your bank.

    Regards,
    Allan Madan and Team

  9. I know that as a US citizen, I can deduct property taxes and mortgage interest on my US tax return. Can I do the same on a Canadian tax return?

  10. Hi Shiv,

    Canada does not allow individuals to deduct property taxes and mortgage interest paid on the tax return unless it is part of your home office expense. Furthermore, provincial taxes paid are also not deductible in Canada.

    Regards,
    Allan Madan and Team

  11. I’m working in Canada as an independent contractor. Can I deduct some of my Canadian business expenses on my US tax return against my US income?

  12. Hi, Percy

    Unfortunately you cannot claim Canadian business expenses against US income on a US tax return. The Canadian return will have to reflect all the business expenses specifically related to earning the Canadian income.

    Regards,
    Allan Madan and Team

  13. Hi Finn,

    The ability of a country to tax the income first depends on the country in which the income is sourced/earned. Employment income, by definition, is sourced/earned in the country in which one worked. Since the employees physically worked in Canada, the employment income they earned will be sourced in Canada, and so the CRA will get to tax the employment income first. As mentioned above, again, the taxpayer will be able to claim foreign tax credits in the US to compensate for the Canadian taxes paid.

  14. I was relocated to Canada by my company and I have resided here for more than 183 days in 2013. Does this mean I have to file as a resident of Canada?

  15. Hi Paulito,

    By default, since you have exceeded the 183 day rule, you will be considered deemed resident of Canada and you will have to file as a resident of Canada. However, under the Canada – US tax treaty, you could potentially file your 2013 tax return as a non-resident of Canada if you could prove that your permanent home remains in your home country.

    Best Regards,

    Allan Madan and Team

  16. Hi Hedo,

    You should use the Form 8891 to report the RRSPs you own. Use a separate form to report each account.

    Best Regards,

    Allan Madan

  17. Hi Sigmund,

    Yes, if you meet certain criteria, your contribution to employer sponsored retirement plan are usually deductible for Canadian tax purposes.

    Best Regards,

    Allan Madan and Team

  18. I am a US citizen with my permanent home in the US. I am retired with only a pension & US social security incomes. I would like to visit friends in Canada each year and stay longer than the 183 day limit. Would this mean I have to file a Canadian tax return?

  19. Hi Allan,

    If my tax filing deadline is June 15 because I live and work outside the US, is my tax payment deadline also June 15? Or do I still have to pay by April 15?

  20. If I am a US citizen who worked in Canada for less than 183 days, what type of return do I need to file in Canada?

  21. I am a resident of the U.S. with an opportunity to do consulting for a Canadian company. I will do all the work here in the U.S., I will not be going to Canada to work. I will be paid more than $600/year, does this mean the Canadian company needs to issue me a 1099-MISC? How does a Canadian corporation do this if they need to?

  22. I am a Canadian citizen, but I have been living and working in the U.S. for the last nine years on J2 and TNs. Because I do contract work, I am considering going back to Canada to work temporarily, but I will return to the U.S. soon after. Is there a certain amount of money that I can earn or period of time that I can work and Canada that will not require me to do the cumbersome tax return?

  23. Hi Lynn,

    You should not be in Canada for more than 183 days working on a Canadian contract, or else your business could be deemed to have an establishment in Canada by virtue of the Canada-US tax treaty. As result, the business profits derived from the contract would become taxable in Canada.

    As a non resident of Canada, a 15% tax will be deducted from the payments made to you for the services rendered in Canada. To recover this amount, you should file a non-resident tax return and claim a treaty exemption, which our office can prepare for you.

  24. I am a US citizen but have been working & living in Canada for 20 yrs. I have filed only Canadian taxes since then-I never thought about US taxes since I earn no money there! Now I heard I should have filed?
    what do I need to file to comply with the US rules-

  25. Hi Trish,

    I’m sorry for not responding to your question sooner. As a US citizen, you must report your worldwide income on a US tax return each year, even if you are not living in the US. Likewise, if you have financial accounts and bank accounts outside the US with an aggregate value of $10,000 or more, you must file a FBAR form each year with the IRS.

    To help Americans like you catch up with past-due tax filings, the IRS has created the Streamlined Process. Under this process, you can become tax compliant without fear of penalties by filing past-due US Tax Returns (1040) for the previous 3 years, and by filing past-due FBAR forms for the previous 6 years.

