Tips for Americans Performing Services in Canada

Allan Madan, CA
 Dec 12, 2014
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Are you an American citizens performing services in Canada? Are you confused about your Canadian tax obligations? If the answer to these questions is yes, this blog is for you!

Payments made to non-residents of Canada, including Americans, for services performed in Canada are subject to a withholding tax of 15%. For example, if you are an American independent contractor performing services for a Canadian customer on Canadian soil, then 15% withholding taxes will be applied to your paycheck. Fortunately, you can recover the withholding taxes paid by filing a non-resident tax return with the CRA. This is true whether you are operating as a sole proprietor, corporation, or LLC. The non-resident tax return should be filed after your year-end with the CRA.

If you just can’t wait until the end of the year to get back your withholding taxes, there is a solution. By filing a regulation 105 waiver with the CRA, you can immediately reduce withholding taxes from your paycheck. This will increase your cash inflows right away.

There is one catch if you are physically present in Canada for more than six months in the year in connection with the same Canadian contract, then any profits that you derive from that contract will be taxable to you in the year. In this particular case, you will need to file a Canadian tax return. Taxes previously withheld from your paychecks will reduce your Canadian tax liability upon filing.

So Here’s the Tip:
Before entering into a contract with a Canadian customer, contact your accountant to avoid nasty tax surprises.

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.

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Comments 4

  1. Hello,

    I’m an American on a work permit living in Canada for two years and need to file taxes. Could you give me some help and advice if at all possible? Thanks in advance.

    MARK DEN HOLLANDER

    1. Hi Mark, yes, I can help you. What type of work do you do in Canada? What ties do you have to the US? To Canada? Where do your spouse, and children live? Where is your permanent home located?

  2. Hey there,
    My question is actually around small corporations in Canada working for US clients only and being paid in USD. I have set up a business bank account in Canada but I have a personal USD account in the US that my clients use to pay me. I have to transfer my USD funds to my business accounts in CAD and I use Transferwise for this. Would that be an issue with the CRA?

    1. Hi Lollie,
      Yes, this could be an issue because you are collecting payments from customers in your personal account. The CRA may assess personal income tax on the amounts you collected, even though you later transferred the funds into a corporate bank account. I recommend that you open a corporate bank account with a US bank or a Canadian bank, and have your customers make payment directly to the corporate account.

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