  26. What if you are considered a inner company transfer from the US to Canada? Do you still have to file taxes in both countries? Wages are paid in US funds also. Also, the HST tax on goods/services. Are you eligible for a full refund on these also if you are not a Canadian citizen?

    Thanks

  27. Hi Brent,

    If you are a US citizen then you have to file a US Tax Return (1040) and report your worldwide income on that return. You will also have to pay tax in Canada based on the number of days that you worked in Canada. To reduce the impact of double taxation, you can claim a foreign tax credit on your US Tax Return.

  28. My question is
    My husband will be working in Canada for 5mos on a movie set. Mar 1 2016-August 1
    Is he required to pay taxes in Canada and the US? If so how much? Is there waiver for US Citizens

  29. Hi Michelle,

    Thanks for your question. I presume that your husband will be an employee and not an independent contractor. In this case, his Canadian employer will deduct payroll taxes from his paychecks and issue a T4 slip (employment income slip) to him. A T4 slip is Canada’s version of a W2 slip.

    He will also have to file a Non Resident Tax Return with the Canada Revenue Agency. Since he is a US citizen, he will also have to file a 1040 return and report his worldwide income on that return. To avoid double taxation, he can claim a foreign tax credit on his 1040 return for a portion of the Canadian taxes paid.

    Please note that we can prepare both US and Canadian tax returns, should you require our assistance.

  30. I will be shooting a pilot in Canada for 2-3 months. I’m a US citizen (non-resident of Canada if I understand the above correctly) and will have to be issued a work visa. I’m still foggy on whether I’ll be paid through companies stateside or in Canada, but my main question is: will my checks ONLY be taxed by the Canadian government, not both? So at the EO 2016, when I file, I’ll apply for the US tax credit then? I’m just trying to get a better idea of if I’ll be taxed twice ahead of time or just once then apply for the credit to avoid the (US) double taxing.
    Thank you!

  31. Hi Niki,
    Thanks for your question. I presume that you will be an employee while working in Canada and will receive a T4 slip (employment income slip) from your employer. As a nonresident of Canada who is working in Canada, you will be liable for Canadian taxes on your employment income. That means you will have to file a nonresident personal tax return with the Canada Revenue Agency.

    As a tax resident of the US, you will have to file a 1040 return with the IRS and report your worldwide income on that return. To avoid double taxation you can claim a foreign tax credit on your US return for a portion of the Canadian taxes paid.

  32. Hi Allan, I am a US citizen working in Canada on a work visa. I have been in Canada since Oct ’15 and started working in December. I was working in the US before I came here. Will I acknowledge income from both countries on both tax returns? It wasn’t a substantial amount of money earned either way..which forms do I file?

  33. Hi Hector,
    As a US Citizen you must always file a US Tax Return each year and report your worldwide income on that return. If you worked and lived in Canada you must also file a Canadian tax return. You can claim a foreign tax credit on your US tax return for Canadian taxes paid in order to avoid double taxation.

  34. Hi,
    I work for a U.S. company and will be working in Canada for a year as a consultant at a Canadian company (a client of my employer). I will be living in the U.S. and crossing the border each day to work in Canada. I will be paid by my U.S. employer. Will my U.S. employer withhold Canadian taxes or do I have to take care of this on my end. Thank you for your help.

  35. Hi Lisa,
    Your employer will be responsible for deducting Canadian payroll taxes from your paychecks and providing you with a Canadian employment income slip (T4). You will also have to file a Canadian income tax return.

  36. My husband worked as an independent contractor in Canada for 47 days in 2015. The company he was contracting for is a US company and their client was located in Canada (where he worked onsite). 15% of his Canadian earnings were withheld from his pay and we received the T4 last week. Is the income earned in Canada exempt from Canadian income tax under the Treaty and if so do we file a Canadian return requesting a refund of the taxes withheld? Or are we required to pay taxes in Canada on the income earned in Canada and then claim a foreign tax credit on the US tax return for the income being reported to both Canada and the US? If required to file in Canada and claim a foreign tax credit in the US, how do we convert the Canadian taxes withheld (and paid) to USD for the US return?

  37. Hi Laura,

    Thanks for your question. I believe that your husband received a NR4 slip and not a T4 slip since he was an independent contractor. He has two options. First, he can file a Nonresident Tax Return with the CRA and claim an exemption from Canadian income tax because he did not maintain a permanent establishment in Canada. In this case, the 15% of taxes deducted from his payments will be refunded. Second, he can choose to not file a Canadian tax return and claim a foreign tax credit on his US tax return for the Canadian taxes deducted.

  38. Hi Allan,

    You’re correct he received an NR4 slip. Does he need to apply for an SIN/ITN to file the return? He hasn’t been assigned one, the NR4 only lists his US tax ID number. Thank you so much for taking the time to answer this, I was having no luck getting through to the CRA.

  39. If a US citizen who now lives and works in Canada withdrew funds from their IRA do these funds need to be declared on their Canadian Tax Return
    Also if you sell a property in the US and bring the money from the sale into your bank account in Canada – does that have to be claimed on your Canadian tax return

  40. Hi Jennifer,

    IRA withdrawals must be reported on your Canadian personal tax return and are subject to Canadian income tax. You can claim a foreign tax credit for American taxes deducted from IRA withdrawals you made.

    The capital gain / loss from the sale of real estate in the US must also be reported on your Canadian tax return. You can claim a foreign tax credit for the American taxes paid with respect to the capital gain realized.

  41. Hello-
    I’m a PR and have been in Canada for 9 years. I’ve always filed both tax returns but I didn’t start filing the FBAR until a few years ago when my RRSP went over $10K. Was I supposed to be filing the FBAR prior to that? My income has always been exempt and I never had anything other than a daily chequing account and a small amount in my RRSP.
    Thanks!

  42. Hello Adina,
    Thanks for your question. If your financial and bank accounts held outside of the US did not exceed $10,000 at any time in the year, then you do not have to file the FBAR.

  43. Hello we are going to the yukon in 2017 staying for seven months how will i be taxed during that period and how will it concern my us taxes we will be gold mining

  44. Hi Matthew,

    You should receive a T4 (Canadian employment) income slip. Report the amounts from your T4 slip onto a T1 Canadian Personal Tax Return. You can claim a foreign tax credit for part of the Canadian taxes paid on your US return. As a US citizen you are taxable on your worldwide income.

  45. My company is looking to do contract work in Canada on the Railroad. All of our people are US citizens and the company is US based. Will they be required to pay US and Canadian taxes. As of now we are not sure about duration of projects, how does duration affect taxation?
    Jeff Craft

  46. Hello,
    I am a US citizen and have an offer to work in Canada, how should I deal with my taxes. I have my home in VA and my family will stay there. What will be the best thing to do white regard to taxes in the US and Canada.

  47. I am a U.S. Citizen and reside in the U.S. I am considering taking a job for a Canadian company. All work would be done over the Internet from the U.S. I beleive I would have to pay U.S. Taxes because it would be money earned while I was in the U. S. Would I also have to pay Canadian taxes?

  48. Hi Jeff,

    Your company must register for a payroll number with the Canada Revenue Agency (CRA) and deduct Canadian payroll taxes from its employees paychecks. If the employees are US citizens / residents, US payroll taxes must also be deducted. To avoid double taxation US payroll deductions can be reduced by the estimated foreign tax credit your employees expect to receive. T4 slips (employment income slips) and W2 slips must also be prepared. Each employee working in Canada must also file a Canadian tax return.

    If the contract is longer than 6 months, then your US corporation will have a permanent establishment in Canada and will be liable for Canadian corporate taxes on the profits earned from its Canadian contracts.

  49. Hi Hussam,

    You will likely be a nonresident of Canada pursuant to the Canada-US tax treaty since your home and family are in the US. You will need to file a nonresident personal tax return with the Canada Revenue Agency each year and pay Canadian income taxes on your Canadian employment income.

    As a US citizen, you are taxable on your worldwide income. You can claim a foreign tax credit on your US return for the Canadian taxes paid. Note that we can file your US and Canadian tax returns for you.

  50. Hi Elizabeth,
    You do not have to pay Canadian income taxes, because you are physically rendering all employment services from the US. Your Canadian employer should prepare a W2 slip for you and deduct US payroll taxes from your paychecks.

  51. I am a U S citizen, my employer offered me a job in Canada to help their Canadian sub-company. though they will get a work visa for me I will be paid by the American Company in the U S, however I need to reside in Canada where the Canadian Company rents for me for the whole year. Do I need to pay tax to both Countries? Thank you.

  52. Thanks for your question PaulP. You will be subject to Canadian income taxes on the employment income earned in Canada. A T4 slip will be issued to you by your employer reporting the gross wages that you earned and the payroll taxes deducted.

    As a US citizen you are subject to US income taxes on your worldwide income. To reduce / prevent double taxation you can claim a foreign tax credit for part or all of the Canadian income taxes paid.

  53. Hi, I am a US citizen residing in Canada as a permanent resident and work remotely for a US company. All my services are performed online. Are there any tax implications for the company that I work for even though they do not have a physical presence in Canada?

  54. Hi Kim,
    If you are working in the capacity of an employee, then your US employer must register for a Canadian payroll number and deduct Canadian payroll taxes from your paychecks. In addition, a W2 must also be prepared and US payroll taxes deducted too. Form W4 should be completed to reduce US payroll taxes deducted from your paychecks by the estimated amount of the foreign tax credit you can claim on your US 1040 for the Canadian taxes paid.

  55. Hi, I am a US citizen who is married to a Canadian. Through my souse I have applied for my Canadian PR but until then I have received a work permit to live and work in Canada. My current US company has offered remote work so that I can work from Canada and travel once a month or so to the US. They will be paying me US dollars deposited directly to a US bank. What are the tax implications and can this be done?

  56. Hi Nev,

    Your US employer has to register for a Canadian payroll number and deduct Canadian payroll taxes from your paychecks. A T4 slip (employment income slip) must be issued by your employer to you by February 28 of the following year. You will have to file a Canadian tax return to report and pay taxes on your Canadian employment earnings.

    Since you are a US citizen, your employer must also deduct US payroll taxes from your paychecks too. However, the soure deductions can be reduced by the amount of the estimated foreign tax credit in respect of the Canadian taxes paid. Your employer must also issue a W2 slip to you.

  57. Hi, I am a US Citizen and Independent contractor and live in the US. I am contracting with a US company which has contracted with Canadian client. US company will pay me in US dollars but I will have to travel to Canada for few weeks in a year (I will stay 60 days in Canada) and I will work another 60 days from the US remotely. My question is, would I pay Canadian tax for 60 days or 120 days or none?
    Thanks for your time.

    1. Hi Anuj,
      Since you are self-employed and do not have a permanent establishment in Canada, you are not liable for Canadian taxes on the business profits earned for the 60 days you were physically present in Canada.

      However, for those 60 days, you were in Canada, your US customer has to withhold 15% from payments made to you pursuant to regulation 105 of the Income Tax Act. You can recover the taxes withheld by filing a nonresident return with the CRA.

  58. Hi. My husband and I are US citizens, residing full-time in the US. My husband has been doing some consulting work for Canadian nonprofit organizations as an independent contractor. The bulk of this work is done from home (internet and phone), but he goes to Canada a couple times a year and stays a day or so. The total he will earn this year is somewhere around $30,000 Canadian. Up to now, we’ve been claiming the income in the US and paying taxes accordingly. Do we need to do be paying tax in Canada as well? If so, how do we get started?

  59. Hi There,
    I have a question. I am US citizen living in Toronto since last April. I have open work permit and my husband has a work permit with a Canadian company. I am working remotely, part time, from home for a company in Turks and Caicos. I am being paid in US$ to my US Bank account. Do I declare the money on my Canadian or US tax returns or both?
    My understanding is, since the money is in my US account I declare it on my US tax form. What about the Canadian tax form?
    Any help in this matter is greatly appreciated.

    1. Hi Hanna,

      You are likely a resident of Canada for tax purposes since you are living in Canada with your husband, and are working in Canada (for a foreign company). As a resident of Canada, you are taxable on your worldwide income, including the income you receive from your foreign employer.

      As a US citizen, you are also taxable on your worldwide income. To reduce / prevent double taxation, claim a foreign tax credit for part of the Canadian taxes paid.

  60. I am an US Citizen who moved to Canada to coach with a non profit club. I am a non resident . I do not make any income in the US, just Canada. What forms do I need to file for US taxes and file myself and not pay these $400 filing fees with H&R Block?
    Also with the tax exempt treaty, if I apply for that how would that would or what can I do to not pay out of pocket but get money back?

    1. Hi John,

      You should purchase Ufile or TurboTax if you want to prepare your tax return by yourself. According to the treaty between Canada and the US, you do not have to pay Canadian income tax if you earned less than $10,000 from your job in Canada.

      Remember to complete form 1116 when preparing your US tax return in order to claim a foreign tax credit for part or all of the Canadian taxes paid.

Pin It on Pinterest

Share This